One Knightsbridge Capital Monday Espresso Podcast

Monday Espresso Podcast - 3rd June 2024

[00:00:00] Nathan Sweeney: It is Monday, the 3rd of June. Today, I'm joined by Scott Truder, our US Analyst and Assistant Portfolio Manager on our funds. Good morning, Scott.

[00:00:09] Scott Truter: Morning, Nathan.

[00:00:10] Nathan Sweeney: We'll get some insight from Scott in a second. Firstly, let's quickly recap on what was driving markets last week. As always, there's quite a lot to unpack. So let's dive straight in.

[00:00:21] Nathan Sweeney: If we look at equity markets, they're actually pretty mixed for the week down just slightly and really what we're seeing here is not a lot of data coming out, really driving markets. So Scott, you know, what was the main news for this week?

[00:00:35] Scott Truter: Yes, this week it was all about US growth. The US economy expanded at an annualized rate of 1.3% for the first quarter of 2024. This was below the initial advance estimate that we get of 1.6% and you see it's a drop from the last quarter of 2023, where that figure came in at 3.4%. So one of the main drivers of that was a downward revision in consumer spending.

[00:01:00] Scott Truter: This idea that the consumers just maybe changing their habits a little bit there and what balanced that out is non residential investment was higher. Government spending was slightly higher as well. So that's why overall those things sort of balanced out a little bit.

[00:01:16] Nathan Sweeney: Okay, so that is some quite good news there because one of the things we have been talking about in our quarterly outlook is that we do expect growth to moderate and that should help with inflation. So we're seeing a continued slowdown in growth. So what does that mean for inflation?

[00:01:33] Scott Truter: Yeah. So we've talked about the CPI or consumer price index before. What we're going to mention that came out is the personal consumption expenditure, so the PCE. So that is the Fed's preferred gauge of inflation.

[00:01:44] Scott Truter: So this row was 0.3% month on month, and that was in line with what was expected. The core figure, so that's excluding the more volatile food and energy rose 0.2%, so slightly lower than expected. On an annual basis, that's about 2.7%, so it's remained steady. So this idea that we're seeing inflation possibly stabilising at these lower levels, and if you do continue to see maybe some weakness in the consumer, that could help inflation move lower as well.

[00:02:12] Nathan Sweeney: Yeah, so that's been one of the big talking points. Good to see that it's definitely coming down in the US and stabilising. At those lower levels, as you quite rightly point out, but I suppose the key question next is, you know, are we seeing a similar pattern everywhere or elsewhere?

[00:02:29] Scott Truter: Well, in the UK, we had some retail sales data out.

[00:02:33] Scott Truter: That came in lower than expected, so a bigger decline than the economists were projecting. So again, another highlighting or suggestion that the consumer is changing their spending habits. This should continue to be good for inflation, and it leads into that fact that the Bank of England could begin cutting rates.

[00:02:49] Scott Truter: And then if we move across to Europe, we have the Eurozone year on year inflation data. That was a slight increase to 2.6% in May, it's expected to be 2.5%, so only slightly higher. And it was mainly driven by higher energy and service prices. But again, you know, it's still stabilising at these lower levels.

[00:03:09] Scott Truter: And that's what we've expected to see.

[00:03:11] Nathan Sweeney: Good news there all around really on the inflation front, because you can see that inflation very close now to central bank's targets. Is there anything else on your radar at the moment?

[00:03:21] Scott Truter: I think when we're looking at this week and what's coming up, I think the big one is the European Central Bank.

[00:03:26] Scott Truter: They've got their meeting on Thursday and their interest rate decision. There's been a lot of speculation for a while that June will be the month that the ECB starts to cut in interest rates. So it's really expect and see, do they cut or not? And there's been a lot of talk around the inflation prints and things that even if they do cut in June, it may just push back other cuts to a bit later as well.

[00:03:48] Scott Truter: So again, just be really seeing what happens there. But they're not the only central bank they're meeting. We've got the bank of Canada as well. They're also expected to cut interest rates. So again, we're just starting to see this trend now from some of those developed countries and central banks where they're starting to ease and look about cutting interest rates.

[00:04:07] Scott Truter: In the U. S. we've got some PMI data, that's both manufacturing and services. And probably the other thing that will be looked at closely is jobs numbers, so non farm payrolls and unemployment data. So this will be key to see, are we seeing this trend of things slowing down, is that continuing? So I think probably markets will look at that data and wait to see what that comes out as.

[00:04:29] Nathan Sweeney: Yeah, so that is quite a big data point actually next week. So seeing what the ECB does, because if they do cut interest rates, they'll be the first major central bank to cut interest rates and that could set the path for other developed market central banks. So people will then begin to look at what the BOE are going to do with interest rates and what the Fed or the US central bank are going to do with interest rates.

[00:04:53] Nathan Sweeney: So yeah, a big week next week. So thank you, Scott, for that. Some great insight there. And as always, we do say, if you have any questions that you would like us to bring up on the podcast, please do bring them in because we would love to answer them on the show and thank you for listening in and have a great week, everyone.