One Knightsbridge Capital Monday Espresso Podcast

Monday Espresso Podcast - 2nd April 2024

[00:00:00] Sheldon MacDonald: It's the 2nd of April today. I hope you all enjoyed a lovely long weekend. Last week saw pretty strong markets, certainly on the equity side, and that kept a pretty strong quarter. We had a number of indicators or markets hitting record highs. We've got the S&P 500 and the Dow Jones. They've been up around about 10% for the year. Those are at new highs.

[00:00:21] Sheldon MacDonald: The gold price is at a record high, and that's up 6% for the year, in Q1. We've got Japan up around about 17%. That touched a new high, not last week, the week before, though. Strong markets all around. For the world, the MSCI World Indicator, that's up around 8% for the year.

[00:00:38] Sheldon MacDonald: For March though, we did see a slight change in that it wasn't the previous leaders that continued. We saw a bit of bargain hunting in play and for March, we saw the NASDAQ, the tech heavy growth NASDAQ index, outperforming the S&P and the Dow. That's probably due to weakness from Tesla and Apple, which drew that index down but certainly some signs that value investing, outperformed growth investing. We had strength in Europe versus the US. So just some signs that perhaps investors are looking outside of those previously favoured areas. On the bond market, relatively flat in a risk on period as this.

[00:01:14] Sheldon MacDonald: We did see credit markets outperforming government bonds, that's to be expected. Government bond, slightly negative on the year to date, credit markets, slightly positive. One of the reasons for the strength in markets has been M&A activity. So that returning in strength in Q1, but the point is that with some confidence that interest rates aren't going higher from here.

[00:01:33] Sheldon MacDonald: We've seen more confidence return to that space and M&A activity driving some of the performance. Of course, we can't do one of these podcasts without speaking about inflation. I've got Scott on the line. Morning, Scott. What's going on in the inflationary space?

[00:01:47] Scott Truter: Yeah. Morning Sheldon. So I think there's a bit of divergence or we might see that between the US and the UK and how that impacts those rate cuts. So in the US we've seen some better than expected manufacturing data showing an expansion for the first time since 2022. So that means now there may be less likelihood of seeing that first rate cut in June. The bond traders pricing in probably less than a 50 percent chance now of that first cut coming in June.

[00:02:13] Scott Truter: If we look then over the waters of the UK, the inflation in the UK came from supermarket data. It's dropped to its lowest level in more than two years. So supermarkets are trying to compete to lure those shoppers in. So the annual price rise for 12 months to March was 1.3% and quite a change down from 2.5% the month before. So again, it might be a bit more encouraging to see those rate cuts coming through from the Bank of England.

[00:02:37] Sheldon MacDonald: Yeah, certainly, as I indicated a second ago, inflation has been the watchword for the year. Remember, we started the year with everyone very excited on the fall inflation and expected falls and in interest rates.

[00:02:49] Sheldon MacDonald: Those have been pushed out now, and now it's a toss up on whether we will see those interest cuts in June. I remember we were previously at one point expecting cuts to start in March this year. So in the US, as Scott mentioned, June cut, the odds for that just less than 50%.

[00:03:03] Sheldon MacDonald: In the UK though, odds of a June cut rising. So maybe we'll see Europe going ahead of the US. We'll keep an eye on that. We might get some indications of that in the week ahead. We do have some Fed speakers due to give some speeches during the week. That might give us some clue as to what the Fed are thinking. All eyes also on the UK and the ECB, the European Central Bank.

[00:03:24] Sheldon MacDonald: One of the reasons for the strength in the market I mentioned was the M&A activity, but the other is just a solid economic backdrop. We've gone from expecting a hard landing to a soft landing to no landing. Basically, the market is pricing out the potential for any sort of recession, and that will support strong companies.

[00:03:41] Sheldon MacDonald: We've got earning season starting this week, really. Scott, do we have any early indications there?

[00:03:46] Scott Truter: Yeah, so there's been a bit of data, obviously, in the US, it's the major banks that tend to start those first quarter results coming through, and FactSet are suggesting that for the S&P 500 companies They're expecting an increase in their earnings of 3.6% compared to the same period a year earlier. So again, still seeing some of that resilience coming through in those companies.

[00:04:05] Sheldon MacDonald: Excellent. So looking out for earnings season starting this week, what else have we got in the week ahead?

[00:04:10] Scott Truter: Yeah, I think again, all eyes on the US because they've got the jobs numbers.

[00:04:13] Scott Truter: So seeing if there's still that stable unemployment numbers, what happens with wage growth as well there. You've already mentioned some of the Fed speakers that we'll hear from this week. I think another thing to watch is if the Bank of Japan make any intervention. So the Yen has been weakening, it's been at its lowest level against the US dollar since 1990.

[00:04:32] Scott Truter: So there's a lot of questions on whether we'll see some action from them as well.

[00:04:36] Sheldon MacDonald: We'll certainly keep an eye on that and we look forward to speaking to you about all of that next week.