Logic Monday Espresso Podcast

Monday Espresso Podcast - 10th March 2025

[00:00:00] Nathan Sweeney: It is Monday, the 10th of March. So today I'm joined by Rory Dowie, investment manager and responsible for covering global equities. Good morning, Rory. Great to have you on the show again.

[00:00:11] Rory Dowie: Morning, Nathan. Good to be back.

[00:00:13] Nathan Sweeney: All right. So we'll start with a quick refresh of what was happening in markets last week.

[00:00:17] Nathan Sweeney: So how did markets fare last week?

[00:00:19] Rory Dowie: Feels a bit like Groundhog Day. Markets were pretty red again last week. We saw continued risk off moves across the board. And again, the US was the one leading the way down. The S&P 500, the top 500 largest companies in the US, fell about 2% over the week. And again, within that 500 companies, it was the tech side of the market or the growth side of the market, which, which led the way downwards.

[00:00:41] Rory Dowie: The NASDAQ could barometer for kind of tech names in the US that fell 2.5%. And really that was on the back of some earnings prints, a company called Marvell Technology, again, very geared into the kind of whole AI semiconductor theme, a bit like we saw in Nvidia the week before last, they gave a soft guide and it sold off 20% on the day.

[00:00:59] Rory Dowie: And again, some of those tech names were kind of selling off in sympathy, you know, with Marvell as well. Within Europe, again, slightly different story, that ended broadly flat for the week. I guess if there's one notable point in Europe, it was Germany. That, the DAX, which is the index for Germany, that was up almost 2% for the week.

[00:01:15] Rory Dowie: What was driving that? That was on the back of a mammoth new spending package that was announced on Tuesday. The headline figure was €500 billion that will be funded over 10 years to upgrade German infrastructure like transport, energy, and some digitization. So really, that was a boost to investor sentiment within the region.

[00:01:33] Rory Dowie: On top of that, the German coalition also announced a groundbreaking agreement to exempt defense spending above 1% of GDP. And again, as we've seen with the rest of Europe, upping our defense budgets on the back of Trump noise and maybe US leaving NATO. So again, positive things out of Europe as well, particularly relative to the US. From a year to date picture, again, the theme is still the same. US is the one that's really lagging. Europe is now outperforming the US by 14% this year. Across Asia, again, as has been the case of most of this year, the Hang Seng Index was leading the way. That's the Hong Kong Stock Exchange. And that's now up over 20% this year.

[00:02:08] Rory Dowie: Remember, full of these Chinese tech names, which again, a lot of better sentiment given the noise that we've seen out of China with the conference essentially, which we spoke about, I think a couple of weeks back. Europe leading the way and US really the kind of key outlier on the downside.

[00:02:21] Nathan Sweeney: Yeah. And I think that's really a good point because I think there's so much focus on the US and it takes so much of the media headlines that ultimately people feel as if that's the performance of markets overall.

[00:02:31] Nathan Sweeney: And clearly it's not. So yeah, we're seeing things struggling in the US at the moment, but there's great performance coming from elsewhere. And it kind of really comes back to that diversification piece, which we often talk about. But, you know, the headlines last week were pretty much dominated by tariffs and we expected this will be the case as we moved into March.

[00:02:50] Nathan Sweeney: It's a big month in terms of tariffs because we have all these meetings on the agenda. So what's happening with tariffs?

[00:02:56] Rory Dowie: Yeah, it's hard not to talk about it. They seem to be everywhere. Actually, last week it was relatively better news on the tariff front. Trump actually announced that he would be pausing tariffs on some of the Canadian and Mexican ones that he was going to impose.

[00:03:08] Rory Dowie: So he'll be pausing those until next month. And that was digested relatively well by the market on Wednesday and really The hope was there that the pause might lead to a more permanent cancellation of the tariffs, but as I say, no one really knows where that's going. It's just a huge amount of uncertainty.

[00:03:22] Rory Dowie: That's kind of my view as well. Doesn't really change the picture. You know, Chinese tariffs have gone ahead and you can expect some sort of retaliation from China based on what they were saying last week. But I really, I want to kind of focus on the word uncertainty and that's really the huge theme here.

[00:03:34] Rory Dowie: Trump is creating a huge amount of uncertainty in markets. And as everyone knows, markets hate uncertainty, you know, and that's really underpinned a lot of the kind of sell offs and the, and the kind of. Poor performance within the US particularly.

[00:03:45] Nathan Sweeney: Yeah. And I think that's a key point, you know, so the beginning of the week, we had tariffs being imposed on Canada and Mexico, 25%. A day later, we're getting rollbacks on some of those tariffs. So basically Trump saying, actually, we're not going to apply them on automakers. And then on Thursday doing a similar thing. So extending the amount of companies that get relief from tariffs. And as you said, the market sold off. And, you know, if we think about this, clearly, the market should have rebounded as that list was expanded and less companies were brought into that kind of tariff sphere. But the market sold off and really that's investors saying, look, we don't like this uncertainty and fundamentally, you know, if you give us some clarity on what's happening with tariffs, then markets can move forward.

[00:04:29] Nathan Sweeney: But if you don't, there'll be volatility. So I think we, you know, we expecting this kind of air pocket in markets in March because of the uncertainty around tariffs. And I think it's up to Trump to provide that clarity and hopefully, you know, the market selling off in the US gives him that clarity.

[00:04:46] Nathan Sweeney: Okay. So you did have some views on basically why Trump was kind of creating all of this uncertainty in markets.

[00:04:53] Rory Dowie: Yeah, absolutely. And look, no one really knows what's driving Trump to do this. And there's lots of hypotheses out there. One hypothesis I quite like is to do with maturing debt in 2025. I was reading the other day the Treasury has some $7 trillion of debt that they need to refinance in 2025.

[00:05:08] Rory Dowie: And you know, if they don't pay that off, obviously they're going to have to refinance. And obviously, what's the cost of that refinancing? So what's the interest they will have to pay on that debt? That's essentially the 10 year yield. So in January, the US 10 year yield was up at 4.8%. So 4.8% annually on $7 trillion of debt, you know, you do the math, that's quite an expensive refinancing cost.

[00:05:28] Rory Dowie: So how might the US refinance a bit cheaper then? So maybe this is what Trump's trying to do. You know, he could try to make that rate go a little bit lower from that 4.8% that we saw back in January. So how might you do that? And one way he could do that is creating lots of uncertainty. And obviously, he's been doing that with a huge amount of noise, with tariffs.

[00:05:46] Rory Dowie: So far, it's worked. Investors have been rotating out of stocks, which has led to the poor performance in the US. And actually, they've been rotating into the relatively safer asset class, which is bonds. And if you're getting more demand into bonds, that will lead to yields falling, as there's more demand for bonds.

[00:06:02] Rory Dowie: But because there's so much uncertainty, that yield is going down. And really, it's just that rotation out of stocks and into bonds, which is driving that yield down. And I think if you think about this bigger picture, who's to say maybe that once that debt is refinanced, you know, and with some of the doge cost savings, perhaps towards the end of the administration, or the second half of the administration, we might starting to get some of the fiscal stimulus, which we know that Trump's, you know, historically been a fan of, you know, you think back to his last administration, he started with the fiscal stimulus, you know, make America great again. And then he ended with the tariffs. Who's to say that maybe this time he started with the tariffs, he'll end with the stimulus, you know, this time around.

[00:06:38] Rory Dowie: So, you know, maybe there's some brighter outlook once we get past some of these debt maturities, possibly, but obviously at the moment, uncertainty is still the thing and we've got to get through these tariffs and see how they might reflect across markets and it'd be nice hopefully in six months we'll have a little bit more guidance in terms of what the absolute mechanics are, what he's implemented and hopefully the uncertainty will start to fall a little bit, you know, over the course of this year.

[00:07:00] Nathan Sweeney: Yeah, I think that makes a lot of sense, because if you provide that uncertain backdrop, then, you know, people clearly hold back on spending. And ultimately, that helps to bring down inflation, which means that the central bank can cut rates, which solves that big debt problem. And okay, so quite a lot in that this week, hopefully our listeners found that insightful.

[00:07:19] Nathan Sweeney: I certainly did. Let's focus on what we've got for the week ahead.

[00:07:23] Rory Dowie: Yeah, I've mentioned a few earnings prints, we're pretty much done now in the US, bit of respite there. There's still a little bit more to come in Europe, but again, we're kind of the bulk of the way through. So we'll be keeping an eye on some of those, you know, final European names which we'll be reporting.

[00:07:35] Rory Dowie: I think really the big one though is we have February inflation data in the US coming Wednesday. Core CPI is expected to come in at 2.9%year on year and growing 0.3% month on month. So obviously be watching to see where the actual number comes in versus those expectations, what that might mean for markets, perhaps we can have a chat about that next week on the pod. And then obviously we've got some other data point on sentiment and consumer expectations. So again, we'll be looking at those carefully. So yeah, really the main thing is the inflation numbers.

[00:08:02] Nathan Sweeney: Okay, thank you Rory. Very insightful as ever and thanks for listening.

[00:08:05] Nathan Sweeney: Have a great week everybody. And again, if you do have any questions, send them in. We would love to bring 'em up on the pod. Take care.