Logic Monday Espresso Podcast

Monday Espresso Podcast - 11th September 2023

[00:00:00] Nathan Sweeney: It's Monday the 11th of September, the heat wave in the UK is over. So it's back to business for most people following the summer holiday session. Today, I'm joined by Niall McDermott, Marlborough's Global Bond Fund Manager. I'm going to ask Niall to give me some perspective from a bond manager's point of view, because as we know, there's a lot happening in markets.

[00:00:21] Nathan Sweeney: I'll start with a quick recap of what was driving markets last week. So let's take a look at equity markets. We pretty much had a mixed footing or a mixed start to September for equity markets. If we look at the FTSE last week or UK stocks, they were up slightly. If we look at Japanese stocks, they were also up slightly.

[00:00:39] Nathan Sweeney: But you're starting to see a bit of a cold war develop between the US and China. It's definitely hotting up on that front and that had an impact on US stocks. We'll talk about that specifically. But before we get into any of that, I'm just going to ask Niall to give me a bit of a recap on what was happening in bond markets last week.

[00:00:57] Niall McDermott: Sure. Good morning, Nathan. So last week in the US we had factory orders. They actually fell by less than expected, but the big data point of the week was actually the ISM services data. So that came in hotter than market participants had expected and the detail in that showed that prices paid were up and employment was also up significantly from the prior month.

[00:01:22] Niall McDermott: So that's bringing back some of these inflationary fears and basically markets moved yields in the US and also Germany moved in the short end with the two-year yields going higher. The UK actually was the exception, last week so we had comments by Andrew Bailey, who noted that indicators are actually pointing to a steep drop in inflation.

[00:01:48] Niall McDermott: So the message there is that the Bank of England is likely to actually be near the top of their interest rate cycle. So that's been gradually pushing expectations of a rate hike at the next Bank of England meeting down.

[00:02:01] Nathan Sweeney: Okay, that's quite interesting because we did see we had some information from Goldman Sachs talking about recession and, you know, they've lowered the recessionary forecast and that kind of tees into the whole central banks thinking, actually we're closer to the rate rising cycle. So what were Goldman coming out with last week?

[00:02:18] Niall McDermott: Sure. So Goldman Sachs actually updated their recessionary forecasts. So they lowered their recession, probability from 20 percent to 15% and this differs between lots of the major investment banks.

[00:02:33] Niall McDermott: Bloomberg consensus figure is about 60%. The points to note on that though is a lot of it's still based on previous data and a lot of market participants have yet to update their forecast numbers.

[00:02:47] Nathan Sweeney: Yeah. So the big thing really to focus on is inflation and speaking of inflation, we do get a really important data point out this week. It's US inflation. So what are we expecting there?

[00:02:59] Niall McDermott: Sure. So this week we have the US CPI print where the core figure is expected to fall. That strips out the volatile food and energy. So this will be watched quite closely to give us insight into the future direction of industry policy.

[00:03:16] Nathan Sweeney: Yeah, I suppose that the one thing that people are concerned about is the fact that the oil prices started to move back up. You know, so if we look at oil, it's nearly back up to 90 dollars a barrel. We all know that oil has been one of the biggest contributors to inflation over the last year. So you can see that, you know, markets last week were a little bit concerned about the fact that oil is going back up.

[00:03:35] Nathan Sweeney: Should we be concerned? Is this something we need to be fearful of in relation to maybe inflation picking back up?

[00:03:42] Niall McDermott: So last week there was an OPEC Plus announcement that they would extend their supply cuts for the year. So that's been pushing oil up in, in the near term. What we would be concerned about is if we see sort of a continuation of increases in oil price.

[00:03:59] Niall McDermott: At the moment, there's no major cause for concern, but it's something that we will be watching.

[00:04:05] Nathan Sweeney: Okay, we'll definitely keep an eye on the oil price then. Now, let's look at the week ahead. So, you were just telling me before we got on the air that there's a lot of data coming out this week. So, what's on the table for this week?

[00:04:17] Niall McDermott: There is indeed, Nathan. Yes. So, as we've mentioned, we've got the US CPI print. We've also got some treasury and UK bond auction results, and there's also quite a lot of key data out from the UK, and that's in the forms of jobs data and GDP. And then finally, we've got the ECB taking central stage. That's on Thursday where they're the first central bank to meet in a round of September decisions.

[00:04:45] Nathan Sweeney: Okay. So Niall thank you for joining me this morning, that was really insightful. Thanks everybody for listening in and join us next week.