Logic Monday Espresso Podcast

Monday Espresso Podcast - 7th August 2023

[00:00:00] Nathan Sweeney: It's Monday the 7th of August. Today I'm joined by Scott Truter, assistant portfolio Manager and our US analyst. Good morning Scott.

[00:00:08] Scott Truter: Morning.

[00:00:09] Nathan Sweeney: We'll have some insight from Scott in a second. As always, there's quite a lot happening in markets, so let's dive straight in. I'll start with a quick recap of what was driving markets last week.

[00:00:19] Nathan Sweeney: Most major equity markets started August with a down week following a really strong July. UK stocks were down about 1% for the week, and US stocks were off about 2%. So let's look at what was really driving markets last week, Scott. It was all about the US debt downgrade. So tell us a bit more.

[00:00:36] Scott Truter: No problem. So Fitch is one of the ratings agencies. They downgraded US debt one level to a double A plus. So this probably caused a bit more volatility in markets, but not as much when the S&P one of the other ratings agencies downgraded the US debt, which was almost 10 years ago.

[00:00:53] Scott Truter: Also what you've got to consider is it's the middle of summer, so there's lots of people on holiday, there's less volumes, less people trading.

[00:00:59] Scott Truter: So it is generally more volatile, though this wouldn't help, but we don't really think there's a lasting impact there and interestingly, we're seeing investors still see US government bonds and the US dollar as a safe haven and we did see the currency strengthen as well.
[00:01:15] Nathan Sweeney: Yeah, so that's, that's really interesting.

[00:01:17] Nathan Sweeney: So I think if you're thinking about lending somebody money, which you know people lend the US money, there's two real questions you need to ask. Can they pay it back? So do they have the money to pay it back and will they pay it back?

[00:01:29] Nathan Sweeney: And I think the answer to both of these questions, given it's the US clearly they can cause they can print some more money and we expect that they will so we don't see any real issue.

[00:01:39] Nathan Sweeney: But I think that's an important point that you made, that people are on holiday and you tend to get those lower trading volumes so that makes sense.

[00:01:46] Nathan Sweeney: Is there anything else that is happening in markets last week, particularly in the US?

[00:01:50] Scott Truter: Yeah, so in the US we saw the jobs report out quite a lot of data in different points, so a little bit mixed in some cases.

[00:01:57] Scott Truter: One of the data points was that wages grew 4.4% in the 12 months to July. So that may cause a little bit of concern for the Fed because they're obviously trying to bring that down as well, inflation to keep it in line with target and we typically want to see that number, maybe close to 3%, but you know, still not growing too fast a pace.

[00:02:16] Nathan Sweeney: Yeah and it is good to see that inflation in the US has been coming down and you know, so wage inflation, even though it came in at 4%, it has been coming down quite a lot, and I think the target that people are looking for, they'd love to see that number around 3%, but it's trending in that direction.

[00:02:32] Nathan Sweeney: Speaking of inflation, we did have inflation numbers out in Europe last week, so how did they come out?

[00:02:39] Scott Truter: Yeah, so for the Euro area, it slowed further to 5.3%. So that was down from 5.5% the month before. So we're seeing that continual trend and we got individual country ones for Germany and France and that following a similar pattern as well. So positive news there.

[00:02:55] Nathan Sweeney: Yeah, and actually speaking of inflation, so the Bank of England were out last week and they've been trying to tackle inflation, bring down inflation. The way they've been doing that is by raising interest rates and they were out last week raising interest rates again. So we have interest rates at 5.25% in the UK.

[00:03:13] Nathan Sweeney: There's some really good news here because investors now think that that is going to be the last interest rate hike that we'll have in the UK in this current cycle, and that's really good news because it means that we'll stop getting those borrowing costs going up and up and up, which has been impacting borrowers, particularly in the mortgage market.

[00:03:33] Nathan Sweeney: So there'll be a bit of relief there and clearly we all know that once you get that peak in interest rates, the next move is generally down. So investors will be asking that question, when do we expect to get that move down in interest rates?

[00:03:45] Nathan Sweeney: So we'll be watching that and providing more insight into that as we go on but I think it's probably important to take a quick look at the week ahead because I think, again, inflation will be in the spotlight.

[00:03:57] Nathan Sweeney: So Scott, what do we have on the table this week?

[00:03:59] Scott Truter: Yeah, so I think all news all looking at the US again because they've got their inflation print coming out this week. So broadly there's an expectation that we might see a little bit of an uptick on the inflation print.

[00:04:11] Scott Truter: So maybe around 3.3%. I think it's important always to put it into perspective that you never get a straight line up or down when you see some of these readings and numbers, and particularly now it's come down quite substantially this year, you will see likely little bit movements up or down, but there's a general trajectory or pattern that it is coming lower.

[00:04:32] Nathan Sweeney: Yeah. So that, that's a really important point there. So inflation has been trending down, we expect it to continue to do so, but there'll be that ebb and flow of the data. It's not going to hit the number exactly on point each time. I think also this week we do have some company earnings. So we've got a couple of earnings coming out from some of the big US companies, but about 84% of companies have reported their earnings thus far. So we're getting to the tail end of that.

[00:04:59] Nathan Sweeney: And we also have inflation figures out of China. So the market will be looking at that. So thank you, Scott, for joining me today. Insightful as always.

[00:05:06] Nathan Sweeney: Thank you all for taking the time to listen. Have a great week. Goodbye from me.