Monday Espresso Podcast - 15th July 2024

[00:00:00] Nathan Sweeney: It is Monday, the 15th of July. Today, I'm joined by Scott Truter, our US analyst and assistant portfolio manager. Good morning, Scott.

[00:00:07] Scott Truter: Morning, Nathan.

[00:00:09] Nathan Sweeney: We'll get some insight from Scott in a second. Firstly, let's recap on what was driving markets last week. As always, there's quite a lot to unpack, so let's dive straight in.

[00:00:18] Nathan Sweeney: Equity markets were mixed last week, particularly in developed markets, which were slightly down to flat for the week. But the big surprise was Asia and EM, where markets were up close to 2% for the week. And actually, if we look at bond markets, it was almost a clean sweep across the board with positive returns coming across all segments within the bond markets. So, what's driving that? Let's find out. But before we get into detail on that, let's start with the French election, which we saw the results coming through on Monday morning. So Scott, what's your take on the French election?

[00:00:50] Scott Truter: French elections. So, there was the second round of voting.

[00:00:53] Scott Truter: No parties won a majority. It was what the markets largely expected. And from a market perspective, it was probably preferred than having a far-right majority. It does bring its challenges though. Because the Parliament's more fragmented, so it does make it more difficult to get policies through.

[00:01:08] Nathan Sweeney: Okay, and so moving closer to home, we did have some positive data out of the UK.

[00:01:14] Scott Truter: Yes, there was GDP growth out, so figures were better than expected. The year on year figures shows growth of 1. 4%, and that was beating the forecast of 1. 2%. So, the UK holding up a bit better at the moment, no recession in sight. Some things out of the data was that retailers and wholesalers had a good month, as did house building.

[00:01:36] Scott Truter: So seeing just a bit more positivity from that.

[00:01:39] Nathan Sweeney: Yeah. So, this really chimes with our view that we'd see this kind of moderate slowdown and growth not meaningful. So, growth really holding up in the face of higher rates. So consistent with our tactical asset allocation outlook. If we move across to the US you know, so one of the big data points that this week was inflation.

[00:01:56] Nathan Sweeney: So, what was happening there?

[00:01:57] Scott Truter: Yeah. So consumer price index, CPI data, there was a surprise, the downside. The figure that came in with 3% and it was expected to be 3.1%. So we just started to see that fall in inflation again.

[00:02:10] Nathan Sweeney: Okay. So, what does that actually mean for markets?

[00:02:12] Scott Truter: Sort of in line with our view, we're seeing this participation that we've been talking about.

[00:02:17] Scott Truter: So that's like areas outside of those big tech firms that are performing better. So, we saw equally weighted indices. So that's having all 500 companies and in the S and P at 0.2% and smaller cap companies performing better technology. So those big tech firms sold off a little bit, you know, they're still very good companies, but they've had this sort of strong run and you know, they expect them to continue to do well.

[00:02:40] Scott Truter: But we are seeing this broadening out. So more companies participate in the performance.

[00:02:45] Nathan Sweeney: Okay. So again, quite good news that falls in line with our positioning, what we've been expecting to happen as interest rate cuts come through, it starts to benefit other companies outside of big tech companies and you get this broader participation.

[00:02:59] Nathan Sweeney: So it's not just all about tech. And actually we did see meaningful moves in markets following the release of that data. Where you saw the rest of the market doing quite well, excluding those big tech companies. So again, just reconfirming that positioning in that view. And so yeah, good to see that starting to play out within markets.

[00:03:20] Nathan Sweeney: Thank you, Scott. Some great insight there. So, I'll just do a quick recap on what to expect for the week ahead. So actually there is quite a lot of meaningful data out. So, if we move to China first, we've got GDP growth, so it'll give us a check on the Chinese economy and growth is expected to come out at 5.1%. So, this will be slightly down on the previous reading of 5.3%. So, no real material change there. We do get a sense check on the consumer within the US, and that's quite important because they drive economic growth. So, we do get retail sales figures, but we'll also be focused on inflation data in the UK.

[00:04:02] Nathan Sweeney: That'll be the big one for the UK next week. So, inflation is currently 2% in the UK. The figure is actually expected to come out at 2% and this will hopefully open up the door for that interest rate cut from the Bank of England and the expectation is that that happens on the 1st of August when they next meet.

[00:04:21] Nathan Sweeney: And then the last thing to highlight really is more inflation data and this is inflation coming out in Japan. So, inflation there currently 2. 8%, but it's a region which we've become less constructive on recently. We were overweight Japan, we're starting to see faltering growth there and have taken profits on a position which we've had in place since June of last year. So have reduced that from overweight to neutral.

[00:04:49] Nathan Sweeney: On the geopolitical front of the weekend, we had the shocking news that Donald Trump was injured in an attempted assassination at an election rally in Pennsylvania. Donald Trump sustained minor injuries although he has arrived in Milwaukee, Wisconsin, for the republican national convention which is going ahead as planned this week where he will be formally nominated as the party’s candidate, later on this week.

[00:05:13] Nathan Sweeney: Finally, just on company earnings. So, at this moment in time companies are now reporting their earnings for the second quarter. So, we'll start to see a pickup in companies reporting over the next couple of weeks. But next week, the companies to look out for will be the likes of United Healthcare, Johnson and Johnson, Bank of America, Netflix.

[00:05:33] Nathan Sweeney: And it's always good to see what companies are saying, particularly around their earnings and what they expect to see going forward, because it gives you that temperature check for what's happening in the economy. So, we'll be keeping a keen eye on company earnings, and on average, those companies are expected to deliver earnings growth of around 10%.

[00:05:51] Nathan Sweeney: So hopefully you found this update insightful and useful. If you do have any questions, do please send them into the podcast. We'd love to bring them up on the show and have a great week. And thank you for listening.