Logic Monday Espresso Podcast

Monday Espresso Podcast - 27th November 2023

[00:00:00] Sheldon MacDonald: It's the 27th of November today. We had a pretty strong market across the boards last week. We had US, UK, Europe, Asia, all these markets on the equity side, positive. Bonds were positive as well. Let's start off in the UK where we saw the PMI figures. This is the Purchasing Managers Index.

[00:00:20] Sheldon MacDonald: Now, those figures came out late last week, indicating that the economy is slightly better off than expected. Those numbers bouncing off their lows, and importantly in the UK, that figure coming out just above 50. That's buoyed by the services sector more than the manufacturing side but that 50 line indicates the difference between contraction or expansion. So above 50, still in expansionary territory, indicating for the moment, at least, that there's no sign of any significant slowdown coming.

[00:00:54] Nathan Sweeney: Yeah. So just on PMI, it's a survey that's carried out in the manufacturing sector and the service sector. So we just go out to managers in those sectors, ask them a whole load of questions and what it does is it paints a picture of what they believe is happening.

[00:01:10] Nathan Sweeney: So are they hiring? Are they slowing hiring? Are they buying more product? Are they selling less goods? And ultimately it's just those results which help to give us a temperature check for what's happening in both the services sector and the manufacturing sector and when you get those two and put them together, it's called the composite PMI, so it's a combination of both.

[00:01:30] Sheldon MacDonald: So that level, as I said, just above 50, still just in expansionary territory. Not out of the woods yet, and we saw that coming through in the Autumn Statement from the Chancellor last week.

[00:01:41] Sheldon MacDonald: For those of you who haven't seen it, we did put out a separate little podcast on that. But really a, a go for growth statement by the Chancellor cutting taxes, the 2% national insurance cut that we saw, really voter friendly, but also growth friendly.

[00:01:56] Sheldon MacDonald: All of that, though, overshadowed by the fact that we didn't see anything on a British ISA, that had been hinted at beforehand, and also nothing on a reduction in inheritance tax, and also overshadowed from a personal finance perspective by the bracket creep that we're seeing, the fact that with inflation of wages, we're all being pushed into higher tax brackets, and so perhaps not seeing the cuts come through as might be expected.

[00:02:23] Sheldon MacDonald: But really the theme is that we do still need growth stimulus to come through from the fiscal side, given that we're in tightening territory on the monetary side, interest rate hikes, even if we might not expect any more coming through anytime soon, historical hikes that we have seen, still putting pressure on the economy.

[00:02:43] Sheldon MacDonald: Let's turn our attention to the US side and we saw the end of the earnings season.

[00:02:47] Nathan Sweeney: Yeah, so we saw the end of company earnings within the US so that's the 500 companies in the US reporting their earnings over the quarter. So on average, we saw earnings gains of 4.3% when you compare it to the quarter a year previous. So that's how they look at it.

[00:03:05] Nathan Sweeney: And I suppose one of the clear things we saw there was that companies are mentioning the term recession less and less, which is good news because there was a big concern that we might get a recession because of all of these interest rate rises and what we've seen is that the number of times that that term is mentioned during these earnings calls has dropped significantly.

[00:03:30] Nathan Sweeney: To give you an example of that, if you look at the second quarter in 2022, you saw the term recession mentioned by these companies 237 times. So, of the 500 companies, nearly half of them expecting a recession, and then if we roll on to this quarter, we can see that the term recession was only cited 53 times.

[00:03:52] Nathan Sweeney: So again that's giving you an indicator but the interesting piece for me even though it was mentioned less you're seeing financials, industrials and energy companies and real estate mentioning that term and you know to me the financials and industrials will have their finger on the pulse in terms of the economy because they're offering product into, you know, whether it's mortgages and industrials are selling stuff as well. So if they're seeing a recession, then possibly, they could be right. But from everything we're seeing, it looks like there is no recession insight because economic growth is really, really strong in the US at the moment.

[00:04:25] Sheldon MacDonald: Yes. The other thing we saw out of the US last week was the minutes from the previous Fed meeting, where the governors in that meeting indicating unanimously, that rate hikes might yet be needed if inflation remains sticky on the upside. For now, though, the positive market last week was put down to the fact that inflation is still edging lower and rate cuts are still expected, perhaps sooner rather than later. In general consensus is the middle of next year, somewhere around then.

[00:04:55] Sheldon MacDonald: We will get a steer on that in the week ahead, we are expecting to see inflation numbers out of the US and Europe. Nathan, what's expected?

[00:05:03] Nathan Sweeney: Yeah, so for US inflation, the market is thinking those figures come in at 3.1%. For European inflation, that's 2.8%. And then we were talking about those PMI data figures. We also get manufacturing PMI data out of the US and China, so that's that temperature check from those surveys.

[00:05:21] Sheldon MacDonald: And then finally this week, there's a meeting of the OPEC plus organization, the oil price last week, stable, well volatile, but no change from the previous week. We'll wait and see what OPEC gives us in terms of expected production cuts coming through.

[00:05:38] Sheldon MacDonald: All of that we'll bring to you next week. We look forward to speaking to you then.