Monday Espresso Podcast 19th April 2022

[00:00:00] Sheldon MacDonald: It's the 19th of April, we hope you all had a great Easter break and are ready to get back into it.

[00:00:06] We had a mixed week last week, certainly inflation's still the watchword still on everybody's lips, wondering what inflation is going to do, but last week and a fore-shortened week, we saw the first Q1 US earnings results. Nathan.

[00:00:19] Nathan Sweeney: Yeah. So earnings have kicked off in the US, the big focus last week was some of the banks were reporting, but to be fair, the market didn't really pay much heat to earnings because it was very much focused on that inflation figure that came out in the US and the UK.

[00:00:34] Sheldon MacDonald: Well, certainly in the UK, we saw inflation figures, record numbers, still being driven by oil, energy prices, largely food costs also rising, similar is true in the US

[00:00:44] Nathan Sweeney: Yeah. So if we look at the figure in the US, inflation came out at 8.5%, so this is a 40 year high in terms of inflation, but the figures were largely as expected.

[00:00:55] But the question that everybody's asking is, are we now at peak inflation? And there's a couple of reasons why the marketplace thinks that's the right question to ask at this time.

[00:01:05] Firstly, if we look at the oil price, from March as a whole, the oil price averaged around $108 a barrel and if we look out April, thus far, oil prices averaging around a $100 a barrel, so that would lead into lower inflation.

[00:01:20] And then secondly, there's a couple of other factors that feed into inflation, such as housing. And we all know that central banks are raising rates and as interest rates rise, this is going to cool or increase mortgage rates, which will cool house prices.

[00:01:36] So this is another factor which leads a lot of commentators to believe that we may be at the point where we see peak inflation. Obviously we'll have to watch this space.

[00:01:44] Sheldon MacDonald: Now certainly a matter of watching the space, developments in the Ukraine over the weekend, slightly worrying with new attacks in the West of the country and that, obviously, potential knock-on affects.

[00:01:54] Over the week, we did see the oil price rise again, so if oil price does rise further, obviously, it could have knock-on impacts on the energy price and on inflation.

[00:02:03] We still are expecting interest rate hikes to come from the major central banks.

[00:02:08] The next meetings though are only in May, so it's a matter again, as we said of watching the space. Over in the East, though, we are seeing some developments. Scott, can you fill us in on what you're seeing there?

[00:02:18] Scott Truter: Yes. So in South Korea there was a surprise interest rate rise this week, 25 basis points to 1.5%. And then that's around the concern about the ongoing war in Ukraine, but also inflation rate pressures.

[00:02:31] So they're not as severe as we're seeing in the UK and the US, but they're really trying to act now before that gets out of control and that's led markets lower last week.

[00:02:40] Sheldon MacDonald: On the other hand, we saw the bank of China moving in the other direction.

[00:02:44] Scott Truter: Yeah, that's right, so there's definitely less concerned about inflation there. Their CPI target for the year is 1.5%.

[00:02:50] They cut their reserve requirement ratio by 25 basis points that adds a bit more liquidity into the market. And we also saw positive news on the GDP front, so that grew faster than expectations, 4.8% versus 4.2% as the forecast.

[00:03:06] Sheldon MacDonald: So certainly some different dynamics playing out over there. Looking at the week ahead, we have a continuation of the early reporters in the US Q1 earnings reports. We've got some of the big heavyweights reporting this week on the growth side, we've got Netflix and Tesla, some of the stalwarts Johnson and Johnson, Proctor and Gamble and then also some of the financials, American Express and Bank of America.

[00:03:28] So certainly an interesting week to watch out, to see how corporate America is fairing in these difficult periods.

[00:03:33] Apart from those US earnings figures, we've also got run-off elections in France happening this week, we've got the war in Ukraine, obviously continuing, and we've also got the IMF due to release their revised forecasts.

[00:03:45] So definitely lots going on, and we look forward to speaking to you again next week.

[00:03:48] Nathan Sweeney: Thank you.

[00:03:49] Scott Truter: Thank you.