Podcast Summary
This podcast episode delves into the dynamics of global equities and rates, with a particular focus on the US, China, and Japan. The hosts discuss the pressure on long-term global interest rates, the shift in demand dynamics for US sovereign duration, and the breakdown in global equity markets. They also touch on the current earnings season, the sentiment in the market, and the performance of various commodities. The episode features a detailed analysis of the US, China, and Japan’s economic and financial landscapes.
Key Takeaways
Pressure on Long-Term Global Interest Rates
- Historic Rise: The podcast highlights the fastest median rise in 10-year global rates in history, driven by factors such as increased oil prices, inflation resurgence, and the Federal Reserve’s decision not to cut rates as much as anticipated.
- Inverted Yield Curve: The hosts discuss the inverted yield curve and the lack of term premium on the 10-year yield, indicating that the risk is further to the upside for long-term yields.
- Shift in Demand Dynamics: Japan and China have become net sellers of US sovereign duration, leading to a shift in demand dynamics.
Global Equity Markets Breakdown
- US Equity Market: Despite poor breadth and a few stocks leading the way, the US equity market remains strong compared to the rest of the world.
- Global Markets: Global equity markets, including China, Japan, and Europe, are experiencing a breakdown, with technical levels being violated to the downside.
- China’s Impact: China’s lack of reopening stimulus and disappointing economic data have contributed to the decline in global equity markets.
Earnings Season Insights
- Negative Earnings Growth: Despite beating estimates, actual earnings growth has been negative, indicating a decline in earnings.
- Market Reaction: The reaction to earnings has been negative, with companies gapping down instead of just reacting to beats or misses.
- Conflicting Sentiment: There is conflicting sentiment in the market, with some believing that beating estimates is enough, while others are concerned about the lack of revenue and earnings growth.
Commodity Performance
- Oil Prices: Oil prices are retrenching due to lopsided long positions, but the supply-demand dynamics suggest a potential move back into the low 90s.
- Gold Prices: Gold prices have experienced an exhaustive rally driven by fear, and there is room for a potential retrenchment.
- Agricultural Commodities: Corn and wheat prices are showing constructive price action, with solid fundamentals for the later part of the year.
Country-Specific Analysis
- US: The podcast advises caution for the US due to inflation concerns, despite a Goldilocks-like scenario with slightly rising activity and slightly decreasing prices.
- China: China’s confidence issues and the uncertainty surrounding its crackdown on corruption have eroded investor confidence and impacted trade with Europe.
- Japan: Japanese equities are undervalued, with a price-to-book ratio of 1.3 and a current PE ratio of 12.6. Earnings growth for Japanese companies is at 24%.
Sentiment Analysis
- Bullish: The hosts express a bullish sentiment towards Japan and India, citing factors such as undervalued Japanese equities and India’s controlled inflation. They also show optimism for the short end of the yield curve and certain commodities like corn and wheat.
- Bearish: A bearish sentiment is expressed towards global equity markets, particularly China, due to disappointing economic data and lack of stimulus. The hosts also show concern for the US market due to inflation worries and the narrow appreciation in a handful of stocks.
- Neutral: The hosts maintain a neutral stance on oil and gold prices, acknowledging the current retrenchment but also noting potential for future movements based on supply-demand dynamics and market sentiment.
