Logic Monday Espresso Podcast

Monday Espresso Podcast - 22nd July 2024

[00:00:00] Nathan Sweeney: Good morning, everybody, it is Monday the 22nd of July, today I'm joined by Sarah Todino, our UK and European analyst and assistant portfolio manager on our funds.

[00:00:11] Nathan Sweeney: Good morning, Sarah.

[00:00:13] Sarah Todino: Good morning, Nathan.

[00:00:15] Nathan Sweeney: We'll get some insight from Sarah in a second, firstly, let's recap on what was driving markets last week, actually quite a lot to go through, never a dull moment in markets.

[00:00:25] Nathan Sweeney: It was a risk off week for equities, most markets were lower for the week, notably last Friday and the tech sector was also lower. This was following a global IT outage which disrupted activities across several sectors including airlines.

[00:00:42] Nathan Sweeney: So ultimately there's a cyber security company called CrowdStrike which caused the problems with Microsoft Windows.

[00:00:50] Nathan Sweeney: So you did see this major IT outage, it impacted industries across the world, we had 1,400 flights were cancelled. It impacted the banking sector, the healthcare sector, shops were affected.

[00:01:03] Nathan Sweeney: So the firm CrowdStrike has obviously come out and said that they'd detected the issue, they've updated the software, which impacted the Windows operating system, and they've now corrected it.

[00:01:13] Nathan Sweeney: Suffice to say, there's a lot of people across the globe rebooting their computers as a result of this, so hopefully nothing too major in terms of the impact, but it really just shows you the interconnectedness of technology and how it can have a worldwide impact, so not everybody is insulated from that clearly.

[00:01:34] Nathan Sweeney: Now speaking of some of the industries that were affected was also shops but speaking of shops we had retail sales out the UK last week Sarah so was there anything to garner from that data?

[00:01:47] Sarah Todino: So, retail sales declined 1.2% month on month in June this was behind forecasts of a 0.4% fall, and it was largely impacted by election uncertainty, poor weather, and a low footfall.

[00:02:01] Sarah Todino: So, retail sales are subdued, and inflation is now at the Bank of England's Target, inflation remained at 2% the same as last month.

[00:02:09] Sarah Todino: Forecasts were hoping for a fall of 1.9%, the biggest contribution for inflation this month came from the cost of hotels and restaurants, that was 6.2%.

[00:02:20] Sarah Todino: Services inflation in the UK remains elevated and unchanged at 5. 7% in June.

[00:02:28] Sarah Todino: The Bank of England's forecast was 5. 1%, but what's interesting here is we've talked about the cost of hotels and restaurants, economists have been suggesting a Taylor Swift effect with the numbers this month with a surge in hotel and hospitality bookings following the singer's concerts.

[00:02:45] Nathan Sweeney: Okay, and that'll be interesting for the Bank of England because we know that they have that interest rate decision on the 1st of August, so hopefully they will take that into consideration when they're making that decision, these elevated services data due to the Taylor Swift effect.

[00:03:02] Sarah Todino: Yeah so, we also had other data this week. We had UK unemployment rate for March to May, that remains unchanged at 4.4%. We've seen an improvement in wage data as regular pay, which excludes bonus payment, was 5.7% year on year from March to May, and this is the lowest since September 2022, and that was below the last reading of 6%.

[00:03:26] Sarah Todino: So, you're right, it's all about central banks cutting rates, and we know data's changing all the time.

[00:03:32] Sarah Todino: Markets have been pointing to an August rate cut in the UK for some time, but the outcome for an August meeting for a rate cut in August remains a close call.

[00:03:42] Sarah Todino: GDP growth figures have improved, but as we've discussed services, inflation remains sticky. There was a slight improvement in wage growth, but it does still remain elevated.

[00:03:54] Nathan Sweeney: Yeah, I think it's important to remember that the Bank of England's inflation target is 2% and inflation is currently at 2% despite that higher services inflation, which appears sticky, but, you know, we think there's an anomaly in that data due to the Taylor Swift effect, so it will be interesting to see if they do cut interest rates on the 1st of August.

[00:04:17] Nathan Sweeney: The markets are leaning that way, but it's slightly undecided, but we're getting closer to those rate cuts anyway, that's due to falling inflation and weaker growth.

[00:04:28] Nathan Sweeney: So, speaking of weaker growth, we did have some lower growth figures in China.

[00:04:34] Sarah Todino: Yes, so we had the GDP growth figures from China. The economy grew 0.7% in Q2 this year, and this is the softest result since Q2 last year, and that's largely due to headwinds of extreme weather, weak consumption, and of course, those ongoing property weakness issues.

[00:04:53] Nathan Sweeney: Okay, so, you know, it's really kind of chiming with our view that we were expecting this moderate slowdown in growth, which would lead to a fall in inflation and then central banks cutting rates. So, it appears as if we're moving in that direction and, you know, that expectation is coming to fruition.

[00:05:14] Nathan Sweeney: We had the news over the weekend that Joe Biden is withdrawing from the presidential election campaign. So, he will not be putting himself forward to be the next president of the US. And ultimately what that means is that the democrats will have to nominate somebody to put forward for the presidential election race which takes place in November of this year. So, who will it be?

[00:05:39] Nathan Sweeney: So, at this moment in time, Kama Harris is the vice-president of the US, and she is the most likely candidate, however, she might not be the nominated candidate. So, what will happen is that the democrats will get together and decide who are they going to put forward. They do have a democratic party convention which takes place in Chicago in August. So this be August 19th to August 22nd and it’s likely at that date we will find who they are putting forward to face off against Donald Trump.

[00:06:11] Nathan Sweeney: What that means for markets? As we get more information e will cover all for what that means but at this point in time, markets are still expecting Donald Trump to win that election. As events unfold, we will provide more insights and updates on this topic.

[00:06:25] Nathan Sweeney: If we look at what to expect for the week ahead, actually it's a really light week in terms of data points.

[00:06:30] Nathan Sweeney: So, as Sarah mentioned, we do have growth figures, but it's actually US growth figures coming out next week.

[00:06:37] Nathan Sweeney: We've got GDP growth rate, the previous number in the UK is 1.4% and actually expecting an improvement from that up to 2%. The key thing that markets would be looking at is the inflation data, which comes out in the US.

[00:06:51] Nathan Sweeney: So, we have monthly inflation data, and the previous reading came in at 0.1% and the forecast reading is expected to come in at 0.1%.

[00:07:01] Nathan Sweeney: So, a 0.1% pickup in prices over the course of a month. That's looking at inflation, which is below the central bank's expectation of 2%. If you annualized that and you had 0.1% every month for a year. It would mean inflation at 1.2%, so inflation actually behaving itself, which is great to see.

[00:07:22] Nathan Sweeney: The other thing to mention is company earnings. We'll have lots of companies reporting their earnings, the likes of Alphabet, formerly known as Google. We'll have Tesla, Coca Cola, UPS and Visa, so let's keep an eye on those because interestingly, that will give us a look into the consumer, some of those are consumer names and what's happening on the consumer side.

[00:07:41] Nathan Sweeney: So that's it for this week. Thank you, Sarah, some great insights there on that side.

[00:07:46] Nathan Sweeney: Thank you to our listeners, and if you ever have any questions at all and would like to submit them, please do send them in, we'd love to bring them up on the show.

[00:07:53] Nathan Sweeney: Have a great week, everybody.