One Knightsbridge Capital Monday Espresso Podcast

Monday Espresso Podcast - 20th May 2024

[00:00:00] Nathan Sweeney: It is Monday, the 20th of May. 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 a lot to unpack, so let's dive straight in.
If we look at equity markets last week, they were broadly positive. Interestingly, we had some really good returns coming from Asia in EM, so we'll delve into that in a second. And we also saw some positive moves in the bond market. Because there were some signs that inflation is softening and that could lead to interest rates coming sooner than expected.
So seeing those good returns coming through there. So Scott, what was on your radar last week?

[00:00:44] Scott Truter: Yeah, we often talk about the US, but you know, some of the data points really do drive markets . And last week it was the inflation data coming through. So, the CPI print was 3.4% and for the last 12 months and the market was expecting 3.6%. So, it came in a little bit lower and slightly lower from the previous month as well.

[00:01:07] Nathan Sweeney: Okay. So, does that change anything or what does that mean for investors?

[00:01:11] Scott Truter: So, I think we start to see a few data points that suggest that the world's largest economy is slowing. So, we had a couple of weeks of GDP growth data coming in lower than expected and retail sales haven't been as good as expected either, suggesting the consumers change their spending habits. They're all small changes, but it's just showing this gradual slowing, aiming for this soft landing. And then it asked that question of, will we see interest rate cuts? Sooner because of all of those slowing coming together.

[00:01:39] Nathan Sweeney: Okay, so very much in line with our own forecast of a gradual slowdown and inflation then slowing leading to central banks cutting interest rates. So, good to see the data moving in that manner. So, are we seeing a similar picture elsewhere?

[00:01:54] Scott Truter: I think for the UK and Europe, there may be just a little bit further ahead which is why we're potentially expecting to see the European Central Bank, the ECB, and the Bank of England cutting rates sooner. So, we had UK unemployment data that was slightly higher than expected. Again, not unusual or unexpected, but we're just starting to see this slowing coming through. And we also had the Eurozone inflation data.
That's in line with expectation, it was 2. 7%. So, you can see they're moving towards that 2% target. And that opens, you know, for the ECB to cut rates in June, potentially the Bank of England as well. And then maybe the Federal Reserve a bit later, with the market potentially expecting it could be July or September.

[00:02:38] Nathan Sweeney: Okay, so that'll be really, really welcome news from investors from borrowers, particularly mortgage holders and any of those who have to renew a mortgage, less good news for savers because clearly as interest rates come down and central banks start to cut those interest rates, the level of interest that you're going to get off from your bank is also going to fall.
So, we may see a little bit of movement there because a lot of people have parked money into money market funds or into bank accounts. And usually when you see interest rates coming down, then people decide it. Actually, the potential for better return in the market. So, you tend to see that rotation. Now, we did mention Asia and EM at the beginning of the podcast, and we're seeing some really good performance coming through there recently.
So, what's happening in China? Why is that standing out at the moment?

[00:03:25] Scott Truter: Yeah, we're seeing the government continuing to announce supportive measures. So, one that was maybe a significant move was them announcing they were going to buy unsold property. A major concern for China has been the property market and that downturn that we've seen over the last couple of years.
So, some of these measures might help to increase prices and stimulate demand and maybe draw a line in the sand from what we've seen the last couple of years There's been other measures already announced such as the lower deposits for first time buyers and lower interest rates as well. So really trying to be supportive and because we've not really seen the consumer start to spend like they were pre Covid, they're still being quite cautious.
So, this might be something that helps with that.

[00:04:10] Nathan Sweeney: Yeah. So, you know, if you think about it, if you have a huge supply of unsold homes, then ultimately that's going to mean that prices remain depressed. So if the government can get rid of a lot of that supply by buying it all up, it means that, you know, any new demand that comes through will help to lift prices in the property market.
So that's the strategy there. The market obviously likes it and you can see that positive return coming through in Asia and EM as a result. So some great snippets there, Scott, thank you for all of that. But before we leave, what should we be looking at for this week?

[00:04:43] Scott Truter: Yeah. So, there's some interesting data points out.
So, we've got some inflation data in Japan, also the UK. Interesting for the UK is that we want to see where inflation moves to because that will feed into that narrative and discussion about when the central bank will cut rates. There's expected quite a big shift down because of some of the base effects.
So, those price rises and things particularly in energy that we saw last year coming out of that price. So, expectancy of fall and maybe getting closer to the bank's 2% target.

[00:05:13] Nathan Sweeney: Yeah, so looking for that number to fall to possibly even as low as 2.1%, so that would definitely be good news.

[00:05:19] Scott Truter: Yeah, and going across the Atlantic to the US, we have the FOMC minutes coming out from the Fed.
So just again, try and get some further insight into their thinking and next movements around those rate cuts. And on the earnings front as well, we have NVIDIA announced the earnings. So, clearly a big star performer we've seen over the last 12 to 18 months. So, people looking there to see is there continued demand for AI and their chips and just to see what their projections are really for the coming few months.

[00:05:51] Nathan Sweeney: Okay. Thank you for that. So, lots to focus on for the week. Thank you everybody for dialing in this morning. Have a great week and we will see you all next week.