Monday Espresso Podcast 3rd May 2022

[00:00:00] Sheldon MacDonald: It is the 3rd of May today, equity markets, globally last week, a little bit weaker, but here in the UK, actually markets were flat to slightly positive and the UK market continuing to demonstrate its defensive characteristics and also quite well-positioned in terms of the exposure that the UK market has to oil. The oil price up again last week.

[00:00:20] Sheldon MacDonald: We saw Poland and Bulgaria have their supplies of gas cut from Russia, and so the oil price moving up in sympathy with that.

[00:00:27] Sheldon MacDonald: But on equity markets, most of the focus last week on the US side, Nathan.

[00:00:32] Nathan Sweeney: Yeah, so it was a big week for the US in terms of companies reporting, so we had a lot of the big mega cap names reporting.

[00:00:41] Nathan Sweeney: So we had the likes of Alphabet, which is Google, Amazon, Apple, Meta, which is Facebook, and we also had Microsoft reporting earnings.

[00:00:49] Nathan Sweeney: Obviously, the big news was around Amazon's earnings, which were a lot weaker than expected. Anecdotally, if you look at earnings so far, this quarter earnings are up about 7.1% on average.

[00:01:03] Nathan Sweeney: And if you actually exclude the earnings result that we got from Amazon, earnings would actually be up 10.1%, so that tells you about the magnitude of the earnings disappointment from Amazon.

[00:01:16] Sheldon MacDonald: Certainly a big move there and that helped pull the markets down in the US, down about 3% in US dollar terms for sterling investors it didn't feel that bad because Sterling actually weakened versus dollar, so in sterling terms, US market's only down about a percent or so.

[00:01:33] Sheldon MacDonald: We saw last week, some inflation reports. Inflation, still rising in the US. We feel like there's a bit of a stuck record, inflation has been rising steadily for so long.

[00:01:42] Sheldon MacDonald: Interestingly though, in Europe, in Spain, we actually saw an inflation reading that was lower than the previous month.

[00:01:49] Nathan Sweeney: Yeah, so this is what people have been hoping for.

[00:01:52] Nathan Sweeney: So the main driver of inflation has been higher oil prices, and we know that the average oil price for the month of April was lower than the month of March.

[00:02:01] Nathan Sweeney: So this should start to feed through, into lower inflation readings, and maybe we're starting to see signs with that inflation figure coming in lower than expected for Spain.

[00:02:10] Nathan Sweeney: So I think people will be very much focused on the inflation data coming out over the next couple of weeks in various different regions.

[00:02:16] Sheldon MacDonald: Certainly an ongoing focus, of course, lower inflation doesn't mean prices are falling.

[00:02:21] Sheldon MacDonald: Consumers will still be hard-pressed to make ends meet facing these higher costs, gas and energy, of course.

[00:02:27] Sheldon MacDonald: Food costs also rising quite sharply. So still challenges out there.

[00:02:32] Sheldon MacDonald: Importantly though, turning back to the US, we saw consumer spending still holding up in the face of a difficult period.

[00:02:40] Sheldon MacDonald: So again, an interesting data point last week was US economic growth for Q1 registering a negative figure down 1.4%, much lower than the previous quarter.

[00:02:50] Sheldon MacDonald: They ended the previous year, very strongly. It was up 6.9% in Q4 2021. The lower reading, this time around, on lower exports and lower inventory spending.

[00:03:02] Sheldon MacDonald: So certainly challenges there in the US, a second quarter of negative growth would mean a technical recession, so certainly something to watch out for there.

[00:03:11] Sheldon MacDonald: But as I say, consumer spending, which drives 70% of the economy still holding up okay in Q1. Looking at the week ahead, obviously still much focus on inflation, especially that we have a number of central banks meeting.

[00:03:25] Sheldon MacDonald: We've got the Fed meeting on Wednesday. Nathan, expectations on that side.

[00:03:30] Nathan Sweeney: Yes, we've got the Fed meeting on Wednesday and the expectation is that we get a 50 basis points or a half a percent interest rate increase, and we're also expecting another half percent increase in the following meeting.

[00:03:44] Nathan Sweeney: So this would be the first time since 2006 that you have two consecutive meetings where you're getting those big rate rises coming through.

[00:03:52] Nathan Sweeney: So that meeting is scheduled for May 3rd and 4th. So we will see that announcement coming out on the 4th of this week.

[00:03:59] Sheldon MacDonald: And hot on the heels of that, we've also got the Bank of England with their policy meeting, and that will come out on Thursday.

[00:04:05] Sheldon MacDonald: And again, we are expecting to see another interest rate increase from the Bank of England.

[00:04:10] Sheldon MacDonald: So as I say, very much a focus on inflation and bonds this week, certainly a lot to keep us interested and we hope to speak to you again next week. Thank you.

[00:04:18] Nathan Sweeney: Thank you.