NAB Morning Call

Less Trump trade, more tech

Tuesday 23rd July 2024

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If markets were being driven by Trump-trade, the thought that he might have a more credible contender hasn’t had much impact. But what were we expecting? Phil talks to NAB’s Taylor Nugent about whether, beyond bitcoin, the Trump-trade was a figment of our collective imaginations. Instead, the focus is back on tech, particularly as the first two of the Magnificent Seven (Alphabet and Telsa) report their earnings this time tomorrow. The surprise yesterday was a 10bp cut in China’s 1-year and 5-yea loan prime rates. But is it too small to have much impact?

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Duration:: 11m
Broadcast on:: 22 Jul 2024
Audio Format:: mp3

Well, there wasn't much response to the withdrawal of Joe Biden from the presidential race. We saw big rises in the share market, though, but is that a response to politics? As far as data is concerned, well, there's not much happening. China has dropped the loan prime rate by 10 basis points yesterday, which is not much. But it was a surprise, but will it really make any difference? And the focus now seems to be back on tech and earnings with the first of the Magnificent Seven reporting around this time tomorrow. It's Tuesday. It's 23rd of July, 2024. It's the morning call from now. Good morning. So equities have bounced back in a big way this morning. A 1.6% lift in the NASDAQ at close up 1.1% for the S&P, 0.3% for the Dow. The Russell 2000 is up 1.7% as well. So it is a broad base recovery that we're seeing in the United States this morning. And it's extended to Europe as well, where the U.S. trucks 50 is up 1.5%. The Dax closed up 1.3%. We've got a small fall in the U.S. dollar on the DXY, a small rise in the euro and the pound, very small moves. But the Aussie dollar down 0.7% to 66.4 U.S. cents. We'll look at why that is. And the Yang is up a quarter percent as well. And bond yields generally higher, up just one basis point for 10 year treasuries, but up three for German buns up four for 10 year gilts in the U.K. Aussie 10 year yields are up two basis points yesterday to 4.3% on futures. Now four basis points higher than that. And oil is down. WTI and Brent, both down about 0.4% this morning, Brent around 82.30 as we record this. And Taylor Newton is with me this morning from NAB in Melbourne. I should mention that Bitcoin, by the way, is down 1% today. So it's not the only sign of the Trump trade. That's what Ray Atoll was saying yesterday. Just look at Bitcoin. Well, it's down. So is that the response to Joe Biden stepping out of the presidential race? And Trump might actually have a contender. But otherwise, apart from that, actually, the Trump trade, I mean, the moves have been very mild, haven't they? Yeah, good morning, Phil. You're a very limited reaction to that news over the weekend that Biden was dropping out of the race. For me, I think both on the way in on the Trump trade. And potentially, if you want to squint and say that there was some evidence of it unwinding overnight, there's a lot more talk about the Trump trade than there is evidence of it in the in the price action. I think what we've seen here, we went into Asia, you know, the US dollar was down maybe 0.1 of a percent US, US yields trading about a basis point lower. And as we look over the past 24 hours, the US yields up marginally because marginally steeper. But as you say, very, very small moves and all consistent with a pretty muted reaction, I think. So you might be something that people talk about that actually doesn't exist. Because I mean, it's because you do wonder, I mean, other than, you know, and Ray was obviously right about Bitcoin, you know, maybe the regulation will change under Trump. So there's a there's a clear reason there for why you might see Bitcoin prices moving, but everything else. I mean, no one really knows. Do they want the what the approach is going to be, you know, except there'll be more tariffs. But you know, that could that could be on either side of politics. I'm not really quite sure what people are basing their buying decisions on and calling it the Trump trade. Yeah, as you say, there's still, you know, a lot of uncertainty are there both about, you know, what policy eventually eventually looks like and how the how the election is going to turn out both at the presidential and the congressional levels. But yeah, I suppose, you know, when you look at betting odds, for instance, for who will be president, it's certainly the case that despite, you know, Democrats seemingly coalescing pretty quickly around Harris as the as the kind of new presumptive nominee, you know, it still still logs on for for a Trump victory, according to betting markets, at least down from around 70% to around 60% and still, you know, a lot to go in this in this race. And so I think, you know, it's a bit a bit of uncertainty at this stage. And you know, not too much in terms of conviction about what the, you know, a post November election and a new presidency will look like in the US. But just, you know, quickly on that, I think it is worth noting that a number of high profile Democrats have put their support behind Harris. And so that includes Nancy Pelosi, which also includes a bunch of kind of potential candidates that could have been, you know, running running against her. So, you know, a few high profile governors have also supported her as well. And so, you know, it does seem to be that she, you know, support is is firming around her pretty quickly, although Obama still will hold out interestingly. Yeah, so far, but we could say that about Nancy Pelosi an hour ago, that's sort of like a grater Lewis and news as well, isn't it? But look, I mean, the big question is who's she going to choose as a running man? And then how is she going to perform up against Donald Trump? I mean, she might give Donald Trump a run for his money in a TV debate whenever, you know, whenever we have one, if we have one, and that could change things, couldn't it? But so then maybe there will be a Trump or an anti Trump trade. Who knows? But look, let's look at, let's look at real stuff, meanwhile. And the big surprise yesterday was that China cut the loan prime rate by 10 basis points. So two questions on that. What are they hoping to achieve? And will it work? I mean, 10 basis points isn't much, is it really? Yeah, so that was interesting. Certainly was an unexpected move in China. They held the MLF rate stable last week, but certainly, you know, this kind of shift towards what they what is the seven day reverse repo rates or short term lending rate does seem to be more of a focus of policy. We heard that from, from the PBOC governor in June, the policy would be shifting in that direction. And that was the first cut since, since August. And it was quickly followed by a reduction to the loan prime rates, which are the reference rates that banks use for for lending through the economy. So, you know, some, some shift towards further easing. But as you say, only 10 basis points, those kind of concerns about, you know, further adding further depreciation pressure to the, to the you are not still in the backdrop and still a bit of a constraints on, on too much easing. And I think also you look at, you know, where the, the challenges of the Chinese economy is facing at the moment. And there is, you know, certainly a, you know, not a huge amount of demand for, for lending and not a huge amount of appetite for credit fuel, fuel growth in certain sectors of the economy as well. And so I think all of those are, are challenges to further easing and mean that, you know, monetary policy alone is not going to, to reverse the growth momentum. In saying that, I think, you know, this move, the timing of it is, is important and I think instructive as well. We had the outcome of the, the third plenum meeting last week. We saw the, um, I communicate on the back of that out, out on Sunday and, and some other commentary around that as well. And while that's usually kind of a longer term structural document, there were a few nods in there to, you know, needing more support, noting that the, uh, the current growth performance was, was weak and, and noting that, um, officials are still committed to those annual growth targets. And so, you know, we got those growth numbers out of China recently. They were, they were soft and, you know, added some question marks about whether the momentum was strong enough to keep that kind of around 5% growth target in play. Um, we've had, you know, a, a chorus of, of commentary from officials suggesting that they're still committed to that. And we've seen it backed up pretty quickly with some incremental steps. So, you know, this won't fix it all on its own, but maybe there is some hope there that kind of brought a support and, and more, uh, more support from the fiscal side will be, will be coming as well. So it's sort of like a, just reinforcing what was said in the third plenum then, wasn't it? Sort of like, yeah, it's a longer term strategy, but we're going to get cracking on it. Uh, how about tomorrow? Uh, so it doesn't matter that it's not a great deal, at least it shows the direction of travel. Maybe that was the, the thing behind it. Let's look at currencies though. Two, two in interesting moves. First of all, the Aussie is down, not because of risk, but because commodity prices, I think, isn't it? This would be part of it. And then the Yen, one of the strongest, uh, performers, even though, you know, treasury yields are higher. But I guess this is, uh, all on that question of what the Bosch does next week. Uh, yeah. So interesting across currency markets, you know, the, the Aussie dollar, I think though, you know, that story we talked about in, in China, there was certainly was a little bit of, uh, you know, weakening pressure on the, on the renminbi on the back of that. The onshore, you are not near. It's kind of trading ban and CNN losing a little bit of ground as well. And I think, you know, pretend, you know, that certainly, uh, could have fed into that Aussie dollar weakness. And then the other part of that story, uh, you know, commodity prices are a big part of that as well. And kind of, you know, we saw oil down the end of last week that was, that was down again, kind of broad based weakness in, in commodity prices. And I think, you know, despite, you know, the, the potential optimistic story there about, you know, could this be a recognition that growth is, and the demand side of the economy in China is, is insufficiently, um, insufficient to achieve their aims. You know, I think overall, there wasn't much out of the third planet to kind of, you know, calm nerves about, about Chinese longer, um, longer and all short term. And the strength in the yen then today. What's the yen? You know, it's, it's interesting. You said there, it's a little bit in contrast to what we've seen in, in yield moves, but you know, they are, they are only small yield moves. Um, some, some Bloomberg reporting on, um, citing people familiar with the matter for what the bodge is likely thinking, heading into the July meeting next week is, is worth mentioning, whether that's kind of directly related to the, to the yen move is a, a different question. But you know, certainly, you know, the key takeaway there is no decision has been made yet. Um, but you know, interesting that there was, uh, some notes that the kind of softness in the consumer backdrop is giving some bodge officials pause about whether they can raise rates as, as soon as July. All right, New Zealand trade numbers. I mean, this feels a bit like ancient history, because it was just after the podcast yesterday. I'm not much more if there's much we can say about it except, I mean, good, good exports fell by 0.1% in June. Uh, but goods imports fell by 13%. So the surplus rose quite a bit, but that falling imports. I mean, that is just another indicator. Isn't it of how, how much consumption is falling in New Zealand at the moment? Yeah, I think that's right. Not too much to take away there, but you know, that, that kind of rebalancing of, of domestic demands. Um, you know, you can see that in that, that import story as well with imports kind of contracting as, as demand moderates. And not much today, nothing at all for Australia, really, all the actions later on in the way, nothing around the world really a second tier date of all the action later on in the week. So, uh, the Richmond Fed manufacturing index existing home sales, then, you know, two bits of news from the United States. And seems pretty quiet in Europe as well. Yeah, that's right. Very, very quiet, calendar, that kind of quiet week in, in Australia continues. Um, and then yeah, I think the only thing to, to note in the US and it's very much second tier data calendar is, earnings continues and we get the, the first of the magnificent, magnificent seven reporting after the close tomorrow. So, you know, a tech drove some of the strength in, in US equities that we saw, uh, today. Um, and, you know, so it'll be interesting to see whether that earnings kind of support that, um, that, you know, shift back away from the, the themes of rotation and, and small cut that performance that we'd seen over the last week or two. Yeah. Half a bit in Teslo, isn't it? Uh, after the close, uh, tomorrow, which will be just about the same time we, we bring the podcast out tomorrow, but busy day. Actually, it's not just, uh, tech, there's a big day for earnings across the board tomorrow. So being all of that to you, that should, uh, jolly things up a little bit. Let's hope so anyway. And we'll catch you soon. Thanks, Tyler. Thanks, Phil. And that is the morning call. It's Tuesday morning. I'm Phil Dobby for now. I'm back again tomorrow. I'll see you then. Thanks for listening.