One Knightsbridge Capital Monday Espresso Podcast

Monday Espresso Podcast - 17th June 2024

[00:00:00] Nathan Sweeney: It is Monday, the 17th of June. Today, I'm joined by Scott Truter, 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. If we look at markets last week, they were pretty mixed. The big standout performer for me was the US market. So up positively on the week. A lot of that was linked to some of the news flow that we had during the week. So, to get some insight in that, let's head straight over to Scott.

[00:00:34] Nathan Sweeney: So, Scott, what was the big news in the US last week?

[00:00:37] Scott Truter: Yeah. So, it's that time of month when the latest inflation print came out. So, everyone was really watching and focused on that. So, the data came in, the inflation number at 3.3%, so that was slightly under the expectation. There were questions about whether inflation has been increasing back up and it's a bit more of a concern in the US, but obviously now we've seen since March that has been slowly coming down. So, it's maybe just a little bit more positive news on that front.

[00:01:04] Nathan Sweeney: Okay. So that's really good news because as you pointed out, there were concerns that, you know, we have this sticky inflation, inflation, not budging, staying at these higher levels. But there's a trend developing and you know, it's that continuation of falling inflation.

[00:01:19] Nathan Sweeney: So, I suppose the big question everybody will want to know is what does that mean for interest rate cuts?

[00:01:26] Scott Truter: Yes. And after that Inflation Print was released the federal reserve had their meeting to discuss the interest rates. They kept the interest rates on hold and that had been expected. We just got a bit more information from them. So they suggested there may only be one rate cut coming through this year, but there was a split between the votes there. They're likely giving themselves a little bit of leeway there. What we heard from and saw from bond markets is that they expect two rates cuts for the year. So they think because this trend of inflation is coming through. You But that will lead the way to more interest rate cuts.

[00:01:59] Scott Truter: And probably the key message overall of that is that rate cuts are in sight. And we know that's the direction of travel going forward.

[00:02:06] Nathan Sweeney: Okay, so that's quite interesting. So what you're highlighting there is that there's a difference of opinion between what the central bankers are saying. So, the people responsible for setting those interest rates and actually the market.

[00:02:19] Nathan Sweeney: So, the market thinks actually there's a likelihood that we get more interest rate cuts than the Fed is currently signaling. So, this is just one of those elements in the market that always tends to play out. And ultimately, we'll have to wait and see because this is all data dependent. So, if inflation does trend down towards that 2% or even lower, it's likely that the Fed will cut quicker and that's what the market is currently expecting to happen.

[00:02:45] Nathan Sweeney: So, looking for two interest rate cuts this year in the US. Speaking of central banks, were there any other central banks of note out on the cards last week?

[00:02:55] Scott Truter: Yeah, the other meeting we had was from the Bank of Japan. They had an interest rate decision as well on the Friday. They kept their short term interest rates unchanged.

[00:03:03] Scott Truter: Now that was widely expected. What many of them wanted to see was a reduction in their bond purchases they were making. They didn't make that announcement or decision, and that's had a bit of a negative impact on the currency. I think why we focus on Japan, it's been quite a hot topic more recently in terms of performance, probably focused from a lot of fund flows. We had our tactical asset allocation discussion last week as well, and this featured quite heavily in those discussions. And I'm sure we'll be able to share more details on that as we provide some further updates.

[00:03:36] Nathan Sweeney: Yeah. That's a great point there. If anybody does want to see some of the output from our tactical asset allocation meetings, more than happy to share that, but we did have a long debate on Japan.

[00:03:45] Nathan Sweeney: So, we do have some news on that to share. Other interesting thing this week was actually Tesla. So, Elon Musk was celebrating with the approval of a 46 Billion pay deal. So quite astonishing there really, but it really showcases that, you know, he still has support of shareholder backing there for Elon Musk.

[00:04:04] Nathan Sweeney: So, I'm sure he'll be celebrating in style this weekend. So, thanks Scott for all of the insight there on what's happening in the US and why that market has been higher over the course of last week. So, I think it's appropriate now to take a look at the week ahead. Okay. So, for the week ahead, what do we have on the cards?

[00:04:23] Nathan Sweeney: Actually, there's a couple of things I think markets will be focused on for next week. So firstly, if we look at Wednesday, we've got inflation data out in the UK. So, inflation is currently 2.3%. It's actually forecast to come in at 1.9%. So that's quite important because that's below the Bank of England's 2% threshold.

[00:04:41] Nathan Sweeney: The question is, will they cut interest rates? Interestingly, we have the Bank of England meeting on Thursday. And so there is a likelihood. Or a slim chance that they may cut interest rates, but we think that's unlikely given the fact that we have the election in a couple of weeks and the central bank is currently in a blackout period.

[00:05:02] Nathan Sweeney: However, they could surprise the market. The other thing to watch out for is inflation data coming out in Japan. It's currently 2.5% and clearly everybody would like to see inflation trending down. So, thank you for listening in and I hope you have a great week.