The Monday Espresso is your essential five-minute investment briefing, equipping you with everything you need to know for the week ahead. Marlborough's Chief Investment Officer of Multi-Asset Sheldon MacDonald and Deputy CIO Nathan Sweeney summarise market events over the past seven days and preview the key events in the week ahead, while also sharing their expert insights.
Monday Espresso Podcast - 2nd May 2023
[00:00:00] Sheldon MacDonald: It is the 2nd of May today, we had a fairly quiet week last week, at least until right at the end. For the week, we had the US and Japan up around 1%. We had the UK down about a half percent. Europe down about 1%. Bond markets also slightly weaker, but not too much change. The biggest news came, as I said, towards the end of the week when we saw First Republic Bank go to the wall.
[00:00:24] Sheldon MacDonald: Now this hot on the heels of Silicon Valley Bank. Where we had the turmoil a couple of weeks ago. This time around, no real sign of any systemic problems JP Morgan has now taken over First Republic Bank. Deposits have been guaranteed. So as I say, no systemic spillover. We did though in the wake of the Silicon Valley Bank episode, they, they certainly have been tightening in credit conditions and that perhaps has put a, a damper on some of the growth in the economy.
[00:00:54] Sheldon MacDonald: In the meantime, though, we had a continuation of earnings coming out last week. We've got Scott on the line this morning, Scott, US earnings last week.
[00:01:02] Scott Truter: Yep. So we're about halfway through the earning season in the US and generally there've been some surprises on the upside.
[00:01:10] Scott Truter: An interesting indicator can be future earnings that they announce. We've been seeing these have been revised upwards as well, so this might be suggesting that companies are starting to stabilize and get to these normalized conditions. One big surprise was META'S earnings, and we saw their share price got 14% because of that earnings beat.
[00:01:30] Sheldon MacDonald: Yep. So halfway through and still plenty of big companies still to report, but so far signs generally seem quite positive, as you say, Scott.
[00:01:39] Sheldon MacDonald: We've got Raj on the line as well today. Raj, turning then to GDP. So we did see a report on GDP in a couple of areas last week.
[00:01:48] Raj Manon: Yes, we did. So in the US we had the quarterly GDP numbers come out, and they came in at 1.1%. That was against an expected 2% and that's coming after a higher reading of 2.6% in the previous quarter and 3.2% in the quarter before that.
[00:02:08] Raj Manon: So we are seeing signs that the economy is losing some momentum in terms of growth.
[00:02:14] Sheldon MacDonald: So that decline in momentum as I mentioned earlier, perhaps some impact already from the tightening and the credit conditions from the banking crisis. Not really yet seen as a sign of panic though.
[00:02:25] Raj Manon: No, because we are seeing some positive signs on the earnings front and also some positive signs in the wider economy.
[00:02:33] Raj Manon: The labour market continues to be quite healthy, some positive signs there, and also in other parts of the economy like the housing market too. We're starting to see some positive data coming out as well.
[00:02:45] Sheldon MacDonald: Market participants also taking it fairly positively, the fact that the economy isn't overheating and that might mean perhaps less requirement for rate hikes.
[00:02:54] Sheldon MacDonald: Now of course, we do have the Fed and the ECB both meeting this week.
[00:02:59] Raj Manon: We do, and in the US the expectation is that we'll see another smaller rate increase of 25 basis points, and the expectation is that that will be the last. In Europe, there's also an expectation that we'll see a 25 basis point increase there, but they're not as far along in their interest rate rising cycle.
[00:03:23] Raj Manon: So the expectation there is it won't be the last.
[00:03:27] Sheldon MacDonald: So a week ahead. The big news then clearly those central bank meetings, we do also have a labour report out of the US that'll be closely watched because that's something that the Fed is, is really focused on making sure that the labour market starts to ease any overheating and the labour market might keep the pressure on rate hikes.
[00:03:44] Sheldon MacDonald: And of course, we've got a continuation of earning season. Interestingly though what you might see or might hear heating up is discussion around the US hitting their debt ceiling limits. Scott, what's this all about?
[00:03:57] Scott Truter: Okay, so the way the US government works is that they have a mandated maximum amount that they can borrow, and those borrowings are used to pay for things like federal wages and other federal bills.
[00:04:08] Scott Truter: So when they hit the limit, they physically cannot pay anymore and there needs to be an agreement to increase this debt ceiling and with the split between the upper and lower house, it can lead to a little bit of an impasse.
[00:04:20] Scott Truter: So as you get closer to the ceiling and US Treasury Secretary, Janet Yellen has warned, that could be as soon as the 1st of June, it will heat up in the press and also as those discussions between the parties, and you'll probably see both sides using it as a bit of a bargaining chip for other legislation to get through. But whilst this all sounds very serious and gloomy, you know it is widely they expected that they will come to an agreement prior to the deadline.
[00:04:46] Sheldon MacDonald: Yeah, so certainly not the first time in, the past couple of years we have seen this become a topic from time to time, and as you say, inevitably they do reach an agreement. We have had a couple of occasions when it's got pretty close, they have led to partial government shutdowns, and that itself can then impact the economy.
[00:05:03] Sheldon MacDonald: But as I say, we still have probably around about a month, perhaps more before we really get to the wire. Hopefully before then sense will prevail and we will get a, a reasonable agreement between the parties there. Anyway, as always, lots to look out for, lots to watch, and we look forward to speaking to you again next week.