Marlborough Monday Espresso Podcast - 4th September 2023

[00:00:00] Sheldon MacDonald: It's the 4th of September today. We had pretty strong markets across the board last week, bonds were doing well. Equities across the board pretty strong.

[00:00:09] Let's start closest to home in the UK FTSE is up about 2%, why was that Raj?

[00:00:15] Raj Manon: We had some data released last week that showed that the UK might be closer to peak rates, so less interest rates needed, and that was a positive for the market.

[00:00:28] So that data was around the M4 money supply, and that showed that the month on month figures stopped growing for the first time in 13 years.

[00:00:40] Now, monetarists would argue that the surge in the money supply during 2020 and 2021 caused the jump in inflation.

[00:00:49] Sheldon MacDonald: Yeah. Just jumping in there for a second, Raj.

[00:00:51] So just to explain that, so more money in the system chasing the same number of goods, means the price of those goods goes up.

[00:00:58] So when money supply falls, hopefully that can lead to some disinflation.

[00:01:02] Raj Manon: That's right, so that's definitely seen as a positive, but something to watch in the months ahead would be the rate of that drop off in the money supply.

[00:01:12] So a steady decrease would be seen as a positive, but a more significant drop off would be seen as a concern

[00:01:20] Sheldon MacDonald: Change in tack, we also had some news on the house price front?

[00:01:23] Raj Manon: We did, so we had some house price data that showed that from the peak in house prices last August, house prices have fallen 5.3% over the year, and that was the fastest pace since 2009.

[00:01:41] It's worth mentioning that the majority of homeowners in the UK, do not have a mortgage. So these house prices might have less of a direct impact on general consumer spending than the headlines might suggest.

[00:01:54]

[00:01:55] Sheldon MacDonald: Okay, so perhaps not such a bad news story as it might seem. We get further house price information during the course of this week as well.

[00:02:02] Halifax's Index comes out during this week, so that will be keenly watched. As always, let's look further afield. Now, Scott's on the line. Scott, we had a lot of data out of the US. Those of you listening in who read our weekly chart of the week will have noted that Nathan spoke about the Goldilocks scenario coming through at the moment.

[00:02:22] Is the data supporting that Scott?

[00:02:24] Scott Truter: Yeah so, one thing we've heard is this notion that bad news is good news.

[00:02:29] So markets don't like uncertainty, and the big question at the moment is when will Central Banks pause interest rate rises and when they'll start to cut.

[00:02:37] Now, over the last few months, we've seen data better than expected, but that means that those rate cuts look like they'll be further out.

[00:02:43] So in the US we had less new jobs created than expected. It wasn't a significant amount, but it's showing this slowing trend over the last couple of months.

[00:02:52] Unemployment was up slightly, but that increase was largely due to the growing people in the workforce as well. So this gradual slowing is this idea of a soft landing, but also because the data's slowing, it's positive for markets.

[00:03:06] Sheldon MacDonald: Yes. We've noted over the last couple of months that Jerome Powell, the Chairman of the Fed, has been particularly worried about the pace of jobs market, the wage growth and so on.

[00:03:16] So this will be good news for those who were fearing that the jobs market might stay hot and too hot to handle and therefore would lead to further rate hikes.

[00:03:25] Scott Truter: Yeah. So, with this data, it's more likely the Fed is going to pause and we may start to see interest rate cuts sooner. So that's why equities were up to the S&P500, ended the week just over 2.5% positive, and we also saw the same for bond markets because the yields falling on those expectations of rate cuts further down the line.

[00:03:46] Sheldon MacDonald: Rate cuts perhaps not quite as soon as you might think though, we do have an FOMC meeting this month. FOMC members are speaking during the course of this week, so people will be watching to try and interpret what they're saying, see what that means for expectations.

[00:04:03] But at the moment, the odds are that in this coming meeting, there will be no further rate hike.

[00:04:09] The Goldilocks side of what you're saying though is that although the jobs market is easing, there was still good consumer spending. And in fact, we had the inflation figure, well, one of the fed's key inflation members, the personal consumption expenditure ticking up slightly, so consumer confidence is still there in the markets.

[00:04:28] In terms of the inflation watch, in the Eurozone, we had inflation still trending slightly lower, although the headline was steady, we did see the core inflation in the Eurozone declining slightly, that's down at 5.3%.

[00:04:42] Now, again, looking even further afield what's going on over in China?

[00:04:47] They've been running this policy of marginal easing and that policy so far not really being particularly effective, but it is starting to accelerate and during the course of last week, we saw further measures coming through to try and stimulate the economy and the markets.

[00:05:01] We saw a lower reserve requirement imposed on banks, and there was also a boost in mortgage markets and that helped Chinese markets, they were also up about 2%.

[00:05:11] Now we've mentioned a couple of things that are due this week, is there any particular data that's expected out?

[00:05:16] Scott Truter: Yep, so we have some GDP figures in Japan and the estimated GDP growth figures in Europe, and we've also got some data trade and inflation data in China.

[00:05:26] So I think that's expected to show the economy still fragile, and that might mean that we hear more policy announcements come out to try and stimulate the economy.

[00:05:33] Sheldon MacDonald: Thank you very much, and we'll speak to you again next week.