Monday Morning Espresso - 7th February 2022

[00:00:00] Sheldon MacDonald: Good morning and welcome to the Marlborough Monday Morning Espresso.

[00:00:03] Today is the 7th of February.

[00:00:05] We had a big week last week in Central Bank land. Let's start on the ECB in Europe, Christine Lagarde, turning more hawkish, having previously indicated to markets that there'd be no hikes in 2022.

[00:00:18] We saw that rhetoric changing and perhaps opening up the door for a rate hike later this year, and perhaps on the back of that, we saw European markets as one of the only lagards last week.

[00:00:28] On the UK side, we also had some moves of the BOE raising rates bringing in here at Raj Manon, a member of our team, Raj commenting on the UK.

[00:00:37] Raj Manon: Yes, so following the first interest rate increase in the UK in more than three years in December, which took us to 0.25%. Last week, we saw another quarter percent increase, which took us to 0.5%, and that's the first back-to-back increase in UK interest rates since 2004.

[00:00:56] Now the Market impact was actually limited as the increase to half a percent was widely expected and therefore mostly already priced into the market.

[00:01:05] Of the nine voting members, there was a five to four split five voting for that 0.25% Increase.

[00:01:12] Now the actual surprise was that the four that didn't vote for a quarter actually wanted to see a bigger increase. They wanted a half a percent increase to 0.75%.

[00:01:23] Sheldon MacDonald: So clearly recognizing that inflation pressures are still around, perhaps more on that a little bit later, you said very little move on UK share prices, we did have some big moves though, on the US Nathan.

[00:01:34] Nathan Sweeney: Yeah, so it was it definitely a volatile week for US equities, but they did end up positive. So that's the second week in a row with a positive return from the US.

[00:01:43] The big news, definitely centered around company earnings, notably meta platforms or Facebook, as we know it.

[00:01:51] So they reported a decline in Facebook's average daily users, and as a result, their share price fell 26% and wiped out a record $232 billion of their market cap. So that's the biggest fall in market cap that we've seen in history for a single stock.

[00:02:12] So the market has been very concerned about FANG stocks as you'll know, what happens if they fall?

[00:02:16] Well, it just happened. And as you can see, not all FANG stocks are the same because we also had results from Amazon and their share price was up 15% on Friday, so some good earnings coming through there helping to support the market, and we saw that positive return for the week.

[00:02:33] Sheldon MacDonald: Staying with earnings. We are looking for some earnings results coming out this week, right?

[00:02:37] Nathan Sweeney: Yeah, so we've got a couple of big names. So we've had, you know, the big hitters have really reported already, but we have Twitter at this week.

[00:02:44] We also have Disney, so if everybody remembers, we had Netflix moving in the opposite direction, so not delivering on earnings. So the question is, will Disney be doing something different and will we see a positive result there?

[00:02:57] Sheldon MacDonald: Certainly lots to look out for this week. Sticking on what's coming this week, let's think about inflation.

[00:03:02] So we did see unemployment data last week we saw actually the unemployment figure rise slightly, and that was due to people returning to the workforce. So not really much cause for concern on that front, but looking for some further inflation data coming this week?

[00:03:20] Nathan Sweeney: Yeah, so I think that that'll be the big focus this week, inflation data coming out of the US it's been, you know, front and center for most people.

[00:03:27] We know that inflation has been averaging about 7% in the US for the last year, if we get a big surprise to the upside, the market's not going to like that.

[00:03:35] Arguably, if we get a big fall to the downside, the market will like that, but the expectation is that that number comes in at a similar level.

[00:03:43] Sheldon MacDonald: And finally, Nathan, you wanted to mention something on the ESG side?
[00:03:46] Nathan Sweeney: Yeah. So ESG is obviously quite a big topic, and we did see during last week that the European securities and market authority, which is also known as ESMA, they're looking to launch a review of ESG ratings.

[00:03:59] So we do know that all of these rating agencies have different ways of looking at ESG, so I think that would be welcomed because the more uniformity we have in that space, the better for investors.

[00:04:09] Sheldon MacDonald: Certainly, I would just say anything that can help give us some consistency across the ratings agencies will help investors.

[00:04:15] Looking at the week ahead again, also just something to note, we've got the Chinese market open again for the first time after a week holiday for the lunar new year.

[00:04:24] So far today, we've seen the Chinese market bouncing back slightly, remember those playing catch up for the recovery that we saw in the US, late in the previous week.

[00:04:33] On the other hand though, the market still concerned about property, we have seen property sales declining further, and all eyes still on Evergrand, who technically defaulted on one of their loans just a week or two ago.

[00:04:46] So certainly lots to look out for this week. Lots going on in markets on the economic side, on the earnings front, it should be an interesting one.

[00:04:54] We look forward to speaking to you again next week.

[00:04:56] Nathan Sweeney: Thank you.