Monday Espresso Podcast 28th November 2022

[00:00:00] Sheldon MacDonald: It's the 28th of November today, Cyber Monday, the Monday that follows Black Friday. Morning Nathan, Black Friday sales this year? First indications seem to be that they were pretty good.

[00:00:12] Nathan Sweeney: Yeah, so I think you've seen shoppers out in droves looking to take advantage of all of those price cuts. I suppose the key question is, are people front running all the Christmas spending or will we see that continued spend into Christmas, and we'll get an indication of that as the data comes out.

[00:00:27] Sheldon MacDonald: Yes. As you say, the data comes out, what we do have out this week is consumer confidence readings in the US, that could also give us an indication on the mood of shoppers.

[00:00:37] Nathan Sweeney: Yes, definitely and if we look at the consumer confidence data, it looks like it's bottomed back in June of this year, and that actually coincides with falling inflation in the US.

[00:00:47] Nathan Sweeney: So the consumer is feeling a little bit better about the outlook going forward, and hopefully that will continue to improve in the US.

[00:00:54] Sheldon MacDonald: Yes, we also get the jobs report out this week. Now, what we've been saying for, for some time, there's a recession forecast, but it's an odd recession, a strange recession, because we're still pretty close to record low unemployment.

[00:01:08] Sheldon MacDonald: Now we'll see if the, the recent tech layoffs that have been in the news are enough to move the dial. On the other hand, we've still got the back to work demand companies still trying to hire people hand over fist. There's still too many vacancies for the number of workers.

[00:01:22] Nathan Sweeney: Interestingly, actually, if you look at unemployment data, you tend to get about a 15% increase in unemployment before a recession hits.

[00:01:31] Nathan Sweeney: So it'd be a good kind of indicator to see if a recession is coming and if we look at unemployment, it did hit about 3.5%, it's currently at about 3.7%, so we're looking at about a 4% rate to see is a recession comin. So that could be one of the things that, you know, people should watch out for.

[00:01:48] Sheldon MacDonald: One of the other big talking points last week was the Fed minutes, so the minutes after their most recent rate setting meeting, and the consensus seems to be that most of the governors in that meeting supporting a slower pace of rate hikes going forward.

[00:02:03] Sheldon MacDonald: So that's what we expected to see given the communication in the press conference but I think the overwhelming support for the slower pace of growth was slightly unexpected. So bond markets really reacting fairly positively on that news. So a positive week for Bonds last week also, a positive market for equities generally around the world.

[00:02:23] Sheldon MacDonald: Now, the one lingering question or concern is what's going on in China. So we've had the rolling Covid lockdowns, and now we're also seeing people out on the street protesting the policies. Now that could lead to further supply chain disruptions and that, of course could push inflation upwards. On the other hand, by virtue of reducing demand, could be a dampener on inflation.

[00:02:47] Nathan Sweeney: Speaking of inflation actually, we do have Eurozone inflation out this week. So we all know that inflation has been coming down in the US but it's been quite sticky in Europe and the UK but actually the reading this week might be the first sign of peak inflation in Europe. So if we look at the reading that came out in October, it was 10.6%, the expectation is that this figure does come in lower at 10.4%.

[00:03:10] Nathan Sweeney: We have seen things like the oil price coming down quite substantially. So if you look at oil, it was down about 5% last week, so trading below $80 a barrel now and all of that should start to feed through into lower inflation, and again, gas prices as well have come down and gas consumption is lower than expected as we move into winter.

[00:03:31] Nathan Sweeney: So that will be a key driver of lower inflation in Europe, so one thing to watch is gas usage over the winter months.

[00:03:39] Sheldon MacDonald: Of course the tabloids are warning us about another beast from the east, a cold snap here in the UK, probably gonna push up that gas usage. Maybe we finally do need to turn on the heating

[00:03:48] Nathan Sweeney: Or just buy that hat and scarf.

[00:03:51] Sheldon MacDonald: Absolutely. Anyway, thank you very much. We'll speak to you again next week.