Monday Espresso Podcast 22nd August 2022

[00:00:00] Nathan Sweeney: It's the 22nd of August, today I'm joined by Gurjit Soggi, portfolio manager and our European analyst.

[00:00:06] Nathan Sweeney: We'll get some insight from Gurjit on that region. As always, there was quite a lot happening, so people may have missed some of the news there. Let's start with a quick look at market moves last week.

[00:00:16] Nathan Sweeney: We had positive returns in the UK and Japan, both markets were up about a percent. In the US markets snapped a string of four consecutive weekly gains for the S&P in NASDAQ.

[00:00:26] Nathan Sweeney: The S&P was up about 1% for the week. Also looking at oil, oil fell two and a half percent for the week. Concerns there that lower demand may come from slowing growth.

[00:00:38] Nathan Sweeney: So let's take a quick recap of what was driving market moves last week.

[00:00:43] Nathan Sweeney: So last week we had the minutes from the US Federal Reserve or central bank meeting coming out.

[00:00:48] Nathan Sweeney: They showed that policymakers or all the committee members within the central bank agreed that they need to keep raising interest rates.

[00:00:57] Nathan Sweeney: So what they'd like to see is inflation falling substantially before they consider reducing interest rates.

[00:01:05] Nathan Sweeney: So a lot of people are calling this, the Fed pivot.

[00:01:08] Nathan Sweeney: So, what is the Fed pivot? What is this all about?

[00:01:11] Nathan Sweeney: Basically, will we see the Fed or the central bank in the US quickly change their view on tackling high inflation to reduce interest rates?

[00:01:22] Nathan Sweeney: The reality is all of this is data dependent, so you'd have to see a dramatic fall in inflation before the central bank starts to consider reducing interest rates.

[00:01:32] Nathan Sweeney: So basically the central bank is saying that the market is getting a little bit ahead of itself in thinking that the central bank will reduce interest rates at a fast pace.

[00:01:43] Nathan Sweeney: Hence why you've seen the rally in the market slow up last week, after a strong run over the last month.

[00:01:49] Nathan Sweeney: So the US central bank is definitely concerned that inflation may persist. So, what does the inflation picture look like in Europe, Gurjit?

[00:01:57] Gurjit Soggi: So it's not a picture that, investors want to see following on from the record inflation number in the UK, which hit 10.1% in July. The highest level since 1982.

[00:02:08] Gurjit Soggi: Inflation in the Euro area was also up, hitting 8.9% in July compared with 8.6% in June.

[00:02:17] Gurjit Soggi: This compares with an inflation rate of 2.2% a year earlier, while the impact of energy slowed over the month, food, alcohol, and tobacco, and non-industrial goods and services drove the increase. The core inflation figure, which strips out volatile components such as energy increased from 3.7% in June to 4% in July.

[00:02:41] Nathan Sweeney: Yeah, so it definitely appears like the European central bank has got a lot to do to get inflation under control. So is there any one thing that could result in a substantial fall in inflation for this region?

[00:02:52] Gurjit Soggi: Interesting you should raise that. The Turkish president, Erdoğan, announced that he is ready to support peace talks between Russia and Moscow.

[00:03:00] Gurjit Soggi: This followed a meeting with President Zelensky in the Ukraine last week and has been acting as an intermediary between Russia and the Ukraine. Erdoğan has been playing a balancing act since the start of the war, condemning the invasion and selling Ukraine combat drones.

[00:03:18] Gurjit Soggi: While at the same time, refusing to join NATO partners in sanctioning Russia. Turkey is dependent on Russia, not only for the supply of oil and gas, but also on tourism.

[00:03:29] Gurjit Soggi: The move raises some hope that a resolution to the conflict is possible.

[00:03:34] Nathan Sweeney: Okay, thank you Gurjit. Insightful as always.

[00:03:37] Nathan Sweeney: So let's take a quick look at some ESG news.

[00:03:39] Nathan Sweeney: So I saw last week that Alphabet or the parent company of Google, they had issued a sustainable bond for about $5.7 billion.

[00:03:49] Nathan Sweeney: Now this was back in 2020, but they've used the money from that bond to basically revamp a number of their building.

[00:03:57] Nathan Sweeney: And so about 14 of their buildings are now green buildings, which means that they're a hundred percent sustainable, are using energy, so they're off the grid, essentially, it's like solar power, etc, but they spent about $2.5 billion of that $5.7 billion specifically on improving these buildings.

[00:04:15] Nathan Sweeney: So it just goes to show that companies are trying to improve their carbon footprint and raising money in the bond market to help them achieve that goal.

[00:04:23] Nathan Sweeney: So finally, we'll take a quick look at the week ahead. Investors and economists will turn their attention to the Rocky Mountain town of Jackson hole.

[00:04:31] Nathan Sweeney: So why is that? It's because the US federal reserve holds a three-day symposium or conference there and what you'll find is that you get economists and central bankers from all around the world, turn up for this conference, so there'll be a lot of focus on what they have to say.

[00:04:48] Nathan Sweeney: No doubt, the big topic of discussion will be inflation, and the highlight of the week will be the chairman of the US central bank, Jerome Powell, and people will obviously listen to what he has to say because he can drive markets. So that's it for me.

[00:05:04] Nathan Sweeney: Thank you for listening. Goodbye and have a great week.