Monday Espresso Podcast - 11th November 2024

[00:00:00] Nathan Sweeney: It is Monday, the 11th of November. Today, I'm joined by Scott tutor, assistant portfolio manager, and our lead analyst for the US. Good morning, Scott.

[00:00:10] Scott Truter: Morning, Nathan.

[00:00:11] Nathan Sweeney: So we'll get some insight from Scott as to what was happening in markets last week. There was actually quite a lot to go through, so we'll try to keep it succinct, but please forgive us if we run over today.

[00:00:22] Nathan Sweeney: So Scott, what was happening in markets last week?

[00:00:25] Scott Truter: Yeah, so we start with an overview and fixed income markets quite flat and that's probably due to a little bit of volatility on yields and we'll cover that in a moment in terms of why. From equities it was a little bit mixed as well. So UK and European equity markets quite flat, maybe slightly negative, similar story in China as well.

[00:00:45] Scott Truter: Japan performed a bit better, but the standout market was the US where we saw really across the board. It was those larger companies, tech companies, but also particularly smaller companies as well, doing really well. Clearly following the news of the US election.

[00:01:00] Nathan Sweeney: Yeah. So that was obviously the big news of the week, the US election. We did do a podcast, separate podcast that covered it. So if you want to listen to that, there's a lot more detail there, but did the election outcome drive any of the moves we saw on markets this week?

[00:01:14] Scott Truter: Yeah, I think if all the expectation of a Trump presidency was generally going to be positive for the US because he's quite focused on the US and making sure those businesses and the US economy is strong.

[00:01:27] Scott Truter: So that should be better for those businesses and companies. Clearly, one of the potential points is tariffs, which could be inflationary. And that could also impact those larger companies that have more of a global reach. It will also be a negotiation tactic. So we don't just want to lean too much into that right now, because Trump will want to make sure the trade is fair between countries.

[00:01:48] Scott Truter: With that inflationary, you know, metric, we're not expecting it to see increased levels we saw a couple of years ago. So we might just see some smaller increases there. But because of those tariffs, that may be why European and UK markets didn't perform as well. But some of the other things like deregulation will be good for financial companies in the US and also tax cuts and that will be good for maybe those smaller and mid cap companies and why you've seen more of a reaction there in some of those areas.

[00:02:18] Nathan Sweeney: Yeah, we did see a bit of an Elon Musk effect as well. So Tesla stock was flying and you know, there's rumors there that he's going to get a role within the government. And interestingly, some rumors are suggesting he might be in charge of a committee looking to see where they can make cost savings across the government.

[00:02:34] Nathan Sweeney: So there's a lot of concerns about, you know, the debt level in the US, but there's a number being trumpeted about, and literally it's 2 trillion of cost savings, which will be a significant number. And this would help to kind of remove some of the fears around debt, should they be able to do that. But they believe there's a huge amount of inefficiency in the government.

[00:02:53] Nathan Sweeney: And if they can streamline systems, et cetera, they can take out a lot of costs. So we'll be watching that just to see how that pans out. Now, outside of the election, was there anything else happening in markets last week?

[00:03:04] Scott Truter: Yeah, so I suppose rate cuts took a bit of a backseat because of the election, but things are still being happening with central banks in the background.

[00:03:11] Scott Truter: So staying with the US. The federal reserve voted unanimously to cut rates. So 25 basis points again. So we're just seeing that continued steady move down. And it just reflects that despite those inflationary pressures we talked about, it's not a huge concern now. And they're focusing on economic growth and just thinking that stability.

[00:03:33] Scott Truter: So still we'll be data dependent, but continue to move in the direction that we expect.

[00:03:38] Nathan Sweeney: Okay. And so is Powell going to keep his job?

[00:03:41] Scott Truter: He has been very vocal on that one that is saying yes. And even if he is asked to go by Trump, he will continue to stay on in that position. I think sometimes it's, you know, you try to have to take out the noise.

[00:03:53] Scott Truter: And I think when we're thinking about. investing in the portfolios is really focused on data and trying to look through that and make sure we're positioned for that. And we can look at those facts.

[00:04:04] Nathan Sweeney: Okay. Good points. And then if we think about the UK, we also had interest rate cuts there. So how did the bank vote on that side?

[00:04:11] Scott Truter: Yes. So there was eight out of the nine people in the monetary policy committee that voted in favor of a cut. It's expecting just seven to vote in favor. So again, a bit more unanimous there. But still data dependent. There's probably an expectation that the UK will cut a bit slower than the US. And but still we can see that trajectory coming down and that will benefit those businesses, particularly smaller companies and seeing more of a broadening out in performance there.

[00:04:38] Nathan Sweeney: Yes, obviously, the inflation figures, continue to fall and it just means that central bankers are paving the way to cut rates and, you know, whether that is at a slightly slower pace. It's kind of slightly irrelevant because ultimately it's the direction of travel, which matters most.

[00:04:52] Nathan Sweeney: I think the other big thing obviously we had towards the end of the week was China stimulus and people were expecting a big, big number here to try and stimulate the economy because they have a lot of property loans, which are bad ultimately. And, you know, so they need to take those loans off balance sheet to try and stimulate local governments.

[00:05:10] Nathan Sweeney: And they came out with a big numbers by 10 trillion. But they're looking to phase that over a number of years. And it's actually 6 trillion just for this property debt over a three year period. And the market's saying, actually, that's not enough. And actually, I was reading a IMF report which suggested that it could be about 60 trillion linked to property debt, which is a very significant figure.

[00:05:31] Nathan Sweeney: So it just shows you there's still a long way to go. And the big problem there is actually consumer sentiment. The consumer is not really feeling good. Why? Because their property price is down 25%. And about 63% of their wealth is tied to property. So the consumer is just not spending. So it's a problem they have to address along with high youth unemployment.

[00:05:50] Nathan Sweeney: So I think as a result of that, you know, we're watching China, but we still think it's too early to go to a overweight position. So Scott, what have we got on the wires for this week?

[00:05:59] Scott Truter: Yeah. So you start the US following that interest rate cut, a lot of the fed members are speaking next week. So probably listening to see if there are any insights into that trajectory.

[00:06:09] Scott Truter: And how they're thinking about the economy. There's also some jobless claims data from the US as well, and some more US inflation data. So again, just seeing what the direction of travel, it may increase slightly. And we've talked about this before ebbs and flows of data, but it's in a better position than it was 18 months or so ago. In the UK, unemployment data and GDP data.

[00:06:32] Scott Truter: So it's just seeing what that looks like. Again, it may, we've had the budget. We've talked about that over the last couple of weeks, but it may need some spending to help GDP growth and just see that help in the economy. And then thinking across into Asia, there's GDP data in Japan. Also, some house price and other manufacturing data out of China.

[00:06:50] Scott Truter: So as you've just mentioned there, you know, want to see as this stimulus helping in the economy and taking effect.

[00:06:57] Nathan Sweeney: Okay. Thank you, Scott. So quite a lot to look forward to next week. Just a reminder to our listeners, if you do have any questions that you'd like us to bring up on the pod, send them in and we would love to bring them up.

[00:07:07] Nathan Sweeney: Have a great week, everybody. And thank you for listening.