One Knightsbridge Capital Monday Espresso Podcast

Monday Espresso Podcast - 19th May 2025

[00:00:00] Andrew Shaw: Good morning everyone. My name's Andrew. I'm Fixed Income Analyst in the multi-asset team in Marlborough, and I'm joined this morning by Rory Dowie, Portfolio Manager. Good morning, Rory.

[00:00:10] Rory Dowie: Good morning Andrew.

[00:00:11] Andrew Shaw: What's going on in the world Rory? What happened last week?

[00:00:13] Rory Dowie: Yeah, so last week we had a strong week for markets.

[00:00:16] Rory Dowie: The US was up over 4.5%. Europe was up 2.5%. Hong Kong 2% and Emerging Markets up 3%. So really, yeah, it was a positive week. And again, you know, markets are continuing that uptrend we've seen since that kind of reprieve in the tariffs. What's been driving markets last week?

[00:00:33] Rory Dowie: As we mentioned on the pod, you know, really the primary driver was the positive news that we had last weekend on the negotiations between China and the US and really the deescalation of that sort of tit for tat trade war we'd been seeing. So really when markets opened on Monday, there was a lot of green across the board, and really the bulk of that weekly return happened on Monday.

[00:00:52] Rory Dowie: I think the US was up about 3% on Monday. So, you know, really that helped to drive the week. Obviously, on the strong markets we saw a bit of a pullback in some of the safe haven assets. So gold pulled back a little bit and it's now 6% of its highs, but still, up over 22% this year. In terms of kind of what's been going on in the economy and some of the data we had last week, inflation in the US was better than expected, so it was 2.3% year on year versus 2.4% expected.

[00:01:19] Rory Dowie: But really the market reaction was very muted. You know the market is now pricing for two rate cuts this year, with September being the first one.

[00:01:27] Rory Dowie: The earnings front, we're pretty much there with Q1 earnings now, in the US. Though, actually interestingly, the kind of major headlines in the stock market last week was around a company called United Health, one of the, well was the largest US healthcare name or one of them, and that lost over 50% of its value. And then interestingly, we saw some comments from one of the German transportation companies, a company called Hapag Lloyd, their CEO was speaking on Thursday around container bookings from China to the US and actually since we've seen the reprieve on that tariff front between China and the US this week, they've actually seen a jump by 50% in bookings for that kind of China-US trade route, which is quite interesting.

[00:02:05] Rory Dowie: They had initially been down 20 to 30% as those tariffs were kind of escalating. So we've actually seen a real surge potentially as companies look to get sort of trade over the line before the tariffs then come back in. So that was probably it, kind of the headline level.

[00:02:19] Andrew Shaw: That's excellent.

[00:02:20] Andrew Shaw: Thank you very much Rory. A positive week in equity markets last week. In other news, Donald Trump made a visit to the Gulf. He's out making deals as he likes to do. He was in Qatar the other day being offered a gift of $400 million dollar plane from Qatar, which is to replace Air Force One.

[00:02:36] Andrew Shaw: This has had a lot of pushback from a lot of people out there, and Donald Trump's come out and said in a situation like this you should say yes and likened it to playing golf when somebody offers you a free put. So as a former golfer, I do agree with the golfing sentiment, at least. Any other news from the Gulf from Mr. Trump?

[00:02:54] Rory Dowie: Yeah. He was out in the Middle East last week as you mentioned you know we did actually see a deal between the US and Saudi Arabia, which was announced I think on Tuesday. And actually, interestingly, some of the kind of details of that, that included one of the largest defense sale agreements in history.

[00:03:07] Rory Dowie: So Saudi Arabia is gonna be provided with around a hundred billion dollars of state-of-the-art war fighting equipment from over a dozen different US defense firms. So again, that kind of defense spend, we've seen, you know, we saw that in Europe at the start of the year you're now seeing some of that come into the US.

[00:03:21] Rory Dowie: You know, with that deal in Saudi Arabia, and in return, Saudi Arabia is committed to investing about $600 billion in the US and that's across kind of areas such as data center, you know, to support some of that AI build outs and the compute capacity required for AI and also energy infrastructure. So again on that news, we saw some of those companies reacting quite well in the stock market Nvidia, for example, had a pretty strong week.

[00:03:45] Rory Dowie: Interestingly we ended the week with some, I dunno, in my opinion, relatively negative news obviously the narrative in markets over the past sort of week or so or two weeks has been around trade deals and everyone has wanted to negotiate with the US.

[00:03:57] Rory Dowie: Interestingly, Trump was saying on Friday that he'll be setting tariff rates for US trading partners again over the next two or three weeks. And actually due to the lack of capacity, you know, they can't negotiate deals at all partners. In my mind is that Liberation Day 2.0? Are these tariffs gonna be as bad?

[00:04:14] Rory Dowie: But again, it's just highlighting that point. We still are none the wiser in terms of where we're going with tariffs. So again, we'll be watching that closely.

[00:04:21] Andrew Shaw: Yeah, it's a great point and something we do need to keep an eye on. The administrative burden is quite high. Just digging down into very company specific events.

[00:04:30] Andrew Shaw: Do you want to tell us a little bit about what happened at United Health.

[00:04:33] Rory Dowie: Yeah, so United Health, those of you don't know, it's the largest provider of health insurance in the US. It had a pretty nasty Q1 earnings print a few weeks ago when they downgraded some of their 2025 earnings guidance. They downgraded by about 13%.

[00:04:48] Rory Dowie: And again, that was some sort of company specific issues and how they were categorizing some of the patients under the Medicare program. And actually since then, the CEOs left. And we've now just had news this week of a new investigation by the Departments of Justice, and they're looking into the company for Medicare fraud, Medicare being the federal health insurance program in the US, generally for kind of older people and people with disabilities.

[00:05:10] Rory Dowie: So again, it's highlighting some of the concerns that have obviously been sort of emanating under the surface or bubbling under the surface. The CEO's gone. We've now got this investigation. You know, it was one of the darlings in the healthcare space of the US and actually in the last month the stock has been off 50%.

[00:05:25] Rory Dowie: That's $300 billion, which has been wiped out and it's back to where it was during Covid. So again, really highlighting the point there, the importance of diversification when you're investing in equity markets. You know, they can catch you off guard. Things like this happen very, very quickly and you can lose 50%, you know, very, very fast.

[00:05:41] Andrew Shaw: Excellent. What have we got to look forward to?

[00:05:43] Rory Dowie: Yeah, so we'll be looking at the developments on trade negotiations.

[00:05:46] Rory Dowie: As we've seen last week, we saw kind o a couple in the Middle East, so you know, we expect more on that front. Again, as always, we have more macro data, it's housing starts, building permits. We also have some softer data, like inflation expectations. We have some inflation data in Europe and really we'll be you know, closing off, earning season. So just kind of mopping up the last couple of companies to, to report there. So that's about it.

[00:06:08] Andrew Shaw: Fabulous. Well, thank you very much for joining me this week, Rory, and thanks everyone. Have a great week.