One Knightsbridge Capital Monday Espresso Podcast

Monday Espresso Podcast - 11th March 2024

[00:00:00] Sheldon MacDonald: It's the 11th of March today, a fairly quiet week in equities last week, we had the US markets taking a little bit of a breather, remember, they've been hitting record highs for some time, but just slipping off slightly, UK and European markets up a little bit.

[00:00:15] Sheldon MacDonald: The big focus last week, though, was all around central bankers, particularly in the US and in Europe.

[00:00:20] Sheldon MacDonald: We had the semi-annual testimony to Congress from J.Powell, the chair of the US Fed and Christine Lagarde speaking after the ECB's meeting, both of them indicating really that they want more confidence that inflation is back in line before cutting rates. Nathan?

[00:00:38] Nathan Sweeney: Yeah, so the language used by the Fed or the Fed governor Jerome Powell was, we want to see a little bit more data.

[00:00:45] Nathan Sweeney: So, you know, ultimately when it comes to their confidence around cutting interest rates, they just want to be sure that inflation is trending towards that 2 percent level or that 2 percent magic number that they target.

[00:00:57] Nathan Sweeney: So between now and those rate cuts, they're hoping that the inflation data continues to soften.

[00:01:04] Nathan Sweeney: And from a market's perspective, we're all expecting rate cuts in June and that hasn't changed as a result of that meeting, so that's rate cuts in the US, rate cuts in the UK and rate cuts in Europe likely to be around June.

[00:01:19] Sheldon MacDonald: So one thing market participants were looking at last week was the jobs data in the US that came out on Friday. Really hoping that that might give us an indication to either bring forward or push out those expectations, in the end, a mixed picture.

[00:01:34] Sheldon MacDonald: So we had a higher number of jobs created, which would indicate a strengthening economy, which would indicate maybe later cuts, on the other hand, unemployment actually rose.

[00:01:44] Sheldon MacDonald: So that would indicate a slightly weaker economy, in which case the road cuts might be brought forward. So, no real indications really from that jobs data.

[00:01:52] Nathan Sweeney: Yeah, I suppose the one thing that came out of that was a little bit softer wage inflation, which is encouraging too.

[00:01:58] Nathan Sweeney: So wage inflation in the US currently at 4.1 percent and it has been trending down over the last year and a bit, so ultimately that does help central banks because if we have wage inflation increasing, then that increases the likelihood of inflation, but that's not happening.

[00:02:14] Nathan Sweeney: So that's a positive takeaway from those numbers.

[00:02:17] Sheldon MacDonald: So let's segue across into inflation, so what's the oil price doing?

[00:02:22] Nathan Sweeney: Yeah. So interestingly, we've had a lot of geopolitical tensions in the Middle East. We have OPEC cutting production, and if you put the two of those together, we think, well, surely that should mean the oil price should be higher because geopolitical tensions can impact supply.

[00:02:39] Nathan Sweeney: And we have OPEC reducing supply, and if there's less supply of something, the price should be higher.

[00:02:44] Nathan Sweeney: But that's not the case. The oil price is pretty much stuck around 80 a barrel. And one of the reasons behind that is because we are seeing less demand for oil, and a good example of that would be China, who's actually one of the biggest Consumers of oil and their demand has fallen over the last quarter.

[00:03:02] Nathan Sweeney: So they're usually consuming about 11 million barrels of oil a day, and that's now down to 10 million barrels a day, so we are seeing a reduction in demand, which just highlights a bit of a slowdown in global economic growth, and that's why the oil price has been well behaved.

[00:03:19] Sheldon MacDonald: Well, let's pick up on that Middle East tension.

[00:03:22] Sheldon MacDonald: That may be not having such a big impact on the oil price, but what it is doing is starting to send some ships the long way around instead of going through the Suez Canal.

[00:03:31] Sheldon MacDonald: That might be a bigger issue for UK and European inflation than for US inflation, so still some concerns that that may lead to a reigniting of the supply chain concerns that we saw a couple of years ago.

[00:03:43] Sheldon MacDonald: Another thing giving some people pause for thought is the possibility of tariffs in the US.

[00:03:48] Sheldon MacDonald: This is Donald Trump already having come out and basically calling for 10 percent tariffs across the board. So some concerns on that, obviously, he hasn't won the election yet, but people just started to price in some of the concerns.

[00:04:01] Sheldon MacDonald: You spoke about China, let's pick up on that as well, because Chinese markets were actually up last week about 1.5 percent, that's the China local shares.

[00:04:09] Nathan Sweeney: Yeah, so we had the People's National Conference last week, so this is a big conference that they have in China, so it's all the top bods within the government.

[00:04:19] Nathan Sweeney: And ultimately what they're looking to do there is set out their economic plan, so they're targeting growth of about 5 percent for the economy.

[00:04:26] Nathan Sweeney: And what we've also seen is a number of Targeted stimulus measures coming out of China, and they continue to do that in a very targeted way, so no big bang stimulus, which is causing the market to go up rapidly, but targeting specific industries and segments, which as they continue to do that, that adds up and you're starting to see a bit of a stabilisation in the Chinese stock market.

[00:04:49] Nathan Sweeney: So a lot of people are starting to get a little bit interested in about what's happening in China after a long period of poor performance.

[00:04:56] Sheldon MacDonald: And lastly, looking back, we've been speaking almost every week about the Magnificent Seven in the US what's happened to them this week?

[00:05:04] Nathan Sweeney: Yeah, so we did see that pullback in technology stocks.

[00:05:07] Nathan Sweeney: So I think you're just seeing a little bit of competition for some of those companies.

[00:05:11] Nathan Sweeney: So for Tesla, it would be a good example where they're seeing more competition from other electric vehicle car makers, and their share price has been off this year.

[00:05:20] Nathan Sweeney: Google is another example, so they're seeing some competition from the likes of Microsoft for data centers and their share price is off.

[00:05:29] Nathan Sweeney: And then lastly, Apple.

[00:05:30] Nathan Sweeney: So if we look at Apple, they sell a lot of their iPhones in China, but they're seeing increased competition from Huawei, so they're selling less phones. So again, a bit of a weakness in some of those magnificent seven, but it's important to remember, outside of those seven, there's 493 companies who can do better in an environment of rate cuts.

[00:05:50] Sheldon MacDonald: And just quickly, let's take a look at the week ahead.

[00:05:54] Nathan Sweeney: Yeah, so for the week ahead, you know, the big one is inflation data.

[00:05:57] Nathan Sweeney: We get inflation data in the U S everybody's going to be focused on this because they'll want to see is inflation falling? Because that opens the door to rate cuts. The number there is expected to come out at 3.1%.

[00:06:09] Nathan Sweeney: In the UK, we've got the jobs report, we've got industrial production, and then China, there's also again, some focus on will they be stimulating more?

[00:06:19] Sheldon MacDonald: Of course, here in the UK, we also had the budget out last week.

[00:06:23] Sheldon MacDonald: Not really much for us to say on that front. You will have read in the papers all the analysis about the pluses and the minuses, but not really market moving despite all the pre hype that we saw. No real impacts from a market or from a political perspective.

[00:06:38] Sheldon MacDonald: We look forward to bringing you all this news again next week. Thank you.