Our weekly investing podcast

00:00:10:05 - 00:00:26:00
Jane Parry
Good morning and welcome to the Canaccord Coffee Break podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth. And again this week I'm delighted to be joined by Leah Bramwell, who is our Head of Tailored Investment Solutions from our Chief Investment Office. Welcome back. 

00:00:26:00 - 00:00:28:00
Leah Bramwell
Morning, Jane. Double header for you. 

00:00:28:00 - 00:01:51:00
Jane Parry
Yeah. Two weeks on the trot. Love it. So, as you know, each week on the podcast, we try to cut through the noise and demystify what's going on in the market just so you can feel more informed, more confident, and more in control of your financial future. So this week, Leah, I want to talk about the diversification illusion. Most of us think diversification is one of the simplest rules in investing. But what if your portfolio is far more concentrated than you realise? So this week I'm asking that very question - are you really as diversified as you think? And what's triggered this has stemmed from what's happening in the Korean market, which we talked about in detail a few weeks ago on the podcast. So I'd refer you back to that if you want to hear a bit more about that market, and in particular, the extraordinary rise of a couple of stocks there, which now make up a huge proportion of the Korean market, and that, I think, is just symbolic of this whole concentration risk as opposed to diversification, and really just making sure that people understand what actually is in their portfolio. So grab a coffee, let’s dive on in. Before we get into Korea and why that has triggered today's conversation, could you just help us understand a little bit more about diversification and why it's so important as an investment theme? 

00:01:51:00 - 00:02:02:00
Leah Bramwell
Yes, I think most people will be aware of the don't put too many eggs in one basket, which is your classic diversification metaphor. We often talk about football metaphors in our Canaccord office. 

00:02:02:00 - 00:02:06:00
Jane Parry
Yeah, well, that's because we're surrounded by boys who love football and the World Cup.

00:02:06:00 - 00:02:45:00
Leah Bramwell
Exactly. I don't think we're quite too late for a World Cup reference. So I think it's really helpful to think about your portfolio as a team. And you want some attackers and some defenders. You wouldn't put a team together, which is all attacking, as wonderful as Harry Kane is, but you also wouldn't put together a team which is all defenders usually. For the most part, against most opposition, you want a nice balanced team with some attack and some defence and some midfield. And the same is true of an investment portfolio. You want some things which are providing that attack and some things which can protect you when things go wrong.

00:02:45:00 - 00:02:59:00
Jane Parry
Okie dokie. So, the difference then in terms of what we're talking about today and in particular emerging markets, what's the difference between owning countries and owning themes for a diversification?

00:02:59:00 - 00:03:24:00
Leah Bramwell
So within an emerging market bucket you have a very strong exposure to a particular theme. So whilst you have exposure to lots of different countries, you might also have exposure to the same theme which appears across different countries. So you need to be aware of what is underlying the index or the country that you're thinking about investing in.

00:03:24:00 - 00:03:28:00
Jane Parry
So when investors hear emerging markets what is it they think they're buying? 

00:03:28:00 - 00:04:06:00
Leah Bramwell
So, usually, people are aware that emerging markets span the economies which don't make up the developed market indices. So the most commonly understood and held emerging markets would be China, India, Taiwan, South Korea, Brazil. Those are the five most well-known. But actually, there's a huge whole world of emerging markets and below emerging market at frontier markets. Frontier markets which have stock markets and investable companies but don't quite make up the emerging market status yet.

00:04:06:00 - 00:04:14:00
Jane Parry
So developed, emerging and frontiers. Okay. So the Korean market, where would that sit?

00:04:14:00 - 00:04:20:00
Leah Bramwell
That is firmly in the emerging market bucket and is one of the largest emerging markets.

00:04:20:00 - 00:04:29:00
Jane Parry 
So let's have a look at that in a bit more detail. And particularly the two equities that we talked about a few weeks ago and what's happening there.

00:04:29:00 - 00:04:29:00
Leah Bramwell
Yeah. So there's two semiconductor companies within the South Korean market, Samsung Electronics and SK Hynix. And those have had phenomenal runs year-to-date. And at a point in time, those two companies made up more than 50% of the South Korean index. Now there has been a fairly sharp pullback over recent weeks, so that weighting has come down, but it's still significant within the context of the index.

00:04:59:00 - 00:05:10:00
Jane Parry
So I guess also if you've got a Korean, you own a Korean fund or an emerging market fund, you're heavily reliant on those two companies as part of -

00:05:10:00 - 00:05:35:00
Leah Bramwell
Exactly right. So you're very exposed to that theme, particularly if you're holding a specific Korean tracker, but also within an emerging market tracker, because within emerging markets, more than 75% of an emerging market index is made up of the top four emerging markets. So that would include South Korea, Taiwan, China and India.

00:05:35:00 - 00:05:37:00
Jane Parry
So not diversified at all then.

00:05:37:00 - 00:05:39:00
Leah Bramwell
Not particularly diversified.

00:05:39:00 - 00:06:00:00
Jane Parry
Okay. So most people I think assume that if they hold an emerging market fund, it will give them broad exposure to growing economies around the world. But increasingly then from what you've just said, they are buying actually into the global AI story rather than the local economic growth story.

00:06:00:00 - 00:06:35:00
Leah Bramwell
Yes, exactly. And not all indices are made equal. And I think it's worth bearing in mind also that this applies to a global index as well. You know, if you hear a global index you think, oh, I'm getting exposure to the global equity market. But actually, that's heavily concentrated both in the US and within the US, in the very large companies that make up the US index. So this isn't an EM specific phenomenon. This is the challenge with passive investment which is those indices. They’re tracker funds. So you just need to be aware of what's making up -

00:06:35:00 - 00:06:43:00
Jane Parry
So you need to really know exactly which index you're tracking and therefore what is in your portfolio beneath the surface.

00:06:43:00 - 00:06:44:00
Leah Bramwell
Exactly.

00:06:44:00 - 00:06:58:00
Jane Parry
Yeah. Okay I understand. So what other markets then might be more interesting maybe in the emerging market space that are perhaps uncorrelated with AI, because AI is the concentration risk I think is what we're talking about, isn't it?

00:06:58:00 - 00:07:31:00
Leah Bramwell
Yes, exactly. So your AI concentration risk, you're trying to look for something that you're not getting from a global or a US market tracker. That most people when they're investing in emerging markets, that's what they want. And there are lots of markets that will provide that on the smaller end of the emerging market scale or the larger end of the frontier markets. So markets such as the Philippines, Kenya, Vietnam, Indonesia, South Africa, even India, which is a very large emerging market, has relatively little exposure to that theme.

00:07:31:00 - 00:07:40:00
Jane Parry
Okay. Thank you. And if someone listening does own an index or tracker fund, what are the two or three things they should check to understand what they're really invested in?

00:07:40:00 - 00:08:09:00
Leah Bramwell
So your first thing to check is what the companies underlying that index, what they are, and also to make sure that if you're owning multiple trackers, like a US tracker and a global tracker, that you're aware that there's a very high level of crossover between those two trackers. So be aware of what's underlying your holdings. And beyond that, be aware of the themes. So if you've got a Korean market tracker and a US market tracker, be aware that -

00:08:09:00 -00:08:10:00
Jane Parry
You're going to be heavy on -

00:08:10:00 - 00:08:12:00
Leah Bramwell
You’re going to be very heavy on semiconductors.

00:08:12:00 - 00:08:13:00
Jane Parry
Yeah.

00:08:13:00 - 00:08:53:00
Leah Bramwell
Yeah, yeah. So, I'm not saying at all that you don't want to have exposure to those areas. It's prudent to have some exposure to those areas. But you want to be aware of how much you have. And we talked about it a bit last week, didn't we, that markets can be very volatile and there can be a lot of noise. And this week the noise is around worries about the CapEx capital expenditure plans of these AI companies and markets are wobbling. And the risk is if you have too much exposure to that particular theme, you see your portfolio go down maybe more than you expected it would. And then you make bad decisions because you're panicking or you're fearful. Those behavioural biases come in once again.

00:08:53:00 - 00:09:01:00
Jane Parry
Yeah. Understood. So just thinking about emerging markets, what role should they play in a long-term portfolio then?

00:09:01:00 - 00:09:06:00
Leah Bramwell
So emerging markets make up over half of the world's population.

00:09:06:00 - 00:09:07:00
Jane Parry
They’re huge markets.

00:09:07:00 - 00:09:57:00
Leah Bramwell
A huge market in demographic terms and nearly half of the world's GDP. And that has risen quite dramatically in recent decades. But they still make up only about 10% of global equity markets. I think that's a really interesting dynamic. That's a really powerful demographic and economic factors at play. And that has been the case for many years, even decades. But I think if we're looking forward 30, 50 years, if you're looking at a child's portfolio, for my young children, tech is absolutely a theme that I want to play. But EM is also very, very high on the list. If you look at how you think the world is going to change over future decades not one, three, five years, but future decades, I think emerging markets are really, really important exposure to have in the long-term.

00:09:57:00 - 00:10:03:00
Jane Parry
Presumably accepting that they're going to be a bit riskier, a bit more volatile, so it is a long-term investment.

00:10:03:00 - 00:10:26:00
Leah Bramwell
Exactly. And I think that means that you should be very careful about how you're exposing yourself to that and really look for managers that have proven track records and expertise investing in emerging markets. And there are a lot of those. And it's possible to outperform for active managers in emerging markets in a way that's been really difficult in the US, in particular in recent years.

00:10:26:00 - 00:10:31:00
Jane Parry
And presumably, you and the team are busy finding those fund managers for clients all the time. 

00:10:31:00 - 00:10:32:00
Leah Bramwell
Absolutely. 

00:10:32:00 - 00:11:26:00
Jane Parry
Yeah. Great. Thank you very much. Let me sum up what is in my Canaccord takeaway coffee cup today. There’s quite a lot in there actually, quite a lot of emerging markets. We talked about the diversification illusion and that fund labels perhaps don't tell the whole story. And you think you're in an emerging market fund, but actually you might be in a global AI fund really. And therefore, diversification isn't just about how many countries you own or think you own. It's really about how many different drivers of return you own beneath the surface. Yeah. Very interesting. I think I might need to go and look at what funds I'm in. Thank you for listening to the Coffee Break podcast today. We hope you've enjoyed it. Don't forget to hit follow on your preferred podcast channel of choice so that you never miss an episode. And as always, we'd love to hear your thoughts! Drop us an email coffeebreak@canaccord.com. Thank you.

00:11:26:00 - 00:11:28:00
Leah Bramwell
Thank you, Jane.

00:11:28:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for this specific investment objectives, financial situation or needs of any specific person or entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:28:00
Jane Parry
Good morning, and welcome to the Canaccord Coffee Break podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth. And this week I am delighted to be joined by Leah Bramwell, who is from our Chief Investment Office and is our Head of Tailored Investment Solutions. Morning. 

00:00:28:00 - 00:00:29:00
Leah Bramwell
Good morning Jane. 

00:00:29:00 - 00:00:30:00
Jane Parry
Welcome back. 

00:00:30:00 - 00:00:31:00
Leah Bramwell
Thank you. 

00:00:31:00 - 00:01:36:00
Jane Parry
As you know, we are here each week to try and cut through all the market noise, demystify what's going on, and hopefully you will feel more informed, more confident and more in control of your financial future. So this week Leah, I wanted to discuss a couple of headlines, but kind of get a little bit beyond the headlines and think through some of the noise that we hear. So this week's headlines have been around falling inflation in the US; obviously a new government, new prime minister arriving into Downing Street. But I think one of the biggest challenges for clients, for investors and even for ourselves as professional investors is knowing which headlines really matter and how can we sort of cut through all those headline pieces of noise and really work out what really matters? So, let's think about what they can teach us about building wealth over the next decade. So grab your coffee, let's dive on in. So as I mentioned, first off, we have news from the US that their monthly consumer prices fell, I think for the first time in six years, which is pretty good news. So what's happening there?

00:01:36:00 - 00:01:56:00
Leah Bramwell
So as you say, monthly consumer prices fell, driven mostly by a fall in gasoline prices in the US. So that brought the year-on-year rate down to 3.5%. And that core number rising below the consensus expectation. So up 0.2% month-on-month.

00:01:56:00 - 00:02:06:00
Jane Parry
Okay. And the new Fed Chair Kevin Warsh, the US Federal Reserve chair, he's in place now. So what are they making of all of this?

00:02:06:00 - 00:02:58:00
Leah Bramwell
So as we know, Warsh is traditionally viewed by markets as an inflation hawk. So that means that the Fed is likely to lean more towards stability rather than rate cuts which would be pleasing to the markets. So even with a month of soft monthly data or a couple of months of soft monthly data, the Fed's really unlikely to pivot aggressively. 3.5% is still well above the Fed's 2% target. So Warsh has reiterated on numerous occasions that policy makers don't have any tolerance for persistently elevated inflation. And so, we wouldn't expect a month or two of softer numbers, which really is to be expected given the volatility in energy prices to lead to a huge policy shift from the Fed.

00:02:58:00 - 00:03:12:00
Jane Parry
Okay. So all sounds like good news. So going back to what I said at the beginning. How do you distinguish between a noisy data point or one or two months of data versus a meaningful trend?

00:03:12:00 - 00:04:04:00
Leah Bramwell
Yeah. So markets will often react to data points because there's a lot of algorithmic trading that goes on in the markets. And those models can be triggered by headline numbers. So a headline that comes out can lead to buying and selling almost instantaneously, and in combination with a very high level of passive ownership in the market. So people who aren't making active decisions on whether to buy and sell, that can lead to short term volatility around those data points. For longer term investors, though, the structural factors sort of behind that, behind those numbers are much more important. So, we really need to encourage our clients to look through that short-term noise, particularly political short-term noise, but also economic short-term noise to focus on their longer term aims and objectives.

00:04:04:00 - 00:04:19:00
Jane Parry
So I know past performance isn't a guarantee of future performance and all of that. But if you look back over, say, the last 10 or 20 years, what factors have you seen that have generally had the biggest impact on investment outcomes?

00:04:19:00 - 00:04:23:00
Leah Bramwell
So earnings are the main factor that drives -

00:04:23:00 - 00:04:28:00
Jane Parry
So what companies are generating, the revenue they're generating, from doing business.

00:04:28:00 - 00:05:13:00
Leah Bramwell
Exactly. So those are underlined by economic growth, by changes in productivity, by innovation and business adaptation, changes in technology, compounding of returns over time. But earnings in themselves, what businesses generate, are by far the most important thing for long-term returns. The correlation between earnings growth and price movements over time, over long periods of time, is very high and valuation changes. So changes in multiple, which we hear talked about a lot at the moment, what people are paying for those earnings, they dominate the short-term returns. But in the long-term it's that earnings growth which really matters.

00:05:13:00 - 00:05:30:00
Jane Parry
Okay. Can we come back to compounding in a minute. But before then just on short-term, why do people then naturally gravitate to all of these short-term developments when really, it's the long-term drivers which are so much more important?

00:05:30:00 - 00:05:34:00
Leah Bramwell
So there’s a whole field of research dedicated to the question.

00:05:34:00 - 00:05:35:00
Jane Parry
You've got about a minute.

00:05:35:00 - 00:05:42:00
Leah Bramwell
I've got a minute. Why do humans behave as they do when they're considering their finance? I mean, there's a couple of things.

00:05:42:00 - 00:05:44:00
Jane Parry
We're just not logical beings, I suppose.

00:05:44:00 - 00:06:53:00
Leah Bramwell
Yeah. I mean, people are not rational, so humans suffer - I mean, there's lots of biases. But on this particular topic, you know, availability bias. So overweighting recent news over longer term news trends and loss aversion as well. So people feel pain of losses a lot more acutely than they feel pleasure from investment gains. So people are really scared of losing money. And they're not rational necessarily when faced with loss relative to gain and media doesn't help in the sense that there's 24-hour media available at people's fingertips. There's increased sort of gamification of finance. You see through trading apps and on social media. You can read about trends any hour of any day. And so long-term investing feels a lot less exciting than short-term moves. Why would I be delighted with an 8% annualised return when people are talking about making hundreds or thousands of percent in days or weeks or months, it's much less exciting.

00:06:53:00 - 00:07:00:00
Jane Parry
Mind you, I think 8%, if you give me 8% every year, forever, there's got to be far more exciting for me in the long-term, hasn’t it?

00:07:00:00 - 00:07:02:00
Leah Bramwell
Wouldn't that be wonderful? You’d be far better off.

00:07:02:00 - 00:07:03:00
Jane Parry
I'd sleep better at night, wouldn't I?

00:07:03:00 - 00:07:15:00
Leah Bramwell
You’d sleep better at night, and I think, of course, people are a lot less noisy when they're losing money than they are when they're making money. And so you don't hear about the flip side of when those investments go wrong.

00:07:15:00 - 00:07:55:00
Jane Parry
Yeah. Yeah, a tricky one I guess, because you are challenging, challenging humans, natural, as you say, biases, behaviours. So we touched on compounding and we've just touched on there about staying invested for longer. So it sounds like identifying great businesses to invest in is only half the challenge. The other half is having the patience to stay invested long enough for that success to show up in their returns.  So why is patience such an important but often overlooked investment skill? And I guess that relates to the importance of compounding returns over time.

00:07:55:00 - 00:08:07:00
Leah Bramwell
Absolutely. So you've touched upon one of the wonderful hidden mysteries, secrets, undercooked things within finance, which is power of compounding.

00:08:07:00 - 00:08:08:00
Jane Parry
We love a little secret.

00:08:08:00 - 00:09:14:00
Leah Bramwell
I mean, it's the most wonderful thing for investors. Because you just have to sit and watch your money grow over time. And the idea is that if you have invested a pot at the beginning and you're getting an interest rate or return on that, that pot at the beginning, that each year your return on that pot grows because the pot size has grown. And if you look at the numbers on how that works, it is a wonderful chart. And, you know, it's really worth having a look into a power of compounding table for our readers. There's a great book about compounding, it’s called Rich Dad, Poor Dad, and there's a table in there which shows that if you invest early in your career and you leave that money invested and you see it compound over time, you have to invest far, far, far less over the course of a lifetime than if you've left it later on in life. So the sooner that you can start, the better. So power of compounding is a really, really important financial concept for all of our listeners to get on board with.

00:09:14:00 - 00:09:29:00
Jane Parry
Do you know, that's really spooky because that Rich Dad, Poor Dad has just popped up into my, I can’t remember if it was my podcast or my audible algorithm feed this week. Oh, spooky. Must be a really important subject. They must be hearing me. 

00:09:29:00 - 00:09:40:00
Leah Bramwell
It was the one financial book that my parents gave me to read as a child, and I would pass it on to everybody I know because it's one of finance’s most important lessons and so overlooked.

00:09:40:00 - 00:09:48:00
Jane Parry
And my other book club recommendation this week is The Psychology of Money. Morgan Housel.

00:09:48:00 - 00:09:49:00
Leah Bramwell
Yes, that's also a great book. And he covers compounding. 

00:09:49:00 - 00:09:50:00
Jane Parry
Yeah he does. 

00:09:50:00 - 00:10:00:00
Leah Bramwell
And some of the things we've been talking about on behaviour as well. Behavioural finance. So really accessible book and really interesting read.

00:10:00:00 - 00:10:30:00
Jane Parry
Okay. New prime minister moving into number ten. So I think we're also all keeping an eye on the new chap in number 11 as well. And what impact that might have on the markets. So when governments change, I think it's just natural for us all to focus on the names. But what really matters more to markets? Is it the people in the names or is it their policies, or is it just about having greater clarity about the future because markets just dislike uncertainty? Or is it kind of all of the above?

00:10:30:00 - 00:10:35:00
Leah Bramwell
Yeah, all of the above, Jane. Markets will automatically be pricing in an uncertainty premium.

00:10:35:00 - 00:10:37:00
Jane Parry
Because it’s a change of regime.

00:10:37:00 - 00:10:59:00
Leah Bramwell
Because there's a change of regime, I mean, that's the case in any country, in any political environment, there will be some level of uncertainty premium. What really matters more to investors, not the identity of the new prime minister or the new chancellor, is how predictable their fiscal path is. So what their spending plans are and how predictable those spending plan are.

00:10:59:00 - 00:11:01:00
Jane Parry
We're still waiting to hear a lot of that at the moment.

00:11:01:00 - 00:11:41:00
Leah Bramwell
Yeah, but I mean gilt markets react very, very quickly. So markets are not looking at what Andy Burnham is saying in his political speeches. You know, they're looking at the gilt curve. And that reacts very, very quickly to changes. And they will react very quickly to any borrowing plans if they're perceived as reckless. And you know, we've talked about this in the past about bond markets holding politicians to account. We've seen that in the very recent past in this country. So investors will be more focused on that, I would think, than the political noise.
 
00:11:41:00 - 00:12:39:00
Jane Parry
Thank you very much. I think it's probably time for me to sum up what is in my Canaccord takeaway coffee cup this week. Really interesting. The headlines were about inflation and politics. You know, that inflation data can move markets for a day, that political developments can dominate headlines for a week, that market sentiment can change from month to month. But underneath all of that, I think we're saying there's the same lesson, one lesson we should be learning, that investors are often rewarded not for predicting every twist and turn, but for focusing on what genuinely drives long term outcomes, and that long term wealth is generally created through economic growth, through business success and the power of compounding over time we talked about. I would say, if you were an investor, invest in patience. That would be my top tip, because I am not a qualified investment analyst, obviously, but it sounds like a good thing to do to me.

00:12:39:00 - 00:12:40:00
Leah Bramwell
It's a great top tip Jane.

00:12:40:00 - 00:13:04:00
Jane Parry
Thank you. Anyway, thank you everybody. Thank you for listening to the Canaccord Coffee Break podcast today. We hope you've enjoyed it. And don't forget to hit follow on your preferred podcast channel of choice, and you will never miss an episode. And as always, we'd love to hear your thoughts. Ask us any questions. If you want to know more about the power of compounding and investing in patience, drop us an email coffeebreak@canaccord.com.  Thank you.

00:13:04:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:24:00
Jane Parry
Good morning and welcome to the Canaccord Coffee Break podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth. And today, I'm delighted to be joined by Tom Hibbert from our Chief Investment Office.

00:00:24:00 - 00:00:25:00
Tom Hibbert
Good morning.

00:00:25:00 - 00:00:40:00
Jane Parry
Morning, morning. As you know, each week we try to cut through the noise and demystify what's happening in the market so that you feel more informed, confident and in control of your financial future. So this week Tom, it has been a week of sport.

00:00:40:00 - 00:00:41:00
Tom Hibbert
Much more interesting.

00:00:41:00 - 00:01:17:00
Jane Parry
Much more interesting than the markets, but that's not what we're here for. Although what I thought might be quite interesting is to compare three areas of sporting competition in Wimbledon, England's World Cup exploits and also the rugby versus three areas of friction, contest competition in the markets. And also I just wanted to say, did you know that here at Canaccord Wealth we have had our own sporting achievements with colleagues cycling from London to Paris in support of our charitable foundation?

00:01:17:00 - 00:01:19:00
Tom Hibbert
Incredible.

00:01:19:00 - 00:01:20:00
Jane Parry
They've raised over £20,000 you know.
 
00:01:20:00 - 00:01:21:00
Tom Hibbert
Amazing.

00:01:21:00 - 00:01:22:00
Jane Parry
Great, they're mad.

00:01:22:00 - 00:01:24:00
Tom Hibbert
Rather them than me, but well done to them.

00:01:24:00 - 00:01:27:00
Jane Parry
Yeah, well done to them. It was 30 odd degrees heat, so they did really well.

00:01:27:00 - 00:01:30:00
Tom Hibbert
The first pint in Paris would have been quite nice.

00:01:30:00 - 00:01:31:00
Jane Parry
Yeah, I'm sure.

00:01:31:00 - 00:01:32:00
Tom Hibbert
Glass of rose, whatever it is.

00:01:32:00 - 00:01:55:00
Jane Parry
So this week then, I'm asking, where is the greater contest? Is it on the football pitch or is it in the markets? So grab your coffee, let's dive on in. So contest #1, let's talk about equities. Equities and geopolitical drama, the ongoing political headlines that we're seeing and all the noise coming out of the Middle East. What's happening there then?

00:01:55:00 - 00:02:51:00
Tom Hibbert
Yeah, I mean, I think it's quite clear if you, and I actually said this on CNBC, that the peace deal was always vulnerable, the memorandum of understanding and the US had clearly won or was winning the military contest. But Iran has enough capability to still close the Hormuz and fundamentally is there for winning the economic war. So if you've got, the US considers themselves the winner on the one hand and Iran on the economic front, they both think they have the upper hands in the negotiation and the collapse of the deal, I think it's evidence that there's not enough for them to really find a middle ground or for them to concede in negotiations. And therefore perhaps we're likely now in a sort of the tensions are likely to remain high for the time being.

00:02:51:00 - 00:02:55:00
Jane Parry
So how does that play out? What tensions does that?

00:02:55:00 - 00:03:24:00
Tom Hibbert
Within equities, yeah, I mean it's because the economies have been so malleable with regards to oil consumption and economies have released the China and the US have drawn down significantly on reserves. The equity market has been, the oil prices, you know at the end of the month it was at pre-war levels, which is just remarkable and oil prices are rising again now. But the market, it just isn't hugely worried about that.

00:03:24:00 - 00:03:27:00
Jane Parry
Is the market or are investors underestimating the risk here and the volatility?

00:03:27:00 - 00:04:34:00
Tom Hibbert
I think because reserves have been significantly drawn down, you can only do that for some time. Yes, we've been surprised by the flexibility of the economy to adjust to that oil shock. There is a risk that you might see a more sensitive economy going forward because you can't keep going down in reserves. I think there's that, but also the market isn't as concerned about a material escalation because neither side really wants a material escalation. I think that's quite clear as well. So yes, there's an elevated risk of that, but I think the volatility seen in equity markets is capped a little bit by both sides’ hesitance to actually materially escalate the conflict. So we're likely to see a sort of continuation of elevated tensions, various strikes, but no sort of boots on the ground if you see what I mean? So that's the first area we're seeing a little bit of volatility in in the last week, but maybe not as much as you might have expected.

00:04:34:00 - 00:04:51:00
Jane Parry
OK, so football's still willing out as the greater contest at the moment. So what about the corporate bond markets? Actually, I saw this week that Amazon have issued a large bond, $25 billion was it?

00:04:51:00 - 00:06:06:00
Tom Hibbert
Yeah, that's right. And it's one in a long line of hyperscaler issuances that we've seen a huge amount of. We're seeing huge amounts of CapEx related to the data centre build out, the AI build out and those companies are tapping, you know, their equity markets and corporate bond markets in particular. And we saw Amazon do so last week. Historically, these issuances have been met with huge demand and we've just, we've just started to see a little bit of indigestion a little. We saw that, yeah, we saw this with Amazon last week. And I think investors since, you know, this month, there's been a little bit of vulnerability within areas of tech generally after a period of extremely strong performance. And we're now seeing that across equity markets and in corporate bond markets as well. And I think this is likely going to be an area of friction as we look ahead. And will we see that tech CapEx cycle roll over a little bit when we're starting to see size of that in June?

00:06:06:00 - 00:06:29:00
Jane Parry
OK, interesting. So third contest that we're looking at in the markets is UK gilts and UK politics grabbing plenty of attention. And I think UK gilts had another difficult week, we talked about it in quite a lot of detail with Peter last week. So what's worrying investors here then?

00:06:29:00 - 00:07:19:00
Tom Hibbert
Gilts had actually been very strong in in May and through June as well. And gilts are vulnerable on the back of this geopolitical uncertainty that we're seeing and the energy shock related to that. So we're seeing gilts now, gilt yields are rising at the moment. So prices are falling. A lot of that is driven by the geopolitical developments, but you also have the additional fiscal uncertainty and political uncertainty. And Andy Burnham, I think the area of friction or competition that I would highlight is the bond market's sensitivity to any unfunded spending. And Andy Burnham will want to spend more and maybe he'll look to relax the fiscal rules. We'll see.

00:07:19:00 - 00:07:22:00
Jane Parry
So what would bond investors want from him then?

00:07:22:00 - 00:07:56:00
Tom Hibbert
They, he’ll need to get a bond market on side and I think what they really want is efficient spending. So, you know, you might talk about growth, but they want policies that are actually delivering growth and not excessive spending. It needs to be balanced and I think the market will be playing close, close attention to that. He really needs to get the support of the bond market before he sort of overseas a significant fiscal expansion. And this is easier said than done.

00:07:56:00 - 00:08:00:00
Jane Parry
So definitely a potential area of tension there, the contest.

00:08:00:00 - 00:08:17:00
Tom Hibbert
Exactly. And this week the 10-year gilt yield is back up above 5%. I think that political risk premium, that fiscal uncertainty is likely to remain within the gilt market for the time being. So that's something that we'll see play out at the moment.

00:08:17:00 - 00:08:44:00
Jane Parry
Thank you. So I should sum up what is in my Canaccord take away coffee cup today. This week's headlines may have been dominated by sport, but definitely geopolitical events seem to be the most important contest for investors across all markets actually, whether it's equities, corporate bonds or gilts. But the markets appear to remain resilient.

00:08:44:00 - 00:08:46:00
Tom Hibbert
Absolutely, that's a key point.

00:08:46:00 - 00:09:20:00
Jane Parry
Yeah. And when we're not watching Wimbledon or the football, you are watching key themes very closely on our behalf, thank you. Inflation we talked about, particularly linked to oil prices and AI, governments, government funding and borrowing becoming increasingly expensive, so getting the gilt markets on side. And then we talked about investors becoming the financiers of the enormous AI investment boom, but actually needing a return off the back of that investment going forward, otherwise tensions may rise there.

00:09:20:00 - 00:09:25:00
Tom Hibbert
Exactly, something that we're monitoring, monitoring that indigestion in the corporate bond market at the moment.

00:09:25:00 - 00:09:37:00
Jane Parry
Lovely. Thank you very much. And as ever, we would say stay focused on diversification, remain flexible and pay close attention to what the markets are telling us. So once again, thank you very much. 

00:09:37:00 - 00:09:39:00
Tom Hibbert
Thanks for having me back, Jane. 

00:09:39:00 - 00:09:57:00
Jane Parry
And thank you everyone for listening to the Coffee Break Podcast. If you've enjoyed it, don't forget to hit follow on your preferred podcast channel of choice and you will never miss an episode. And as always, we'd love to hear your thoughts. Drop us an e-mail, ask us any questions, the e-mail address is coffeebreak@canaccord.com. 

00:09:57:00 - 00:09:58:00
Tom Hibbert
Thank you.

00:09:58:00 - 00:09:59:00
Jane Parry
Thank you.

00:09:59:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific personal entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:45:00
Jane Parry
Good morning and welcome to the Canaccord Coffee Break Podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth. And today I'm delighted to be joined by Peter Davies from our Chief Investment Office. Morning. Peter is the Head of Direct Fixed Income here at Canaccord Wealth and is normally based in our Jersey office. So he’s flown over especially this morning to record the podcast. So welcome. So the first thing we ask for people on the Coffee Break podcast for the first time is, what is your coffee of choice?

00:00:45:00 - 00:00:46:00
Peter Davies
It's a latte.

00:00:46:00 - 00:00:47:00
Jane Parry
A latte.

00:00:47:00 - 00:00:48:00
Peter Davies
Soft coffee.

00:00:48:00 - 00:02:02:00
Jane Parry
It is a bit of a soft coffee. We’re normally espressos and black americanos here, although I'm on iced coffee this week because it is so hot. So Peter, as you know, each week on the podcast, what we try to do is cut through the noise, demystify what's happening in the markets, and then hopefully our listeners can feel more informed, more confident and more in control of their financial future. So this week, with Andy Burnham's arrival on the national stage, it's prompted a bit of fresh discussion about the UK's fiscal outlook. But I actually thought the more interesting story is about the power of the bond markets rather than the politics themselves. So given you are our Head of Direct Fixed Income, I'd like to talk to you about that in a little bit more detail, if that's okay, and particularly the UK gilt market. So I'm asking why do bond markets have so much power over governments and what does this mean for investors? But before we get into that, could you just remind us what is direct fixed income investment? And also just a little snippet on what you do on a day-to-day basis because you're new to the podcast and our listeners.

00:02:02:00 - 00:02:30:00
Peter Davies
Sure. So, a lot of our assets here at Canaccord are invested in 3rd party funds and some of those are fixed income, fixed income funds that are invested in a wide array of fixed income assets. But for some investors, it's more suitable to go directly into bonds without going through the funds and invest directly into corporate bond markets where they know their cash flows, they can control their investments more, and it's more suitable for investors with a larger amount of capital to invest.

00:02:30:00 - 00:02:36:00
Jane Parry
And so day-to-day, you're looking for those direct corporate bonds to invest in on behalf of clients.

00:02:36:00 - 00:02:49:00
Peter Davies
Yeah, exactly. Day-to-day we run a corporate bond fund, we run direct corporate bond investments and day-to-day, you know, my job is to invest those and help other investment managers around the firm to invest their capital into fixed income assets as well.
 
00:02:49:00 - 00:03:06:00
Jane Parry
Brilliant. Thank you. Well, grab your coffee, grab your latte and let's have a little look into the UK gilts market and what's going on at the moment. Probably before we get into it, could you just give us a quick gilts 101 for listeners who might not know exactly what a gilt is?

00:03:06:00 - 00:03:12:00
Peter Davies
Sure. Well, I actually used to work at the debt management office who were responsible for issuing gilts.

00:03:12:00 - 00:03:15:00
Jane Parry
Were you?

00:03:15:00 - 00:03:34:00
Peter Davies
I was there for five years for the government so I've got a bit of insight into the gilt markets, and effectively they're a loan, a transferable loan to the UK government where you have a set of cash flows, like any other bond. It pays a coupon and it pays a fixed amount on maturity as well.

00:03:34:00 - 00:03:35:00
Jane Parry
So the coupon is the interest rate.

00:03:35:00 - 0:04:00:00
Peter Davies
The coupon is the interest rate and the price is set by the market. So you know you're getting back, the convention is to talk about getting back £100 at maturity. So how much you buy that gilt for will determine your overall return over that period. And those maturities can extend out to as long as 50 years. And you know roughly 1/4 of those gilts are also linked to inflation as well. Their returns are somewhat based on inflation.

0:04:00:00 - 00:04:09:00
Jane Parry
So for listeners who don't necessarily spend their days watching the gilt market like you do, why do governments care so much about the bond markets?

00:04:09:00 - 00:04:33:00
Peter Davies
Well, it's a large amount of how they finance themselves. And although they control a lot of fiscal policy, they can control taxation and they can control their spending, theoretically, they can't control the price of price at which they can sell their debt. That affects the government in a lot of ways. It affects them in terms of how much interest they have to pay in their own debt and a lot of it is rolled over every single year.

00:04:33:00 - 00:04:34:00
Jane Parry
Ultimately refinanced.

00:04:34:00 - 00:04:47:00
Peter Davies
Exactly. It also affects the members of the public too in terms of a lot of what their day-to-day spending is affected by interest rates, their mortgages are affected by longer term interest rates. So it affects governments in -

00:04:47:00 - 00:04:58:00
Jane Parry
So it ripples out across the whole economy. So essentially the government is issuing gilts to try and raise capital for projects, initiatives, activities that they want to do.

00:04:58:00 - 00:05:08:00
Peter Davies
Projects, initiatives and the government has a, you know, a wide array of things they spend the money on. Some of it are projects, some of it is day-to-day spending. And gilts just feed into that difference between what they can raise in taxes and what they have to spend.

00:05:08:00 - 00:05:23:00
Jane Parry
OK. Got it. So the headlines are telling us that 30-year gilts have moved much higher, the yield on those gilts has moved much higher in the last week or so. So what is the market telling us with that?

00:05:23:00 - 00:05:55:00
Peter Davies
There's a number of factors affecting the longer end of the gilt market. Sometimes in the last week or two, it's actually been more international-driven. US yields have gone up as well. European yields have gone up too and some of that is just due to central banks and their stance on inflation. And a lot, a large part of it, is also to do with confidence in the governments as well. So, in the last week or so, some of that has been more to do with a bit of economic data and the US central bank. But in the past, and certainly in recent past, it's been a little bit to do with UK fiscal policy and outlook.

00:05:55:00 - 00:06:01:00
Jane Parry
OK. So longer dated gilts, they're more sensitive to political risk, are they, than shorter dated gilts?

00:06:01:00 - 00:06:20:00
Peter Davies
They definitely are, the shorter end of the gilt market is more closely tied to the central bank and the rates that central banks set and the longer end of the gilt market is tied to the long-term outlook for the government. And it's also affected a little bit by the fact that there's a little bit more speculative investment at the longer end of the gilt curve.

00:06:20:00 - 00:06:31:00
Jane Parry
Yeah. So why are investors demanding a higher gilt yield now, maybe than they were a year ago? What's changed in that period?

00:06:31:00 - 00:07:12:00
Peter Davies
Yeah, there's a number of things there, but one of the main things I think is, and it has been for a while, the political uncertainty as well and the fiscal outlook. A lot of governments are highly indebted and when they're highly indebted, it is more difficult to issue more debt. And it's a supply and demand issue. So if there's a lot more supply coming because they have to roll over their debt, they have to raise the money, supply of gilt, then yields go up. So you know, at the moment I think, certainly in the UK market, there's a certain amount of political uncertainty. I think we're going to have five prime ministers over the last five years and nobody's quite sure about what that means for fiscal policy.

00:07:12:00 - 00:07:19:00
Jane Parry
So it's a bit of a report card on how disciplined government fiscal policy is and the future confidence.

00:07:19:00 - 00:07:22:00
Peter Davies
It is, and it can be a very strong report card sometimes as well.

00:07:22:00 - 00:07:26:00
Jane Parry
So have bond markets become more powerful then in recent times?

00:07:26:00 - 00:07:52:00
Peter Davies
Yeah, they have. I mean as debt has gone up, that cost, that amount of debt that they have to roll over becomes larger and larger. Interest rates have also gone up. So the payments on that debt have become higher and higher. As with the UK, some of that debt is tied to inflation. As inflation goes up, their interest payments become higher. So the government becomes very sensitive and the amount of interest we have to pay on gilts at the moment is over 100, a 100 billion a year, bigger than a lot of -

00:07:52:00 - 00:08:11:00
Jane Parry
Hang on, £100 billion a year on interest? Wow, that's quite a lot, isn't it? So actually, the power of the bond markets is they can potentially stop governments implementing the projects that they would otherwise like to deliver.

00:08:11:00 - 00:08:43:00
Peter Davies
Exactly. So, I think it was famously illustrated back in the US in 93 when Bill Clinton tried to announce policy spending and spending on his programs and the bond market sold off rapidly before he had to make a U-turn and come back in it. In the UK, it was recently evident with the Liz Truss government. Liz Truss who funded spending plans and you know, UK gilts and sold off nearly 100 basis points in a few days and forced them to do a U turn.

00:08:43:00 - 00:09:01:00
Jane Parry
OK, interesting. So the other thing I wanted to ask you about was the term bond vigilantes, which I thought was something out of a spaghetti western, but apparently is not out of a spaghetti western. It seems to have come back into fashion. Did bond vigilantes go away and have they come back? What are they? Who are they? 

00:09:01:00 - 00:09:05:00
Peter Davies
Well, they've always been around, but in reality, they're just rational bond investors.

00:09:05:00 - 00:09:09:00
Jane Parry
Rational bond investors? That's not quite sexy to say as bond vigilantes, is it?

00:09:09:00 - 00:09:30:00
Peter Davies
No. It's not. I mean, the coin was termed in the early 80s with the Reagan administration. But since then, the term has come back in periods of volatile movements in the bond markets with investors not wishing to hold government bonds when they see that the risks are too high or there's a lot of supply coming in the market, those yields move higher and can often force governments to change their spending plans and change their fiscal policies.

00:09:30:00 - 00:09:39:00
Jane Parry
Okay, as we were talking about before, so the bond vigilantes are really just sort of out there keeping an eye on the government spending for the rest of us.

00:09:39:00 - 00:09:48:00
Peter Davies
It's not a shadowy organisation. It’s a number of investors selling government bonds because they don't like the yield.

00:09:48:00 - 00:09:52:00
Jane Parry
And this yield that's gone up in the UK gilts of late, is it just a UK issue or is it global?

00:09:52:00 - 00:10:21:00
Peter Davies
Yields have gone up everywhere, but it was especially acute in the UK, you know, a few months ago when Andy Burnham announced his candidacy for the Bakerfield by-election. I think 30-year gilts hit their 30-year highs at around 5.85%. Since, he's managed to reassure markets somewhat and they've come down since then. But it's not just a UK issue, it's everywhere. But it's just particularly pronounced in the UK at the moment.

00:10:21:00 - 00:10:28:00
Jane Parry
So are they giving him the benefit of the doubt, you know, is this a Burnham issue or is it a UK fiscal future confidence issue?

00:10:28:00 - 00:10:44:00
Peter Davies
It's a little bit of both, UK growth is not particularly high at the moment. Growth outlook isn't high. The UK debt is high, UK interest payments are high. But he has managed to reassure markets and the yields have come back down somewhat since his candidacy.

00:10:44:00 - 00:11:26:00
Jane Parry
Interesting. Thank you very much indeed. Thank you for your time. I think it's probably good for me to sum up what is in my Canaccord take away coffee cup today. So, this week's story isn't really about Andy Burnham, it's about a reality every government faces. Whether it's borrowing to fund growth or defence or public services, the bond markets ultimately decide the price of that funding through the yields. And it's a reminder really that whoever occupies Downing Street, the bond market remains one of the most powerful forces in the global, in the UK economy. And governments can make all the promises they like, but investors ultimately decide how much those promises are going to cost them.

00:11:26:00 - 00:11:28:00
Peter Davies
You summed it up nicely.

00:11:28:00 - 00:11:58:00
Jane Parry
Thank you very much and thank you for coming to see us. It's lovely to have you here. Thank you everyone for listening to the Canaccord Coffee Break Podcast. We hope you've enjoyed it. Hope you've learned a little bit more about gilts. Don't forget to hit follow on your preferred podcast channel of choice and you will never miss an episode. And as always, we'd love to hear your thoughts. Drop us a line. The email address is coffeebreak@canaccord.com. And I'm sure Peter will answer any other gilt questions you may have if you want to drop us a line there. And thank you again.

00:11:58:00 - 00:12:00:00
Peter Davies
Thanks very much Jane.

00:12:00:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific personal entity. It is accurate at the time of recording and is subject to change.

00:00:11:07 - 00:00:23:22

Jane Parry

Good morning and welcome to the Canaccord Coffee Break podcast. I am Jane Parry, the Chief Marketing Officer here at Canaccord Wealth, and I am delighted again to be joined by Tom Hibbert, our Chief Investment Strategist.

00:00:23:23 - 00:00:25:03

Tom Hibbert

Welcome back from holiday.

00:00:25:04 - 00:00:33:05

Jane Parry

Thank you. Yeah, it's good to be here. And I'm very pleased to say that Tom has got his England cufflinks in today. Ready for the match later on this week, so.

00:00:33:05 - 00:00:35:19

Tom Hibbert

I don't watch the football but I support it.

00:00:35:19 - 00:01:01:11

Jane Parry

But I do. And so good luck to England, that's why I say. Okay, so this week we are not trying to demystify what's going on in the World Cup. We are indeed trying to look at what's going on in the markets and then hopefully you can feel more informed, confident and in control of your financial future. So the last week, Tom, it seems to have been a bit of a bumpy ride for equities, particularly in tech.

00:01:01:13 - 00:01:03:04

Tom Hibbert

We're talking about ‘ants’ today.

00:01:03:06 - 00:01:21:14

Jane Parry

Ants, we are talking about ants. Yeah, I didn't know what ants were, well I knew what ants were, not ants in context of investing before today. But the market fundamentals still looks strong but starts, parts of the market are starting to behave differently, which is where the ants come in.

00:01:21:15 - 00:01:26:19

Tom Hibbert

Yeah, look a bit frothy. We've spoken about this before. There’s areas of froth.

00:01:27:00 - 00:01:33:23

Jane Parry

And I think generally things have been driven by genuine earnings growth. But we are looking at the froth and why that is happening.

00:01:34:00 - 00:01:36:20

Tom Hibbert

The clearest example is Korea.

00:01:36:21 - 00:01:38:00

Jane Parry

Korea, South Korea.

00:01:38:01 - 00:01:38:19

Tom Hibbert

Exactly.

00:01:38:20 - 00:01:55:11

Jane Parry

Okay, so let's get into that in a little bit more detail. Has everybody got their coffee? Let's dive on in and see what is going on. So you mentioned South Korea. Where retail investors are known as ants. So go on, why is this and what does it mean?

00:01:55:12 - 00:02:18:22

Tom Hibbert

I think it's because they behave a little bit like ants, as do retail investors everywhere. But it's the term in Korea that they use to describe South Korean retail traders. It's a country where it's retail trading is a huge part of the culture that has just expanded massively in recent months. There are over 14 million individual investors.

00:02:18:23 - 00:02:27:23

Tom Hibbert

Yeah. So it now represents about a third of the country's daily stock trading volume. And they are significantly influencing the market.

00:02:27:23 - 00:02:35:18

Jane Parry

So they sort of all act collectively, which is why they're called ants.

Tom Hibbert 

Exactly.

Yeah, okay. Yeah. So what have they recently swarmed into then.

00:02:35:19 - 00:03:04:01

Tom Hibbert

Well, they have, like everywhere else, they're buying into the tech, an AI rally. And they have, there are two companies in South Korea that manufacture semiconductors, semiconductor manufacturing chips, Samsung and SK Hynix. And they in particular have become a huge influence in the Korean stock market and are very popular with those retail traders.

00:03:04:02 - 00:03:04:18

Jane Parry

Okay.

00:03:04:19 - 00:03:14:09

Tom Hibbert

So to put that into perspective. SK Hynix shares have surged over 1,700% in just over a year.

00:03:14:10 - 00:03:14:18

Jane Parry

Wow, okay.

00:03:14:19 - 00:03:17:24

Tom Hibbert

Samsung’s are up about 600%.

00:03:17:24 - 00:03:18:12

Jane Parry

Huge, both of them then.

00:03:18:12 - 00:03:34:04

Tom Hibbert

Massive, massive takes, extraordinary level of concentration now as well, because they've grown so much that they now make up over three quarters of the Korean market. The Korean equity index.

00:03:34:05 - 00:03:38:06

Jane Parry

Two companies making up three quarters of the stock market. That's a bit bonkers,

00:03:38:08 - 00:03:39:01

Tom Hibbert

Exactly.

00:03:39:02 - 00:03:44:05

Jane Parry

Extraordinary level of concentration. I'm guessing, therefore, is that risky?

00:03:44:09 - 00:04:02:07

Tom Hibbert

Yeah. It's risky, and it's risky because retail investors are, they're not just buying the companies, they are almost treating it like gambling. So one of the ways that has in the last couple of months, the Korean watchdog has approved the use of leveraged ETFs. Which gives…

00:04:02:09 - 00:04:03:20

Jane Parry

Whoa, whoa, whoa.

00:04:03:22 - 00:04:05:00

Tom Hibbert

Well I'll explain.

00:04:05:02 - 00:04:05:06

Jane Parry

Go on.

00:04:05:07 - 00:04:27:15

Tom Hibbert

Yeah. Yeah. So leveraged ETF is just you can, instead of buying the shares in the company, you buy an exchange traded fund an ETF. That gives you exposure to the company. It's a single stock ETF. So it just gives you exposure to that company but with two times leverage. So if the stock price is up 10% on a single day you would get twice that return.

00:04:27:16 - 00:04:33:01

Jane Parry

Right.

Tom Hibbert

Make 20%. If the share price falls 20%, you would lose 40%.

00:04:33:03 - 00:04:33:14

Jane Parry

Wow, okay.

00:04:33:15 - 00:04:40:10

Tom Hibbert

So basically the ETFs that borrow and then buy twice as much are twice as sensitive to the share price.

00:04:40:11 - 00:04:41:19

Jane Parry

So really turning up the volume.

00:04:41:20 - 00:04:50:21

Tom Hibbert

Really turning up the volume. And these leveraged ETFs have become incredibly popular and it's influencing the market now, it's creating a lot of volatility.

00:04:50:21 - 00:04:58:11

Jane Parry

And so for example the SK Hynix leveraged ETF. What, how much is in that?

00:04:58:12 - 00:05:31:02

Tom Hibbert

It swelled to $10 billion. And we've seen at the end of May another 16 similar single stock products linked to chipmakers were launched in Korea. So there's a massive swelling popularity within these ants in Korea towards these products. But this month, because we've obviously seen weakness within global technology stocks, that has caused some of the liquidity to break down in these products.

00:05:31:03 - 00:06:21:00

Tom Hibbert

So you have big divergences between the product performance within the ETFs and the actual underlying stock return. So you've had, and also just the other thing that its created is massive volatility in the Korean stock market. So you see daily moves plus or -10% for some of these two companies for SK Hynix and Samsung, but also for the index as a whole because they make up, you know, three quarters of the index.

So the Korean stock market has gone a bit haywire. On Friday last week we've seen, because we've got this June swoon at the moment, Hynix stock fell 17% in a little over a trading session mid-week last week. And then on Friday it was falling sharply again. The Korean Stock Exchange fell 9% shortly after the open, and then they had to halt trading on the Korean Stock Exchange.

00:06:21:01 - 00:06:22:08

Jane Parry

Okay, so pretty serious.

00:06:22:08 - 00:06:25:09

Tom Hibbert

Pretty serious, frenzy and a lot of froth.

00:06:25:12 - 00:06:27:00

Jane Parry

An ant frenzy.

00:06:27:01 - 00:06:27:16

Tom Hibbert

Exactly.

00:06:27:17 - 00:06:36:11

Jane Parry

Okay. Is this an early warning sign for broader global markets or just sort of a pocket of local excess, I guess?

00:06:36:13 - 00:06:40:21

Tom Hibbert

Yeah. There are pockets of excess in other areas as well.

00:06:40:22 - 00:06:43:20

Jane Parry

But it's amplified here because of the structure.

00:06:43:21 - 00:07:07:02

Tom Hibbert

Because of the structure, exactly. And look, I mean, I think if you zoom out and you say there are specific problems there. But we are amidst a lot of exuberance around technology that is now, you know, that that has come off the ball a little bit in June, this June, swoon. And that's driven by two fears. One we spoke about last week, the increased fears around US inflation and….

00:07:07:04 - 00:07:09:08

Jane Parry

Yeah we talked about the US economy running a bit hot.

00:07:09:10 - 00:07:31:21

Tom Hibbert

Exactly. And we have seen Tim Cook come out and say that he's hiked prices at Apple. Microsoft followed suit last week. So we're seeing more evidence of, you know, that's driven by the crazy demand for Dram for memory. And it's more evidence that the AI buildout is putting upward pressure on prices, creating inflation intention.

00:07:31:22 - 00:07:36:07

Jane Parry

And that's primarily in the US. But I guess can be can spread.

00:07:36:08 - 00:07:40:03

Tom Hibbert

Yeah. And it's unsettling the tech rally globally.

00:07:40:07 - 00:07:42:13

Jane Parry

Yeah. So what's the other reason for the June swoon.

00:07:42:14 - 00:08:02:01

Tom Hibbert

The other is simply positioning. Once you've, if you've had really strong equity market performance it's very reasonable for you know, positioning becomes stretched. It's reasonable for there to be a little bit of a period, of a reset and a normalization. And I think actually that is healthy. And for some of that froth to come out of the market and it makes the rally more sustainable.

00:08:02:01 - 00:08:31:06

Tom Hibbert

And investors are now sitting back and saying, okay, we've had a period of seriously strong performance and now there's a little bit of weakness. Let's reset and let's look at what's happening within the tech sector and within AI. And that I think, there's now this recognition or more of an obvious realization that the AI cycle hinges on one specific thing, which is end user demand.

00:08:31:15 - 00:08:31:18

Jane Parry

Yeah.

00:08:31:19 - 00:08:32:15

So using the large company and all of the other, you know, companies that might use them and the revenue forecasts that companies like anthropic and OpenAI have made because they've made huge commitments to buy compute from the hyperscalers.

00:08:48:11 - 00:08:54:03

Jane Parry

Okay. By compute from the hyperscalers, I saw that in the weekly markets review, and I needed you to explain it to me.

00:08:54:05 - 00:09:01:07

Tom Hibbert

Yeah, sure. So AI services use a huge amount of compute and they buy that compute…

00:09:01:09 - 00:09:05:16

Jane Parry

Compute, meaning the processing power behind AI infrastructure.

00:09:05:18 - 00:09:46:11

Tom Hibbert

Exactly. And the computers being built out by the hyperscalers, which are building huge data centers, massive mega cap technology companies. Like Microsoft, Amazon building data centers, data center build out that rely on the revenue of AI companies to buy that compute off them. And the AI companies have huge commitments to buy compute off the hyperscalers, the hyperscalers are investing huge amounts in the AI infrastructure. But it all relies, it all depends on the AI companies revenue for being able to generate the revenue that they think they'll be able to generate.

00:09:46:11 - 00:09:47:14

Jane Parry

From the end users.

00:09:47:14 - 00:10:04:10

Tom Hibbert

From the end users. And that means that, are they going to be able to charge their customers what they think they're going to be able to charge them? And the whole AI cycle falls apart if those revenue forecasts are wrong.

00:10:04:11 - 00:10:04:17

Jane Parry

Yeah, okay.

00:10:04:18 - 00:10:32:03

Tom Hibbert

And we've had a look at the forecast that they're making. And they're not unrealistic. They're optimistic but they're not necessarily unrealistic. But it does fundamentally all hinge on this being true. And it's why I think, you know, if you have a cheaper AI like DeepSeek in China that can undercut the developed market, the Anthropic and OpenAI, those revenue forecasts could quite easily come under pressure.

00:10:32:04 - 00:10:32:14

Jane Parry

Okay.

00:10:32:15 - 00:10:51:03

Tom Hibbert

And that's why I don't think the DeepSeek question has been fully answered. I also think it's why the next wave of the AI buildout might be focused on the efficiency of compute. If you bring the cost of compute down, then the mathematics for the whole AI cycle becomes much, much easier to…

00:10:51:05 - 00:11:11:02

Jane Parry

It's that whole ecosystem that's so fully interlinked, isn't it? And I guess if demand disappoints, you know, if end users are not prepared to pay for the AI or sufficiently pay the price that they're looking for, then that's going to ripple all the way through that entire chain. Yeah, okay. We've covered a lot then today, ants and AI.

00:11:11:08 - 00:11:35:09

Jane Parry

So let's have a little look what's in my Canaccord takeaway coffee cup. We've talked about the whole AI ecosystem, from AI companies to cloud providers to chipmakers. And we discussed that if end user demand disappoints, then that ripple does go all the way through and hence probably why we're seeing a little bit of froth taken off the top is some of that reality check comes in.

00:11:35:10 - 00:11:35:20

Tom Hibbert

I think so.

00:11:35:20 - 00:11:59:08

Jane Parry

I was interested to hear what's going on in South Korea. Did not know anything about that market at all, but obviously I've heard of Samsung before, but two massive chip manufacturers are representing kind of a localized market issue there, but maybe indicative of some other areas just of volatility. And as we've said before, we think AI remains a powerful long-term trend.

00:11:59:09 - 00:12:12:18

Jane Parry

But when enthusiasm rather like the Korean ants runs ahead of reality, then markets do pause, reset, refocus on the fundamentals. I'm in a reminder that even strong markets, they don't move in straight lines.

00:12:12:19 - 00:12:13:21

Tom Hibbert

That's exactly right.

00:12:13:22 - 00:12:32:13

Jane Parry

Like ants. So thank you very much. Thanks for listening to the coffee break today. Hope you've enjoyed it. Don't forget to hit follow on your preferred podcast channel of choice, and you will never miss an episode. And as ever, we'd love to hear your thoughts. And the email is coffeebreak@canaccord.com do drop us a line. Many thanks.

00:12:32:13 - 00:12:34:05

Tom Hibbert

Thanks very much for listening.

00:12:34:07 - 00:12:56:02

Speaker 3

Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:25:00
Tom Willis
Hello and welcome to the Canaccord Coffee Break Podcast. I'm Tom Willis. I am filling in for Jane Parry while she's away.  I'm joined today by Tom Hibbert, who's our Chief Investment Strategist in our Chief Investment Office. How are you, Tom?

00:00:25:00 - 00:00:33:00
Tom Hibbert
I'm very well thanks, Tom. It's good to be here, sat with you. It's a pleasure to be with Jane, but yeah, good to have a Tom-on-Tom conversation today.

00:00:33:00 - 00:01:18:00
Tom Willis
Brilliant. It's my pleasure. So each week our podcast tries to cut through the noise, demystify what's happening in the market and help you feel more informed, confident and in control of your financial future. So, Tom, this week, it's been a week of political change in the UK. Keir Starmer's resigned as UK Prime Minister and leader of the Labour Party. It's added a little bit of uncertainty at home. But we think the biggest story for markets in terms of the lasting impact is coming from the US. There's been a shift in tone at the US Federal Reserve with a new chair, Kevin Warsh, already resetting expectations. So you're here to tell us about where markets go next. So grab your coffee Tom and let's chat. And you can help us decode what's going on.

00:01:18:00 - 00:01:19:00
Tom Hibbert
Absolutely.

00:01:19:00 - 00:01:39:00
Tom Willis
So let's start at home. It would be remiss not to mention Starmer's exit. Markets have seemed relatively calm. But like we said, it does introduce some uncertainty into what is quite a sensitive backdrop in the UK. So where is the uncertainty most likely to be felt in terms of immediately with Starmer's exit and the incoming Prime Minister, which we think is probably going to be Andy Burnham?

00:01:39:00 - 00:03:05:00
Tom Hibbert
It wouldn't be a surprise, I think to most listeners that the gilt market is where the vulnerability is. You know, everyone's familiar with the Liz Truss episode and the pressures that the gilt market has faced in recent months as well. You know, Andy Burnham, the king in the North, he's described, he's seen as someone who could easily want to oversee a further fiscal expansion in the UK. The gilt market will be very sensitive to that. It's sensitive to the borrowing rules, which the UK has built as a rod for its own back in that respect. But there are bond vigilantes operating in the UK bond market that are very sensitive to these changes. It's also a very technical market. So, you know, there are a lot of tourists, speculators in the gilt market, hedge funds, momentum traders, that sort of thing that creates leverage and volatility that ultimately does make the UK bond market quite vulnerable to UK politics. And you know, UK politics is volatile in itself. So there is a political risk premium on gilts that I think is valid at the moment. And Andy Burnham I think adds to some of that vulnerability with respects to his sort of Manchesterism, I've seen it described as, which you know, could be related to a more fiscal looseness, let's say.

00:03:05:00 - 00:03:39:00
Tom Willis
For listeners at home, when we refer to gills, we mean UK government bond. So as Tom said, we think that's where the impact will be felt with his political change. So turning to the US, as mentioned, we have a new chair of the Federal Reserve in Kevin Warsh and his feet first meeting already felt a little bit different. And you're here Tom to explain the kind of changes that he's introduced so far and what it means going forward. So first do you want to talk about the kind of immediate impact on the current interest rate cycle you think that will have?

00:03:39:00 - 00:04:57:00
Tom Hibbert
Yes, absolutely. And, you know, he took no time in immediately asserting himself, which I think wasn't actually really a surprise. There's been a lot of market chatter about his independence. Is he a puppet of the US administration? And he's proven himself not to be already in the first meeting. President Trump has put a lot of pressure on the Fed to cut rates, his choice. And Fed Chair Kevin Walsh is not putting through interest rate cuts. In fact, we've seen quite a stark shift. Hawkish shift at the Fed from across the committee. Obviously the Federal Reserve is a committee, but Kevin Warsh as well, you know, he has delivered quite a blunt commitment to inflation control at this meeting. He's what I would describe as a price stability pragmatist. And he does see upside risks to inflation. So the Fed in this meeting has abandoned their easing bias. They're now saying, look, we're not looking at cutting rates. I think the FOMC, the committee that decides interest rate policy, is now tilting in a more hawkish direction. You can see that on the dot plot, which is their sort of expectation of future interest rates. Most of them see interest rates rising this year and next now.

00:04:57:00 - 00:05:10:00
Tom Willis
And you know, when we talk about the Fed, it seems as if we do talk in binary terms of them being hawkish or dovish in terms of focusing on interest rate cuts or interest rate.

00:05:10:00 - 00:05:14:00
Tom Hibbert
Or hawk in dove's clothing is what people have been saying about Kevin Warsh.

00:05:14:00 - 00:05:32:00
Tom Willis
But like you said, he seems to be more of a pragmatist than making the right decision at the right time. And what do you think then moving forward from the current cycle, what do you think his long-term impact on policy is and the kind of philosophy of the Fed and what they're going to do in the future essentially, which is probably what investors want to know.

00:05:32:00 - 00:06:07:00
Tom Hibbert
Yeah, he's a fascinating chap. And I've always thought actually that that he was a good choice for Fed chair. And he's not just a sort of price stability pragmatist, which is the term that I use, but he also has a very strong institutional reform agenda. He's looking at reforming the Fed and he brings some self-reflection to the Fed, which I think is needed actually, whether that's with regards to the Fed's excessive use of liquidity policy. He resigned in 2011, you know, over concerns about the central bank's use of quantitative easing.

00:06:07:00 - 00:06:09:00
Tom Willis
But by which we mean?

00:06:09:00 - 00:08:24:00
Tom Hibbert
Buying government bonds, injecting liquidity into the market, it's a form of very strong stimulus, which is, you know, previously was reserved for periods of extreme volatility to stabilise the market. Well, for a lot of  the last 15 years, the Fed has used that policy not to stabilise the market, but to steer the economy. And he's been a very strong critic of that. I think, you know, we can go down that route, but I think he will struggle to bring that under control. But I think what's actually really more interesting, putting that to one side for one moment, is his view of forward guidance. So the Federal Reserve historically has provided, you know, particularly under Powell a lot of guidance in terms of what are they seeing in the economy, what are they seeing from an inflation perspective, what are they seeing from a growth perspective? And then they've guided the market to what they should expect from the Fed and that kind of creates a little bit of a feedback loop. Because the Fed is reading the market and seeing and then telling the market what their interpretation is, what they should be doing. And the market at the same time is reading the Fed and it creates this feedback loop. So Warsh is cutting down and refining the messaging from the Fed and not giving them much to go on what on what to expect going forwards. So, for example, the policy statement this meeting that the wording that comes around that the interest rate decision was cut from 300 words to 130. And he also talked about the dot plot, which is the policy member’s, their own expectations of where interest rates should be over the short to medium term. He abstained or refrained from entering his own dot to the dot plot. So he is a critic of forward guidance. Expect a lot less clarity on what to expect from the Fed. It means it gives them greater flexibility to react to changes in the economy. And you know, I think forward guidance can be a bit of a rod for the Fed’s back and you know, that's one significant change, stripped down messaging.

00:08:24:00 - 00:08:39:00
Tom Willis
And then just finally moving on to inflation, as you know, we've got the USPCE inflation data coming this week. What should investors be watching out for? What kind of impact does that have?

00:08:39:00 - 00:09:24:00
Tom Hibbert
Yeah, inflation is, so the US core PCE is the main gauge that the Fed uses that's expected to accelerate a little bit, core inflation still quite sticky. Inflation in general is still quite sticky. I'd expect the data this week to sort of affirm the Feds hawkish pivot in this last week. And that's something that we'll certainly be watching quite closely. But you know, in terms of what we expect from the Fed going forwards, I think it's unlikely that they're going to, you know, that they're going to be able to cut rates. Now the expectation is certainly for rate hikes.

00:09:24:00 - 00:09:46:00
Tom Willis
OK. To sum up what is in my takeaway coffee cup this week, this was very much a week about reset. So in the UK there was more political uncertainty and in the US there’s a clearer, more disciplined Fed, which is focused on inflation. I think, Tom, you will agree that the key message is that markets may have to rely less on central banks, or guidance from central banks and more on underlying fundamentals.

00:09:46:00 - 00:10:13:00
Tom Hibbert
Yeah, the Feds in particular, because they're not going to provide that forward guidance to the market in the same way that they have done before. And they say that, you know, that kind of makes a rod for their own back because then if they have to change their views, it can impact the market, it can detriment the market. So they want to be more flexible given the fluidity of the current situation, but also Warsh is a critic of forward guidance in general.

00:10:13:00 - 00:10:37:00
Tom Willis
Well, thanks for joining me today, Tom. I know this is a topic of particular interest for you and, and you speak about it very well. So thank you for explaining everything there. And thank you to everyone for listening to the Canaccord Coffee Break podcast. If you've enjoyed it, please don't forget to hit follow where you listen to your podcasts and you'll never miss an episode. As always, we'd always love to hear your thoughts. You can e-mail us at coffeebreak@canaccord.com.

00:10:37:00 - 00:10:39:00
Tom Hibbert 
Thank you very much. 

00:10:39:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific personal entity. It is accurate at the time of recording and is subject to change.

00:00:09:00 - 00:00:22:00
Jane Parry
Good morning and welcome to the Canaccord Coffee Break podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth, and I am delighted today to be joined by Tom Hibbert from our Chief Investment Office.

00:00:22:00 - 00:00:23:00
Tom Hibbert
Good to see you, Jane.

00:00:23:00 - 00:00:24:00
Jane Parry
Morning, morning.

00:00:24:00 - 00:00:25:00
Tom Hibbert
Pleasure to be back.

00:00:25:00 - 00:00:40:00
Jane Parry
So, as you know, each week the podcast tries to cut through all the noise and demystify what's going on in the markets and hopefully help you feel more informed, confident and in control of your financial future. So this week, busy week.

00:00:40:00 - 00:00:41:00
Tom Hibbert
Absolutely.

00:00:41:00 - 00:01:17:00
Jane Parry
Busy week, lots going on that we want to talk about and something different to talk about actually. So, markets found fresh momentum at the end of last week with one event standing out in particular, and that was SpaceX’s blockbuster of a debut. It wasn't just a big IPO or initial public offering. It was a massive one, but it was also a real test of how much risk appetite there is out there for the public markets. Plus, add into that hopes of the Middle East de-escalating and a rate rise from the ECB in Europe.

00:01:17:00 - 00:01:20:00
Tom Hibbert
That's right.

00:01:20:00 - 00:01:40:00
Jane Parry
So, all of a sudden, the market mood looks very different. So, let's dive on in and grab your coffee and let's see what's going on. You can hopefully explain all that to us. So let's start with the obvious one. Why does this massive SpaceX IPO matter so much for the wider market? What's going on there?

00:01:40:00 - 00:01:56:00
Tom Hibbert
Yeah. I mean, it's the largest IPO in history, so obviously that matters. Yeah, I would say just, you know, we're meant to approach this podcast on a macro level. We talk about the big things that are affecting global financial markets. I'm not really supposed to talk about individual companies.

00:01:56:00 - 00:01:58:00
Jane Parry
No, okay.

00:01:58:00 - 00:02:39:00
Tom Hibbert
But some weeks with an individual company, the micro becomes the macro. And last week that was definitely the case. I mean, the largest IPO in history, SpaceX, is a massive company. There's a huge amount of focus on tech and right at the frontier of technology and innovation. And SpaceX captures a lot of that. So it's obviously a macro event at a vast level. It's hugely important for equity markets. So SpaceX listed in the US raising $75 billion, a valuation of $1.8 trillion.

00:02:39:00 - 00:02:42:00
Jane Parry
That's huge, isn't it? That's bigger than most countries.

00:02:42:00 - 00:03:05:00
Tom Hibbert
Yeah, and Elon Musk is now a trillionaire, he's the first trillionaire. And yeah, it went off without a hitch. And what's important for us, you know, is, because we don't give a recommendation on SpaceX as a company, we want to talk about what are the macro implications -

00:03:05:00 - 00:03:06:00
Jane Parry
What it means.

00:03:06:00 - 00:03:10:00
Tom Hibbert
What it means. And you know it was a -

00:03:10:00 - 00:03:14:00
Jane Parry
So this is just basically much bigger than one company, one stock?

00:03:14:00 - 00:03:37:00
Tom Hibbert
Yeah, exactly. And the whole market shifted in terms of, you know, risk appetite. June so far has been quite weak. We had a monster rally in April and May, June, a bit of weakness for the month and then around the sort of SpaceX IPO, quite a lot of reversal in in risk appetite. We saw equities start to perform very well.
 
00:03:37:00 - 00:03:39:00
Jane Parry
What sort of people are investing in SpaceX then?

00:03:39:00 - 00:04:16:00
Tom Hibbert
There's a lot of retail participation, which we didn't really see in previous, in tech cycles like this. You didn't see that in the late 90s to the same extent. But it's not just retail investors as well. We’ve got SpaceX entering into indices over the next few weeks and months. So we'll see some institutional buying and passive buying of SpaceX via that. We've seen even some sovereign wealth funds get involved in the early days. So Gulf sovereign wealth fund has been buying. So it's quite broad, but I would highlight in particular broad participation, but I'd highlight retail participation as well.

00:04:16:00 - 00:04:22:00
Jane Parry
So does this mark sort of a genuine reopening of public equity markets for big growth businesses?

00:04:22:00 - 00:04:46:00
Tom Hibbert
Yeah, it's a good point to raise because in this cycle, we've seen a lot of big companies, big tech companies, big AI companies that have grown a lot and providing that sort of new frontier technology, they've stayed private for longer. And now we're starting to see some of them come to market, and SpaceX is an example of that. All of the big ones in the pipeline are an example of that.

00:04:46:00 - 00:04:52:00
Jane Parry
So why have they stayed private for longer then? So you mentioned Anthropic and they're all private at the moment.

00:04:52:00 - 00:05:31:00
Tom Hibbert
Yeah, so the market has shifted more. There's been a growth in private capital. And there are some reasons why companies might want to do that. They don't necessarily need to go to public markets to raise money as early as they have done historically. But what we've seen, and what we see in the in the pipeline, is actually we are seeing more companies becoming public and listing and that gives you sort of an additional layer of price discovery and it gives you a better insight into those companies and their valuations.

00:05:31:00 - 00:05:37:00
Jane Parry
Interesting. Because this SpaceX one has gone so well, that's probably setting an encouraging tone for future.

00:05:37:00 - 00:05:48:00
Tom Hibbert
Yeah, early days, but yes, so far it's going well. It's being well digested by the market. And, you know, there's still a lot of excitement around tech.

00:05:48:00 - 00:06:01:00
Jane Parry
Okay, thank you. Let's talk about the US Iran deal and potentially the hopeful reopening of the Strait of Hormuz. So how important was that for markets last week?

00:06:01:00 - 00:06:11:00
Tom Hibbert
So it was only rumoured last week. And I say rumoured. I mean, President Trump came out and said that a deal was going to be agreed by Sunday.

00:06:11:00 - 00:06:13:00
Jane Parry
Did you say that was for the 39th time?

00:06:13:00 - 00:07:10:00
Tom Hibbert
Yeah, exactly, so 39th time lucky. But you know, the market was still optimistic about it and we did see quite a big reaction there. So oil down 6% last week, Brent, which is sort of global oil price, seaborne oil price trading at $84 a barrel down from the mid-90s the week before. So quite a big fall in oil prices, a strong performance in equity rally, a strong bond rally as well. So we saw yields falling, gilts performing very well. So a big turnaround optimism around this potential peace deal. And it does look like it's the real deal this time around. So we should see, as long as the agreement is signed and theoretically, you know, there are still things being ironed out, but we should start seeing trade flowing through the blockades lifted and then not a complete normalisation, but the start of a normalisation of global trade.

00:07:10:00 - 00:07:23:00
Jane Parry
Okay. And then the other area that happened last week was back into Europe. The ECB raised rates in what we think is quite a weak growth backdrop.

00:07:23:00 - 00:07:25:00
Tom Hibbert
Yeah, undeniably weak.

00:07:25:00 - 00:07:28:00
Jane Parry
Undeniably weak, there we go.

00:07:28:00 - 00:07:57:00
Tom Hibbert
A lot of the economic data in Europe is surprising to the downside. Growth is sluggish and inflation is a little bit sticky. But the ECB is really reacting to this energy shock. It's a big odd, really, that they've hiked - just as this agreement, just before this agreement, this peace agreement has been signed, we're seeing the ECB hiking rates and it seems like they are tightening into weakness.

00:07:57:00 - 00:08:00:00
Jane Parry
Tightening into weakness.

00:08:00:00 - 00:08:25:00
Tom Hibbert
Exactly, raising interest rates into a slowing and weakening economic backdrop. So I think the ECB needs to be cautious about their interest rate trajectory from here. The market still thinks the ECB has one more hike in them. But you know, I think our view is that that would probably be a mistake. We aren't really seeing the secondary effects of inflation becoming embedded in in the European economy.

00:08:25:00 - 00:08:27:00
Jane Parry
Because of the weakness.

00:08:27:00 - 00:08:45:00
Tom Hibbert
Because of that weakness, yeah, there's less of a transmission effect. And we've spoken about this on the podcast before. But I just think the ECB does need to be a little bit careful about hiking from here. And I think one hike should do the trick, particularly if this peace deal does prove sustainable.

00:08:45:00 - 00:09:10:00
Jane Parry
Great. Thank you. I think it's probably time for me to sum up what's in my Canaccord take away coffee cup today. So, this was a week when markets showed what they still want to believe in, I think. Belief in transformational growth via SpaceX, belief in de-escalation via Iran Hormuz, and belief that central banks can still contain inflation without killing growth. Hopefully anyway.

00:09:10:00 - 00:09:28:00
Tom Hibbert
And the focus is really back on that at the moment. This week we've got the Bank of England, we’ve had the Bank of Japan already, the Bank of Japan has hiked. We'll talk about that next week. Very, very interesting there. And we've got the Fed, Kevin Warsh's first test as Fed chair, so.

00:09:28:00 - 00:09:30:00
Jane Parry
You’ll be very excited, I know you love it.

00:09:30:00 - 00:09:31:00
Tom Hibbert
I'm over the moon.

00:09:31:00 - 00:10:11:00
Jane Parry
But we also would say please don't chase all the excitement of one stock, but rather it's about disciplined participation, there you go. And I did like your phrase: ‘we like to talk about it when the micro becomes the macro’. It's quite unusual for us here on the podcast. So like it, good. So thank you again and thanks for listening to the Canaccord Coffee Break Podcast. Hope you've enjoyed it. And don't forget to hit follow on your preferred podcast channel of choice. And you will never miss an episode. And as always, we'd love to hear your thoughts. Ask us any questions. Let us know what else you'd like to hear about. Drop us an e-mail coffeebreak@canaccord.com. Thank you.
 
00:10:11:00 - 00:10:14:00
Tom Hibbert
Thank you for listening everyone.

00:10:14:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific personal entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:56:00
Jane Parry
Good morning and welcome to the Canaccord Coffee Break podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth. I'm delighted to be joined today by our Co-Chief Investment Officer, Richard Champion, who is going to help us cut through all the noise in the markets, demystify what's happening, and hopefully help you feel more informed, confident and in control of your financial future. So, if you can grab your coffee, let's dive on in and see what was going on. So last week gave us, I think we would call it a classic market twist, with great economic news but falling markets. So, I really want to understand what's going on, Richard, if you can help us understand that - when strength suddenly becomes a problem.

00:00:56:00 - 00:01:37:00
Richard Champion
Well, last week, US equities, which have been leading this amazing rally we've seen since the ceasefire in the Gulf War, fell about 2 1/2 to 3%, particularly on Friday, which was a very weak day. And that was because on Friday there was a monthly jobs report published in the states which showed stronger jobs growth than had been expected. And that has reignited inflation worries and caused markets to reconsider whether we're going to see rate cuts this year at all, and whether in fact, we may instead see increases in interest rates during the rest of 2026.

00:01:37:00 - 00:01:41:00
Jane Parry
So that's all driven by the risk of inflation continuing.

00:01:41:00 - 00:01:59:00
Richard Champion
Correct. So we've had a bit of a bump up in inflation, largely driven by the energy price going up following the war with Iran, but also seeming to have a few more knock-on effects. We are seeing an enormous amount of spending on AI.

00:01:59:00 - 00:02:01:00
Jane Parry
Yeah, we talked about that a lot last week. 

00:02:01:00 - 00:02:29:00
Richard Champion
We've spoken about that in a number of these podcasts. To the extent that at the moment, at the current sort of rate we think that the spending is going on, it's adding about 4.6% to US GDP in terms of that spend, which is a really big stimulus, at the same time as we've got other stimuluses going on from the US government. So, all of that means, as we've spoken about before, the US economy is probably running a bit hot.

00:02:29:00 - 00:02:37:00
Jane Parry
OK. So, labour market resilience, jobs going up, I think manufacturing strength is on a four year high as well, isn't it?

00:02:37:00 - 00:02:51:00
Richard Champion
Correct. So, surveys of manufacturing have shown again really strong numbers and prices paid elements of those surveys have also been strong, which increases that worry about future inflation. 

00:02:51:00 - 00:02:54:00
Jane Parry
And so, all in all, the consumer's still holding up.

00:02:54:00 - 00:02:55:00
Richard Champion
Correct.

00:02:55:00 - 00:03:05:00
Jane Parry
So all very positive statements. So why has that impacted the markets? Why have they gone down if all that's positive backdrop just all about inflation?

00:03:05:00 - 00:04:09:00
Richard Champion
So it's really common for good economic news to become bad market news. The market is discounting the future, so when it sees good economic news, it starts to worry about interest rates going up to control inflation. When interest rates go up, what's called the discount rate, that's the amount you discount future earnings by, also goes up, which means that that number becomes less. When you've got a low discount rate, your future earnings are higher in value today. When you've got a higher discount rate, they're lower. So as that goes up, people re-evaluate what valuation they're prepared to put on the market. And what we had on Friday last week was a classic example of people re-evaluating the highest value parts of the market. Interestingly, we saw some of the lower valued parts of the market hold up perfectly well. But now that AI is such a large part of the US market, the overall impact was negative on the wider market.

00:04:09:00 - 00:04:12:00
Jane Parry
So those, the lower discount, what did you say - the lower?

00:04:12:00 - 00:04:15:00
Richard Champion
The lower valued sectors.

00:04:15:00 - 00:04:16:00
Jane Parry
The lower valued sectors.

00:04:16:00 - 00:04:22:00
Richard Champion
Held up because they're less prone to the squeeze in valuations down from the very high levels.

00:04:22:00 - 00:04:25:00
Jane Parry
So what? What are those? What would be those lower value sectors?

00:04:25:00 - 00:04:29:00
Richard Champion
Healthcare and consumer staples would be great examples of those sectors.

00:04:29:00 - 00:04:34:00
Jane Parry
So, it wasn't really a bad week then after all, it was just a bit more of a reality check.

00:04:34:00 - 00:05:04:00
Richard Champion
Absolutely. I think a reality check is a really good way of putting it. We have had nine extraordinarily strong weeks, driven, as I say, by the technology complex. We've seen gains in some cases of 60 or 70% over that period. So giving a little bit of that back is entirely healthy. It allows a little bit of uncertainty to go into market valuations. We love the saying we're climbing a wall of worry and here is a bit of the worry that we're climbing at the moment.

00:05:04:00 - 00:05:18:00
Jane Parry
OK, got it. I think we also talked about the new Fed Chairman, Kevin Warsh, coming in and I guess this might impact the policy decisions that he's going to make going forward. So what do you think's happening there?

00:05:18:00 - 00:06:14:00
Richard Champion
So, Kevin Warsh is in a quite difficult position. He's been appointed by Donald Trump, who wants him to cut interest rates, almost irrespective of what the economy is doing. But historically, Kevin Warsh has been quite hawkish. He's been quite keen on being early to raise interest rates. He's made a lot of the idea that the burgeoning use of AI will help boost productivity and better productivity is very good because it allows you to grow faster without having inflationary impacts. But it appears at the moment, the weight of money going into AI, plus what's going on in Iran and the Persian Gulf, is making his job very difficult. And so it's going to be very interesting to see, having been appointed by Trump as his man who's going to get rates down, he may well turn around and actually be a bit more hawkish, which would be a surprise from a few weeks ago, certainly.

00:06:14:00 - 00:06:18:00
Jane Parry
So I always have to say hawkish rates flying high.

00:06:18:00 - 00:06:19:00
Richard Champion
Correct.

00:06:19:00 - 00:06:21:00
Jane Parry
Yeah. OK. And dovish going down.

00:06:21:00 - 00:06:22:00
Richard Champion
Yeah.

00:06:22:00 - 00:06:46:00
Jane Parry
OK. So, I did actually quite like the President Trump quote in this week's weekly Markets review. I thought it was a view that many people would intuitively share. And he said, ‘with a great jobs report, just like announced, stocks should go up, not down. That's the way it was for 200 years. Growth does not mean inflation. How else can a country attain greatness?’ Quite an interesting quote.

00:06:46:00 - 00:07:13:00
Richard Champion
Yes, I think that President Trump is being a little bit disingenuous. I think so, perhaps, I've been very, very tactful. It's well-known market aphorism that good economic news is bad for markets. And on the obverse of that, bad economic news is good for markets because the markets looking forward say we're going to get either higher rates, bad for markets or lower rates, good for markets.

00:07:13:00 - 00:07:19:00
Jane Parry
Yeah, OK. And actually some, you know, lower rates if you've got a big mortgage to pay.

00:07:19:00 - 00:07:20:00
Richard Champion
Helps the economy.

00:07:20:00 - 00:07:49:00
Jane Parry
Helps the economy in different ways, doesn't it? OK, interesting. So I think it's short and sweet this week. Maybe we're on a little double espresso with extra sugar rather than a flat white on the coffee break this week. So, I think I will sum up by saying after nine weeks of gains, this pause is healthy, but not alarming. Rates are staying higher for longer, that's still plausible. Resilient growth is still a positive backdrop. So this isn't about a weak economy, it's about a strong one just adjusting to slightly tighter conditions.

00:07:49:00 - 00:07:55:00
Richard Champion
Correct. And, and just to be clear, we're talking about the US specifically, rather than the wider world economy.

00:07:55:00 - 00:07:57:00
Jane Parry
Do you want to touch on the wider world economy?

00:07:57:00 - 00:08:23:00
Richard Champion
Why not? I mean, the wider world economy continues to be pretty weak, in fact. But the inflationary impacts we're seeing may mean that the European Central Bank, for example, this week raises rates because of it, seeing the inflationary impact coming from the war in Iran. But that's going to be raising rates into a weak environment, which isn't a great place to be. Everyone's focused on the US, where the economy is much stronger.

00:08:23:00 - 00:08:25:00
Jane Parry
And it's such a big market.

00:08:25:00 - 00:08:26:00
Richard Champion
It is a huge market.

00:08:26:00 - 00:08:31:00
Jane Parry
Yeah. So strong economies don't always lift markets, it seems, especially when inflation is still in the room.

00:08:31:00 - 00:08:32:00
Richard Champion
Correct.
 
00:08:32:00 - 00:08:53:00
Jane Parry
OK, thank you very much and thank you for listening to the Canaccord Coffee Break podcast. I hope you've enjoyed it. Don't forget to follow on your preferred podcast channel of choice and you will never miss an episode. And as always, we'd love to hear your thoughts. Do drop us a line, ask any questions. The email address is coffeebreak@canaccord.com. Thank you very much.

00:08:53:00 - 00:08:55:00
Richard Champion
Thank you.

00:08:55:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:23:00
Jane Parry
Good morning and welcome to the Canaccord Coffee Break podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth, and I'm delighted today to be joined by Tom Hibbert from our Chief Investment Office.

00:00:23:00 - 00:00:25:00
Tom Hibbert
Good morning, Jane.

00:00:25:00 - 00:00:44:00
Jane Parry
Morning, morning. As you know, Tom is our Chief investment Strategist and here to help me cut through all the noise about what's going on in the markets. And hopefully then you can feel more informed, more confident and more in control of your financial future. So this week, Tom, I see that markets are hitting fresh new highs again.

00:00:44:00 - 00:00:45:00
Tom Hibbert
Absolutely, yeah.

00:00:45:00 - 00:01:04:00
Jane Parry
And apparently, this is all about earnings, not just about hype, and it's the earnings that are driving the rally. AI is still the headline story, but there is a slightly uncomfortable question building in the markets right now. And that is, is AI actually starting to create inflation rather than to suppress it?

00:01:04:00 - 00:01:05:00
Tom Hibbert
Yes.

00:01:05:00 - 00:01:06:00
Jane Parry
So I want to get into that.

00:01:06:00 - 00:01:07:00
Tom Hibbert
Absolutely.

00:01:07:00 - 00:01:50:00
Jane Parry
So, grab a coffee, let's get into it. So, as I say, if you just glance at the headlines, you might think this is a familiar story, with US equities up again 1.6% last week reaching new highs and tech leading from the front. But there are two layers to what's happening right now that I want you to talk to me about in a bit more detail because they shape everything from investment returns to where interest rates might go next. So the obvious one is all around AI enthusiasm, investments flowing into technology, markets continuing to climb, which we've touched on before. I think the more interesting one is that the rally is being earned, not just imagined or hype. So, can you just talk to us a little bit more about that so we can understand it?

00:01:50:00 - 00:01:56:00
Tom Hibbert
Yeah, of course. And you know, the sun is definitely shining on equity markets at the moment in the US.

00:01:56:00 - 00:01:59:00
Jane Parry
Unlike the rain out the window as we sit here in London with a tube strike.

00:01:59:00 - 00:02:02:00
Tom Hibbert
A bit of a damp day, yeah. But –
 
00:02:02:00 - 00:02:04:00
Jane Parry
Give us some positivity then?

00:02:04:00 - 00:02:09:00
Tom Hibbert
There's a lot of excitement and enthusiasm. You know, we've got the SpaceX IPO coming. We've got Anthropics IPO.

00:02:09:00 - 00:02:11:00
Jane Parry
Oh yeah, I just saw that on Bloomberg.

00:02:11:00 - 00:03:10:00
Tom Hibbert
There's a ton of excitement and hype out there, but what's interesting and what I think makes this rally quite durable is the fact that it's really justified by the strength of earnings that are coming through, not just in the tech sector. I mean, tech steals all the headlines and that's where you're seeing the growth. But we've now had, in the US, six consecutive quarters of really solid double-digit earnings growth. The most recent quarter we had 20%, over 20% earnings growth. So this rally is not being driven by fear of missing out, FOMO, but it's an earnings driven story. And you know, forward earnings last week, that's basically what analysts see over the next year, hit a record high last week for the US. The whole market, technology as I've said and you know it's led for a long time, but still leading. Analysts see earnings growth of 47% -

00:03:10:00 - 00:03:11:00
Jane Parry
In the next year?
 
00:03:11:00 - 00:03:12:00
Tom Hibbert
In the next year.

00:03:12:00 - 00:03:13:00
Jane Parry
Wow, that's huge, isn't it?

00:03:13:00 - 00:03:35:00
Tom Hibbert
And next year, in 2027, 32% growth again. In 2025, we had 25% earnings growth. So, we're already seeing numbers come through and there's a huge amount of excitement around the earnings-powered climb for the US equity market at the moment.

00:03:35:00 - 00:03:43:00
Jane Parry
So why is that so important compared to, you know, previous rallies or hype or fluff?

00:03:43:00 - 00:03:55:00
Tom Hibbert
Yeah. And you know, I think it's very cautious when you see very strong performance and a very momentum driven market, there's a lot of excitement, there is a lot of hype. It's important to look at the valuations.

00:03:55:00 - 00:03:57:00
Jane Parry
Yes, because are they getting stretched then?

00:03:57:00 - 00:04:06:00
Tom Hibbert
Yeah. And the markets are expensive, but you can have a period of strong performance where you see multiples, price to earnings multiples, really increase.

00:04:06:00 - 00:04:07:00
Jane Parry
Explain that to us then.

00:04:07:00 - 00:04:30:00
Tom Hibbert
So it's the amount you pay per unit of a company's earnings, price to earnings multiple. So at the moment the whole US market is trading on 21 times price to earnings. That is quite expensive. It's above the long run average, but you're paying up for this earnings growth and you know, in the late 90s during the tech bubble, that same multiple hit 40 times.

00:04:30:00 - 00:04:31:00
Jane Parry
OK.

00:04:31:00 - 00:04:40:00
Tom Hibbert
If you isolate the tech and tech related companies, they're trading on 23 times earnings. So that's not massively expensive and when you have earnings?

00:04:40:00 - 00:04:44:00
Jane Parry
Versus the broader market you said at 21 times. 

00:04:44:00 - 00:05:22:00
Tom Hibbert
21 times, yes. And when you see the earnings growth that we are seeing, it can justify those high valuations as long as that earnings momentum is maintained. So strong earnings and strong earnings growth can justify high valuations. And that is what we've seen consistently for a while now. And you know, you look at the corporate landscape, the earnings landscape, it really still looks very positive. The outlook there is still very positive. So that makes this rally, this market, much more durable than something that is purely driven by hype or an irrational exuberance. There's no or there's not a huge amount of rationality.

00:05:22:00 - 00:05:32:00
Jane Parry
OK. Got it. So, investors are paying a premium, but it's a reasonable premium relative to growth that's forecast exactly or growth that's coming through and forecast.

00:05:32:00 - 00:05:33:00
Tom Hibbert
Exactly.

00:05:33:00 - 00:05:47:00
Jane Parry
OK. So another healthier signal is that this rally seems to be broadening out a little bit. So it's not just about the mega cap stocks anymore, with earnings growth seen across other sectors. Should we just have a little dive into that and what's going on there?

00:05:47:00 - 00:06:17:00
Tom Hibbert
Sure. So if you look at the broader markets, we saw expected earnings for the large caps hit a record high last week, but actually the same for the mid and small caps as well. So the earnings momentum is positive for the entire market, but it is still, you know, the epicentre of that strength is still a tech story. But you look at the amount of investment, the amount of spend, the insatiable demand for energy, you're seeing the beneficiaries across the market.

00:06:17:00 - 00:06:20:00
Jane Parry
So it's dripping down all the way through the market.

00:06:20:00 - 00:06:29:00
Tom Hibbert
Yeah. So I mean, you look at, now you're seeing a huge investment in clean energy, for example, and the clean energy index is up 43%.

00:06:29:00 - 00:06:30:00
Jane Parry
Why is that then?

00:06:30:00 - 00:06:36:00
Tom Hibbert
Well, it's driven by insatiable demand for energy, particularly of things like data centres.

00:06:36:00 - 00:06:40:00
Jane Parry
Because - so AI drives the energy demand, drives data centres.

00:06:40:00 - 00:07:01:00
Tom Hibbert
Exactly. And the quickest way, and also on the back of this geopolitical risk and the energy shock that we're seeing, there's more of a drive to be energy independent, for countries to be energy independent. The quickest way though, fundamentally, to get new electricity into the grid is through renewable sources. So solar is doing really, really well at the moment and that's -

00:07:01:00 - 00:07:05:00
Jane Parry
And that’s not just the puff about clean energy, is it? That's a genuine need for it.

00:07:05:00 - 00:07:11:00
Tom Hibbert
It’s driven by economic utility rather than this idea of carbon neutrality.

00:07:11:00 - 00:07:12:00
Jane Parry
Economic utility, like it.

00:07:12:00 - 00:07:45:00
Tom Hibbert
Exactly. So there's that and then you've got the, there's a human demand for all of the commodities, the real-world assets that that are going into this infrastructure spend. So copper hit an all-time high in in May and we're seeing the material sector performing very well. So data centres, there's energy demand, the physical build out behind AI. We're seeing a broad impact across the market. And you know, generally the US economy has been very robust. So the corporate landscape across America is pretty strong at the moment.

00:07:45:00 - 00:07:49:00
Jane Parry
So AI isn't just code, it's steel, power and infrastructure.

00:07:49:00 - 00:07:51:00
Tom Hibbert
Yeah, absolutely.

00:07:51:00 - 00:07:59:00
Jane Parry
So we've been told that AI is all about productivity and that productivity should lead to lower inflation over time.

00:07:59:00 - 00:08:00:00
Tom Hibbert
Yes.
 
00:08:00:00 - 00:08:17:00
Jane Parry
So this is kind of the nub of what I wanted to understand this week and what I think is quite interesting is that we've gone from asking will AI reduce inflation to is it actually adding to it in the short-term and this sort of tension that's now emerging between AI and inflation?

00:08:17:00 - 00:08:50:00
Tom Hibbert
Yeah, which is coinciding with, you know, already we've had sixty months now of inflation in the US being above the Fed's targets. It's coincided with this higher oil price on the back of the Iran conflict. So, the main argument that the chair of the Federal Reserve had for cutting interest rates this year was the productivity gains that we were seeing on the back of AI. And at the moment, because of this, this huge amount of investment and spending and the AI build out, it's actually putting up with pressure on prices.

00:08:50:00 - 00:08:54:00
Jane Parry
Yeah. So it’s as that translates into the real world and supply and demand.

00:08:54:00 - 00:09:28:00
Tom Hibbert
Yeah, exactly. And last week, you know, we had PCE inflation, which is a measure that the Fed pays very close attention to. It rose to 3.8%, which is the highest since March 2023. I think the fact that this AI-heavy investment, the rising energy demand, supply shortages, AI is putting upward pressure on prices and that is forcing the Fed to recalibrate their assessment for interest rates, the trajectory of interest rates. And that is an increasing risk that we are paying close attention to at the moment.

00:09:28:00 - 00:09:36:00
Jane Parry
So just thinking about all that then in context of clients and their portfolios, what should investors be doing and thinking about?

00:09:36:00 - 00:10:15:00
Tom Hibbert
Yeah, I mean we're very positive for the outlook for, you know, equities, yes, you have to pay, the markets are expensive and we're a little bit cautious there. But the fundamental picture is very strong from a corporate perspective. So, while we're optimistic there, we are carefully looking at how the Fed is reacting to these inflation woes and the increasing risks around that. And obviously that can have a significant impact on the economy, so on the bond markets and on the equity markets as well. So, that is a key risk for us at the moment and something that I think we're at a potential turning point of. But other than that, you know, we're pretty positive.

00:10:15:00 - 00:10:22:00
Jane Parry
OK. So, I think, as ever, we normally say stay balanced, don't stay over concentrated in one part of the market and stay awake.

00:10:22:00 - 00:10:31:00
Tom Hibbert
Yeah, I think that's true. I think the thing is, things are expensive, but good and there is a risk of inflation picking up again here.

00:10:31:00 - 00:10:58:00
Jane Parry
Well, thank you. It's probably time for me to sum up what is in my Canaccord take away coffee cup today. So the rally isn't being driven by hype or not only hype, but mainly by earnings. It's broadening out, especially to those sectors that are supporting the AI build out as you called it, so physical, the physical build out behind AI data centres etcetera, as well as into mid and small cap stocks. So that's another positive.

00:10:58:00 - 00:10:59:00
Tom Hibbert
Absolutely.

00:10:59:00 - 00:11:07:00
Jane Parry
But the same forces that are powering the markets may also be keeping inflation and therefore interest rates higher for longer, which might have an impact.

00:11:07:00 - 00:11:09:00
Tom Hibbert
The US economy is running hot.

00:11:09:00 - 00:11:13:00
Jane Parry
Running hot. I think Richard Champion said that to me last week as well.

00:11:13:00 - 00:11:13:00
Tom Hibbert
Did he?

00:11:13:00 - 00:11:36:00
Jane Parry
He did, yeah. And at that time, the weather was hot. That's all for this week. Thank you very much for listening to the Canaccord Coffee Break Podcast. If you've enjoyed it, please don't forget to hit follow on your preferred podcast channel of choice. And you will never miss an episode, Tom. And as always, we'd love to hear your thoughts. Ask us anything you want. Drop us an e-mail coffeebreak@canaccord.com. Thank you.

00:11:36:00 - 00:11:37:00
Tom Hibbert
Thank you very much.

00:11:37:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific personal entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:22:00
Jane Parry
Hello and welcome to the Canaccord Coffee Break podcast. I'm delighted to be joined today by special guest star Richard Champion, who is our Co-Chief Investment Officer.

00:00:22:00 - 00:00:23:00
Richard Champion
Thank you Jane.

00:00:23:00 - 00:01:07:00
Jane Parry
Welcome, welcome. So, as you know, Richard, we are here to try and cut through the noise about what's going on in the markets and demystify it in a simple and easy to understand manner. So then hopefully, people can feel a bit more informed, more confident and more in control of their financial future.  So, this week we are looking at data that seems clear on the surface in that it's strong in the US and soft in the UK. But underneath that surface, the picture looks far less straightforward. So I just want to get into that in a little bit more detail. And I think that's what markets are actually trying to work through at the moment, what's real and what's temporary. So, you can help me understand all of that.

00:01:07:00 - 00:01:09:00
Richard Champion
Absolutely.

00:01:09:00 - 00:01:51:00
Jane Parry
So grab your coffee and let's get into it. So, as we say most weeks, the situation in Iran remains fragile and there were further attacks again this morning. But overall, there is a shift to more constructive diplomatic language, which has helped ease oil prices in the last week or so. I think that in turn seems to have taken some pressure off the bond markets globally, including the US treasuries and UK gilts. But I wanted to first of all, whizz over to the US and look at what is going on there in a bit more detail. So first off, with Tom over the last few weeks we've been talking about the new incoming chair of the Fed, Kevin Warsh. I think he's now been sworn in.

00:01:51:00 - 00:01:53:00
Richard Champion
That is correct.

00:01:53:00 - 00:02:02:00
Jane Parry
Yeah. So just give us a little bit of background to that and what you're seeing being the implication of this new appointee in that role.

00:02:02:00 - 00:02:57:00
Richard Champion
So, the Fed governor or the chair of the Federal Reserve, I should say, is part of a broader group. They can set the tone, but they can't dominate the conversation entirely because there's a group of committee members who are also their own people. So Kevin Warsh is going to be able to set the tone. And he's got a difficult mandate because his boss, President Trump, is not an inflation hawk. President Trump has made it quite clear he thinks interest rates should be much lower and has put one of his allies on the Fed committee to help that. Whereas Kevin Warsh is much more data-led and has historically been seen as more of a hawk in terms of inflation, i.e. he's more likely to take action proactively to raise rates if he thinks inflation's a problem. 

00:02:57:00 - 00:03:04:00
Jane Parry
And we also talk about the Fed and market independence. Why is it so important then, that it's seen to be an independent body?

00:03:04:00 - 00:03:48:00
Richard Champion
From the period in the 70s and before, in the case of the Fed, there's a sense that politicians will do things based on an electoral cycle, particularly, dare I say, in the UK, where obviously the government used to set interest rates until 1997. And that means that short-term considerations take precedence over long-term considerations and bad outcomes are the result. And we may come on to in a minute, the US economy is running quite hot. Probably doesn't need lower rates right now from an external point of view. But if you're Donald Trump, you want to get re-elected in the midterms or you want the Republicans to be re-elected in the midterms, you want to run it as hot as you possibly can at the moment.

00:03:48:00 - 00:04:04:00
Jane Parry
OK. So, let's touch on that data then and the things we should know about the US economy at the moment. I know the US data was resilient last week. Can we just have a look at that, what particular pieces of data we've been looking at in the CIO?

00:04:04:00 - 00:04:08:00
Richard Champion
So we have this measure called the initial jobless claims data.

00:04:08:00 - 00:04:12:00
Jane Parry
Initial jobless claims, catchy, catchy title.

00:04:12:00 - 00:05:02:00
Richard Champion
Catchy IJC, that comes out every week. So, it's a very regular flow of data. And that's just new people joining the jobless markets. So, you want that number, if you're growing the economy, you want that to be a low number. And we have currently had a string of pretty low numbers, there was a little wobble towards the end of last year when it rose a bit. But now we've had a lot of pretty low numbers and we're close to multi-decade lows for that now. So these are strong economic numbers in terms of jobless with not many people getting made redundant. And the same time we've had manufacturing, so-called purchasing managers index numbers, which is basically a measure of activity. And that was very strong in the States as well. Now, manufacturing is only a small part of the economy, maybe 20% of the economy, but that was still a very strong number.

00:05:02:00 - 00:05:09:00
Jane Parry
OK. So, if anything, then, that's those two pieces of data suggesting the US economy is doing well.

00:05:09:00 - 00:05:47:00
Richard Champion
Doing well, yeah. And just remember, you've had an enormous amount of spending on AI. The government's running a very large deficit, 5.8% of GDP at the moment. And at the same time, they passed this bill last year, the One Big Beautiful Bill Act, which is giving a lot of cash back into consumers. People who paid tax on their tips in 2025 are getting that tax given them back in 26. And so although gasoline prices in the states are up because of what's happened in Iran, there's a lot of stimulus going on in the US economy. And this is being shown through in these numbers, which are, as I say, running pretty hot.

00:05:47:00 - 00:05:55:00
Jane Parry
So where does that leave then, going back to the Federal Reserve and Kevin Warsh, where does that leave the Fed?

00:05:55:00 - 00:06:52:00
Richard Champion
So, our view remains that the Fed will cut rates later in the year, later only because of what's happened in Iran. But in terms of the Fed, this makes their job a lot more difficult because not only do they have a higher oil price because of what's happening in Iran, but the economy itself is running pretty well. And normally that would encourage them to pause. And that's what they've said, bearing in mind that central bankers typically try to talk the talk rather than having to take action. So, by which I mean, they will rather guide the market downwards in its expectations than actually have to raise rates in effect. So overall, it puts more pressure on the Fed, particularly with their boss wanting lower rates because the economy is doing pretty well at the moment in the States and that's coming through in in corporate earnings, for example. So, they're in a difficult, but not a bad place. So it's much better to be in a position of strong growth and worrying about raising rates than being in a horribly weak position like we are in the UK.

00:06:52:00 - 00:07:01:00
Jane Parry
OK. So let's touch on the UK then. And we're not seeing the same sort of resilient data here. So what's the picture? It's notably weaker.

00:07:01:00 - 00:07:28:00
Richard Champion
Correct. And we had similar numbers in the UK this week or last week in services. And services are a much bigger part of the economy, showing a marked decrease, showing the real problems that the Chancellor of the Exchequer here, Rachel Reeves, is going to have in growing tax revenues to allow the kind of spending that the Labour Party would like to do when the economy as a whole is in a much more weak position than it is in the States.

00:07:28:00 - 00:07:31:00
Jane Parry
So that service index is contracting.

00:07:31:00 - 00:07:45:00
Richard Champion
It's contracting, exactly. So that doesn't mean that we're moving into recession, but it does mean that services, which are a much bigger part of the economy, are much weaker than they are in the States and, in particular, the manufacturing is in the States.

00:07:45:00 - 00:07:55:00
Jane Parry
So things like retail, hospitality, financial services, that sort of thing. And what about employment here? Is it similar situation?

00:07:55:00 - 00:08:17:00
Richard Champion
So two things here. We've had an inflation number which wasn't as bad as some people feared, but we think that there are going to be base effects, i.e. weak numbers from a year ago are going to drop out and stronger numbers are going to come in, which means that inflation is likely to go higher. Employment has been weaker than it has been in the States. We've seen unemployment pushing up to 5% in the UK.

00:08:17:00 - 00:08:19:00
Jane Parry
And that was a bit of a surprise rise, wasn't it?

00:08:19:00 - 00:08:44:00
Richard Champion
A little bit of a surprise. I mean in the States people focus on AI cutting jobs. That's not really what's driving the jobs market in the UK, just to be clear. So, it's a much weaker economy position in the UK than it is in the US and similarly difficult. But as I said, it's a good problem for Kevin Warsh, for Andrew Bailey, this is a quite a bad problem trying to work out how you get through weak growth and quite high inflation at the same time.

00:08:44:00 - 00:09:17:00
Jane Parry
OK, thank you. I probably should sum up what's in my Canaccord take away coffee cup this week. So, I think in terms of the UK, while inflation is coming in lower than expected, which is good, the broader picture is one of slowing growth. And that we've seen weakness across both consumer spending and business activity. Whereas in the US, we've talked about it being particularly resilient, potentially running a bit hot. So, sort of the opposite of what we've got here. But some of that strength may be coming earlier than expected, rather than lasting longer.

00:09:17:00 - 00:09:31:00
Richard Champion
That's right. And we still don't know and have no visibility on what's happening in Iran and whether a settlement's going to come, whether that blockage in the Strait of Hormuz is going to be resolved, which is very important longer term.

00:09:31:00 - 00:09:38:00
Jane Parry
Interesting. So I guess the question for investors is no longer how strong is growth, but how sustainable is it?

00:09:38:00 - 00:09:58:00
Richard Champion
Absolutely. And our position remains what we call balanced, diversified and flexible. And right now, that flexibility is really important because if things change markedly for the worse or indeed for the better in the States, which makes it long term worse because rates go up, we need to make sure we can adjust to our positions.

00:09:58:00 - 00:10:25:00
Jane Parry
Brilliant. Thank you. Well, thank you very much. Thank you for stepping in today. It's lovely to see you. And thank you to everyone for listening to the Canaccord Coffee Break Podcast. Hopefully you've enjoyed it. And if you have, please don't forget to hit follow on Spotify or Apple or your podcast channel of choice so you never miss an episode. And as always, we'd love to hear your thoughts. Drop us an e-mail coffeebreak@canaccord.com. Thank you.

00:10:25:00 - 00:10:26:00
Richard Champion
Thank you.

00:10:26:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific personal entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:23:00
Jane Parry
Good morning and welcome to the Canaccord Coffee Break podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth. And this week, welcome back to Tom Hibbert from our Chief Investment Office.

00:00:23:00 - 00:00:24:00
Tom Hibbert
Hello everyone.

00:00:24:00 - 00:00:51:00
Jane Parry
Morning, morning. As you know, Tom, we are here to cut through all the noise in what's going on in the markets and hopefully demystify it in a simple and easy to understand manner so that you can feel more informed, more confident and more in control of your financial future. So this week we're unpacking the renewed pressure in the UK markets, which has been particularly driven by all the political uncertainty that's going on at home.

00:00:51:00 - 00:00:52:00
Tom Hibbert
Absolutely so.

00:00:52:00 - 00:01:00:00
Jane Parry
Can we, can you just tell us a little bit more about what's going on and why the markets are under pressure, particularly UK gilts, and should investors be concerned?

00:01:00:00 - 00:01:37:00
Tom Hibbert
Yeah. And I mean job security at number 10 is not looking great so there's that, but it's just happened at a bad time for the bond markets because globally bond markets are facing selling pressure. It's upward pressure on yields. UK gilts then are under pressure on multiple fronts. And, you know, you've got this rising political risk premium after Labour's route at the elections couple weeks ago, a deteriorating fiscal backdrop largely attached to that, heightened sensitivity to the global energy crisis, as I've mentioned.

00:01:37:00 - 00:01:38:00
Jane Parry
Which we've been talking about in the last few weeks.

00:01:38:00 - 00:02:18:00
Tom Hibbert
Yeah, and this stagnating economic growth backdrop as well in the UK. And also, you add to that the fact that we've already gone through this big inflation wave and UK consumers have lost about a third of their purchasing power since 2021. So yields have risen to their highest levels since 1998. If you look at the 10-year yield, it closed the week last week at 5.17%, the pound as well under renewed pressure. So the pound fell 2% against the dollar last week. So that’s, you know, that's why gilts are facing this pressure.

00:02:18:00 - 00:02:25:00
Jane Parry
Yeah. So, all in all, higher borrowing costs and a weaker currency all sounds pretty serious.

00:02:25:00 - 00:02:41:00
Tom Hibbert
It does, it does. And look there have been places where the market is more robust and particularly where we focus for portfolios, we do look at shorter maturities. And if you look at Bloomberg's one-to-five-year gilt index, it's only 0.5%.

00:02:41:00 - 00:02:44:00
Jane Parry
So, are the markets being too pessimistic then do you think?

00:02:44:00 - 00:03:23:00
Tom Hibbert
I think they are, I think they are. To be pricing in three interest rate hikes seems quite pessimistic. I mean, there is obviously a risk because the fact that you've got yields rising across the curve now on the back of this political turmoil and the market is obviously worried about who's going to replace Starmer if Starmer does step down and you know, there are a number of candidates that might concern markets. But again, if you see yields start to rise significantly too significantly from here, the impact on the UK economy is quite stark. I mean, you get to the 10-year yield pushing 6% and it has some pretty serious consequences.

00:03:23:00 - 00:03:34:00
Jane Parry
So how high could yields go and what is the impact on the UK economy then? And ultimately, I guess, as we're seeing here, it's for investors.

00:03:34:00 - 00:04:51:00
Tom Hibbert
Yeah, exactly. And it's a difficult question to answer because there are so many moving parts. Yeah, well, I'll do my best. But the 10-year gilt yield at the moment is 5.17% or at the end of last week. Yields are down a little bit today, speaking on Monday. If that yield pushes 6%, the UK is likely to enter into a sort of technical recession. It has an impact on mortgage costs, it has an impact on corporate borrowing costs. I mean, also, yields need to stay elevated at those levels. And I think we're more likely to see yields rise and then come back down quickly because of the growth implications. But if you look at a really bad case scenario and yields do stay high, I think 6% is the level where you start to see sort of recessionary outcomes for the UK economy. 7% yields imply a much more deep recession and a really quite a serious fiscal crisis for the UK government. So those levels are worrisome and you can obviously get to those levels on yields. But I think at those levels you'd have more to worry about.

00:04:51:00 - 00:04:57:00
Jane Parry
So what could potentially offset those risks and those high yields?

00:04:57:00 - 00:05:14:00
Tom Hibbert
Sure. I mean the first is that yields fluctuate quite naturally. I say that the cure to higher prices is high prices. And I think if you start to see yields reach those levels, the UK economy, the implications for the UK economy will result in in a sort of a falling bond yields.

00:05:14:00 - 00:05:17:00
Jane Parry
So sort of self-correcting.
 
00:05:17:00 - 00:05:38:00
Tom Hibbert
Potentially, I think so, yes. I mean there are some push and pull factors that are a bit concerning. But the other thing is the Bank of England has and the DMO, the debt management office have levers that they can pull to support the bond market. I mean, the Bank of England is the only central bank that's still doing quantitative tightening. They could stop that.

00:05:38:00 - 00:05:39:00
Jane Parry
Remind us what quantitative tightening is?

00:05:39:00 - 00:05:54:00
Tom Hibbert
That means they're reducing the size of their balance sheet. So they're actively selling bonds back into the market at the same time as you've got tons of selling pressure on bonds. So they could easily halt that to reduce the pressure the debt management office. 

00:05:54:00 - 00:05:59:00
Jane Parry
And if they did, if they did do that though? If they halted selling bonds, what would the implication be?

00:05:59:00 - 00:06:12:00
Tom Hibbert
It means that there's less of supply on the market. So it reduces the upward pressure on bond yields. And at the same time, the debt management office, they're already talking about -

00:06:12:00 - 00:06:15:00
Jane Parry
I didn't even know there was a thing called the debt management office, so there you go.

00:06:15:00 - 00:06:36:00
Tom Hibbert
Yeah, they're responsible for issuing gilts. They are likely to increase their focus on issuance at the short term, shorter data maturities, which lowers the borrowing costs for the UK government and it reduces the pressure at the most vulnerable points on the yield curve which are the longer dated maturities, sort of 15 to 30 years.

00:06:36:00 - 00:06:46:00
Jane Parry
So bringing that all together then, what's our base case on all of this that Canaccord and how are we positioning portfolios for clients?

00:06:46:00 - 00:07:07:00
Tom Hibbert
It's a good question. And you know, I think given the growth implications and then the fact that the market is focusing much more on the inflation, I think the Bank of England are more likely to be on hold. I think the barter raising rates is quite high. They might hike rates in Q2, maybe Q3 once -

00:07:07:00 - 00:07:08:00
Jane Parry
This year?

00:07:08:00 - 00:07:52:00
Tom Hibbert
Yeah. But I think that would be a policy error given the given the negative momentum for the economy. And yes, the bond market does look vulnerable today. We don't believe that a further rise in yields will be particularly persistent as I said, because of the sort of offsetting factors and given the implications for the economy. But it is important to understand the potential economic implications for a further and persistent rise in yields. And I think that you know if you look at six and 7% yields, those have either recessionary at 6% and deep recessionary consequences at 7%.

00:07:52:00 - 00:07:56:00
Jane Parry
So how does that reflect back into clients’ portfolios then, what are we looking at there?

00:07:56:00 - 00:08:20:00
Tom Hibbert
Yeah, well, most clients, hopefully, I mean particularly if they're paying taxes, gilts are very tax efficient, hold them to maturity, focus on shorter date of maturities. They're a really interesting asset class at the moment or investment option at the moment. Also, I think given the fact that yields are high, the return outlook from here is quite asymmetric.

00:08:20:00 -00:08:21:00
Jane Parry
Asymmetric. Meaning?

00:08:21:00 - 00:08:40:00
Tom Hibbert
That your upside is bigger than your downside. That's the nature of bond mathematics. But you have this buffer of the starting yield when you buy a bond. So if you have, if you buy a bond with a 5% yield, it takes yields to further rise quite a lot before you actually generate a negative return on a one-year view.

00:08:40:00 - 00:09:23:00
Jane Parry
So let me sum up then. What's in my Canaccord take away coffee cup this week? So there is no doubt that the UK is under pressure and markets are demanding a higher premium for the risk they are taking, which is pushing borrowing costs higher and testing investor confidence, all related really to this political risk, but also inflation and rising global yields. So as ever, the outlook feels uncertain. But potentially higher yields are also a resetting opportunity particularly for those sort of disciplined long-term investors, you know, and potentially for those people who are higher rate taxpayers, potentially an opportunity, but in short term.

00:09:23:00 - 00:09:27:00
Tom Hibbert
I would say so and you know you don't have to put all of your eggs in the gilt baskets.

00:09:27:00 - 00:09:28:00
Jane Parry
No, definitely.

00:09:28:00 - 00:09:39:00
Tom Hibbert
You have some small exposure, particularly when there are there are obvious potential risks and the gilt market is vulnerable, but you know, also quite good value today.

00:09:39:00 - 00:10:00:00
Jane Parry
Great. Thank you very much. Thank you for your time and thank you for listening to the Canaccord Coffee Break Podcast today. If you've enjoyed it, don't forget to hit follow on Spotify, Apple, or your podcast channel of choice and you'll never miss an episode. And as always, we'd love to hear your thoughts or drop us a line. Ask some questions to coffeebreak@canaccord.com. Thank you.

00:10:00:00 - 00:10:03:00
Tom Hibbert
Thanks very much everyone.

00:10:03:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific personal entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:24:00
Jane Parry
Good morning, and welcome to the Canaccord Coffee Break podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth. And this week I am delighted to be joined by Leah Bramwell from our Chief Investment Office. Morning, morning.

00:00:24:00 - 00:00:26:00
Leah Bramwell
Morning. Thank you for having me again, Jane.

00:00:26:00 - 00:01:36:00
Jane Parry
Lovely to see you. So, as you know, each week we try to cut through all the noise that's going on in the markets. This week, the noise we've just been talking about is local elections, but we're trying not to stray into that territory, demystifying what's going on in a simple and easy to understand manner. And hopefully then you can feel more informed, more confident and more in control of your financial future. So this week, Leah, I really wanted to talk to you about two of the market's traditional safe havens, which seem to be behaving very differently and not in the way we would normally expect. In the past few weeks, we've been talking about AI and the Magnificent 7 in the US driving markets. But I think it'd be more interesting for our listeners to hear a little bit more that's a bit less obvious maybe about what's happening. So grab your coffee, let's dive on in and let's see what's going on behind those headlines. So, as I mentioned, markets are still being driven by AI and tech, but we want to look beyond that this week to something more subtle and arguably more important is happening in the so-called safe parts of the market. So could you just briefly give us an intro as to what we're talking about here?

00:01:36:00 - 00:01:55:00
Leah Bramwell
Absolutely. So, I'm sure we'll come back to AI because it's driving lots of things at the moment. But I wanted this week really to touch upon a couple of other sectors and thematics that I think have some really interesting dynamics going on at the moment. So that would be infrastructure and precious metals and associated mining stocks.

00:01:55:00 - 00:02:01:00
Jane Parry
OK. So should we have a little look into infrastructure first? So what's the story there? What's happening?

00:02:01:00 - 00:02:20:00
Leah Bramwell
Absolutely. So infrastructure historically has been viewed as a fairly defensive sector. It's got a very high allocation to utilities. More defensive parts of the market, which are typically regulated, typically have significant elements of inflation linking within their cash flows.

00:02:20:00 - 00:02:22:00 
Jane Parry
So how does that work?    

00:02:22:00 - 00:03:16:00
Leah Bramwell
The underlying cash flows of the business would be linked to inflation. So if inflation is higher, the revenues of the business automatically go up because those cash flows are contractually linked often to governments with inflation. And so they often are viewed as a safe haven. In times of market stress, those types of assets tend to be more defensive than the wider market. And it's been a really interesting area over the last 18 months because it has evolved away from being a purely sort of defensive play, steady eddy, in times of stress to being linked to some of the spends that we're seeing in the AI build out. So the electrification of economies and the energy that's required to build out that AI capacity has been benefiting these traditionally more defensive names.

00:03:16:00 - 00:03:18:00
Jane Parry
So the AI story feeding into infrastructure.

00:03:18:00 - 00:03:34:00
Leah Bramwell
Exactly. And so you're having exposure to that theme without some of the froth and the hype of the technology names and certainly without the valuations associated with those names, but you're having exposure to that CapEx in a still -

00:03:34:00 - 00:03:36:00
Jane Parry
CapEx being capital expenditure.

00:03:36:00 - 00:03:38:00
Leah Bramwell
Exactly. 

00:03:38:00 - 00:03:43:00
Jane Parry
And what those AI tech companies are investing in to drive that AI growth?

00:03:43:00 - 00:03:50:00
Leah Bramwell
Exactly, the sort of the plumbing the nuts and the plumbing of, not the sexy bit, but the bit that is required in order to make it happen.

00:03:50:00 - 00:04:00:00
Jane Parry
OK. And so the other safe haven sector you mentioned is precious metals and mining. So what, gold, silver?

00:04:00:00 - 00:05:03:00
Leah Bramwell
Yeah. So mining not typically a safe haven, but gold in itself traditionally viewed as a safe haven asset. So where you have geopolitical instability, where you have very uncertain inflationary environment, gold historically has been attractive during those times and we've seen really interesting market dynamics in gold again over the last 18 months. So a huge rally in the price of gold and silver and other precious metals in 2025, and at the beginning of 2026. And we spoke I think last time as the US-Iran conflict was kicking off that one would have expected that precious metals would have behaved positively in that environment. But in fact, we saw inflation concerns in the markets leading to an adjustment in expectations for interest rates which hurt the price of gold rather than having an increase in the price of gold.

00:05:03:00 - 00:05:12:00
Jane Parry
OK, right. You might need to explain that to me. So, the reason why high inflation can impact the price of gold? Explain that a little bit more.

00:05:12:00 - 00:06:29:00
Leah Bramwell
So usually, inflation is viewed as positive for the gold price, inflation in itself because gold is a store of value. But where you have expectations for interest rates going up, that's negative for gold because if interest rates are higher, your opportunity cost of holding gold, i.e. what you would get if you were choosing something else, cash in a bank or a bond, you get a higher return from that than you do from gold. Gold doesn't pay any interest. You're not getting anything from holding gold. And so if your interest rate on cash goes up, you're more inclined to go for that because you're getting a better return relative to gold. So there's quite a lot to unpick. It's not exactly clear always what the drivers of the gold price are, but really a sort of stagflationary environment that is low growth, high inflation. Low growth, so central banks are not inclined to increase interest rates, but still high inflation is viewed as the ideal environment for gold. And arguably that's been where we have been or concerns over that's where we're going over the last year has impacted the price of gold over the last year.

00:06:29:00 - 00:06:42:00
Jane Parry
Interesting, interesting times. So what you're saying is one traditional safe haven is behaving exactly like you'd expect, which is infrastructure, whereas the other one isn't, which is gold.

00:06:42:00 - 00:07:56:00
Leah Bramwell
Yeah. So what I'm saying really is that one might expect both of these asset classes to behave in the same way in the environment that we're in. So one might expect in an environment where inflation is relatively higher and sticky and interest rates remain relatively contained, one might expect that to be a good environment for both infrastructure and for gold. And for 2025 that absolutely was the case. Infrastructure, utilities were one of the top performing sectors in 2025 and gold, obviously gold and gold mining equities as well, which tend to correlate, were exceptional in 2025. So that story played out. But year to date in 2026, they've sort of diverged. And I think that's really interesting because infrastructure is now very much being linked to that AI spend, that AI theme and gold having had such a huge run and perhaps some speculative activity in that market as well, has given back all of its gains from the beginning of the year and is now trading sort of roughly in line with where we started the year.

00:07:56:00 - 00:08:06:00
Jane Parry
Is there anything else beyond the sort of the AI CapEx that could be influencing the infrastructure situation?

00:08:06:00 - 00:08:21:00
Leah Bramwell
I think infrastructure probably has become more onto people's radar. Infrastructure was hit very, very hard as interest rates went up in 2022 because I think a lot of investors were using infrastructure as an alternative to fixed income.

00:08:21:00 - 00:08:23:00
Jane Parry
OK, how does that work then?

00:08:23:00 - 00:09:02:00
Leah Bramwell
Infrastructure pays a good yield. And so, when interest rates were basically zero before we saw this latest cycle of tightening, people were using infrastructure to provide yield within portfolios. And then when interest rates started going up, infrastructure was hit very hard by certain parts of the market. And so, I think the infrastructure which was really out of favour for quite a while, certainly a couple of years, it was really a difficult place to be. And I think now that that's started to turn around, there's a lot of positivity more in the sector than there was even this time last year.

00:09:02:00 - 00:09:11:00
Jane Parry
And I guess there are a lot of power grids, data centres and energy infrastructure required to run all that AI that we're starting to see coming through.
 
00:09:11:00 - 00:09:44:00
Leah Bramwell
Yes, exactly. And I mean there is infrastructure spend I think above and beyond that as well. You know, certainly in Europe, that some of the fiscal environment has improved. I think for infrastructure, I think certain governments are looking to spend in ways that they haven't been over the last 10-15 years in terms of sort of improving the infrastructure environment. So it's not just an AI story. I think that it goes beyond that, but I think it the prospects for the sector look good.

00:09:44:00 - 00:10:23:00
Jane Parry
Good, thank you. It's probably a good time to sum up what is in my Canaccord take away coffee cup today. I think we've said that not all safe havens are safe. So, investors should probably look at the fundamentals, not just the assumptions and the headlines to make sure that they're considering thematic differences underneath the surface sort of thing. And that this extends beyond the tech AI story. While traditional safe havens like gold perhaps are not behaving in the same way and demonstrates, as we say most weeks, the importance of active selection, close monitoring within portfolio.

00:10:23:00 - 00:10:36:00
Leah Bramwell
Exactly right. I think it's really important to recognise that there's lots of stories going on in the market and there's lots of complimentary stories and to be active and to be proactive in making sure that your portfolios reflect those things.

00:10:36:00 - 00:10:55:00
Jane Parry
Thank you and thank you very much for listening to the Canaccord Coffee Break podcast today. I hope you've enjoyed it. Don't forget to hit follow Spotify, Apple or your podcast channel of choice so you never miss an episode. And as always, we'd love to hear your thoughts. Do drop us an e-mail coffeebreak@canaccord.com. Thank you.

00:10:55:00 - 00:10:56:00
Leah Bramwell
Thanks, Jane.

00:10:56:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:24:00
Jane Parry
Hello, and welcome to the Canaccord Coffee Break podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth. And again, this week, I'm delighted to be joined by Tom Hibbert, our Chief Investment Strategist from our Chief Investment Office.

00:00:24:00 - 00:00:25:00
Tom Hibbert
Hi everyone, good to be back.

00:00:25:00 - 00:01:23:00
Jane Parry
Welcome, welcome. And as you know, each week we try to cut through the noise and demystify what's going on in the markets in a simple and easy to understand manner so then you can feel more informed, more confident and more in control of your financial future. So this week, Tom, I want to have a little look back on April, because now we’re the beginning of May, and understand why markets surged really during April and why this actually matters for long term investors and what that all means. So, grab your coffee and let's dive on in. So, April was the strongest month for markets since late 2020, I think you said, with global equities up 10.15% to be precise in April. So what has changed after the wobbles we saw in March? And is this mainly about corporate earnings or is it something broader?

00:01:23:00 - 00:02:25:00
Tom Hibbert
Yeah. I mean, you'll note that in this podcast, we're not going to talk about the conflict in the Middle East. And I think that's actually one of the key components because markets have really started to look through that energy shock and all of the tensions there and focus much more on the fundamentals. And the fundamental picture has been incredibly solid. And that really shone bright in April as companies have reported earnings, particularly in the US. So it's the US where companies have reported so well and the US has led the charge for global equity markets. There’s also been broader earnings strength. So we've had about 50% of companies reports now in the US, we're on track for a sixth consecutive quarter of double-digit earnings growth. Analysts are still forecasting really solid earnings growth, so up to over 21% for the next 12 months, which is really quite remarkable strength.

00:02:25:00 - 00:02:28:00
Jane Parry
Yeah, that does sound impressive. So how unusual is that then?

00:02:28:00 - 00:03:15:00
Tom Hibbert
Yeah, it's quite unusual to have six consecutive quarters. I mean, double-digit is growth is really solid. To have six consecutive quarters of such strong growth is really quite remarkable. And it's not just that, I mean, you're seeing record profit margins. Companies are beating on all 5 of the magnificent 7 companies that reported last week beat on both earnings and revenues. So remarkable strength across the board. But with the sort of mega cap tech stocks as the brightest lights. We've seen broad based earnings, but the focus last week was on particularly some of the tech related mega cap stocks, sometimes called the magnificent 7.

00:03:15:00 - 00:03:21:00
Jane Parry
The Magnificent 7 OK, so who is in the Magnificent 7? What are those companies?

00:03:21:00 - 00:03:37:00
Tom Hibbert
They're well, so five of the seven reported last week, Alphabet would be one of the key ones, had really strong results. That's Google, parent company of Google, Meta, another one that that reported.

00:03:37:00 - 00:03:40:00
Jane Parry
What's that, Facebook, Instagram?

00:03:40:00 -00:03:52:00
Tom Hibbert
Exactly, yeah. So those were the two key sort of drivers within the Magnificent 7 last week. You've got NVIDIA in there, which didn't report last week, but that's obviously been one of the market darlings of the last couple of years.

00:03:52:00 - 00:04:08:00
Jane Parry
So is this still all about AI excitement then? We've talked about that on the podcast in the past. Or are investors sort of seeing through that excitement and becoming a bit more demanding about costs and profitability, hence the earnings coming through?

00:04:08:00 - 00:04:57:00
Tom Hibbert
Yeah, and we've seen quite a lot of dispersion start to arise within the tech sector. This cycle is still really all about tech and driven by tech and within that particularly about AI and the revolution of the tech sector and the broader global economy driven by artificial intelligence. But we are now seeing greater focus within those tech darlings on the amount of capital expenditure, how much that capital expenditure is leading through to AI demand, demand for these large language models. How much business is it generating relative to the amount of expenses and investments that these companies are making at the same time. So, a more scrupulous approach to how markets are reacting to these results.

00:04:57:00 - 00:05:20:00
Jane Parry
OK. Thank you. So, let's talk about central banks. And last week, there were a total of 10 central bank meetings, including the Fed in the US, the European Central Bank, the Bank of England and the Bank of Japan. So, 10 central bank meetings all in one week sounds busy and dramatic. And I know you love a central bank meeting.

00:05:20:00 -00:05:22:00
Tom Hibbert
I do.
 
00:05:22:00 - 00:05:25:00
Jane Parry
The markets barely reacted. So why was it so quiet?

00:05:25:00 - 00:05:59:00
Tom Hibbert
Yeah, this half of the podcast risks being a little bit boring, because there's there weren't really any surprises. But, you know, all of these central banks fundamentally face renewed inflation challenges. The key question is how much inflation is coming down the pipeline from this energy shock and how will central banks respond to that? Now, the UK, Europe, Asian central banks, you know, the Bank of Japan, they, they're all more sensitive. Those economies are more sensitive to this energy shock than the US, so the US has a bit more flexibility.

00:05:59:00 - 00:06:03:00
Jane Parry
Because the US has got its own energy supply.

00:06:03:00 - 00:06:05:00
Tom Hibbert
Exactly. Yeah.

00:06:05:00 - 00:06:07:00
Jane Parry
It can pump its own oil. 

00:06:07:00 - 00:06:46:00
Tom Hibbert
It's a little more insulated from the shock. The market still expects the Federal Reserve at the margins to cut rates, whereas the market's expecting interest rate hikes, particularly in Europe from the European Central Bank and the UK. The question is the UK and Eurozone have weaker economies. Those economies are slowing and the transmission effect then from this energy shock is more difficult, it's less clear for it to transition from a supply side shock into the demand side into wage growth and companies might struggle more to pass on rising prices to consumers. So with that less clear, maybe those central banks will still be more hesitant to hike interest rates, but that's what the market is expecting. And you know, both of those central banks, they spoke about their flexibility to potentially raising interest rates, if there are signs of inflation transmitting away from just the energy shock into more core inflation, into goods prices and wages. And I think that is still a key concern that central banks are going to be watching very carefully, but no surprises there.

00:07:23:00 - 00:07:26:00
Jane Parry
Hence not masses of market reaction.

00:07:26:00 - 00:08:10:00
Tom Hibbert
Not masses of market reaction. The biggest surprise was in the US, actually, which is more insulated from the shock. The Federal Reserve where, you know, this was the last meeting with Jerome Powell as the chair. And it was also the one meeting during his chairmanship which saw the most dissent in terms of , not actually in terms of voting against the decision to hold rates, but they left in the statements that they released with the decision, a sentence that still showed an easing bias that they were more inclined to cut interest rates than raise interest rates. And there were three members of the committee that opposed the inclusion of that statement, which is quite unusual.

00:08:10:00 - 00:08:14:00
Jane Parry
And the implication of that for rates and for investors is what?

00:08:14:00 - 00:08:33:00
Tom Hibbert
It was seen as more hawkish, which means that the Federal Reserve, actually the market, sees them as still cutting rates. Maybe they are more inclined to hike interest rates. So that was a little bit of a hawkish surprise at the meeting, and it's a bit of a sour note for Powell to end his chairmanship on.

00:08:33:00 - 00:08:34:00
Jane Parry
But he's going to still stay on the board, isn't he?

00:08:34:00 - 00:08:54:00
Tom Hibbert
Yeah, good point. He is. He's staying on the Board of Governors for an unspecified period. And he cited the political interference worries that the Federal Reserve is under too much pressure from the US administration to cut interest rates. So, he's decided to stay on, citing that political interference as his reason.

00:08:54:00 - 00:09:02:00
Jane Parry
And what do you think? Do you think political pressure on central banks could become a bigger market issue over the next few years?

00:09:02:00 - 00:09:09:00
Tom Hibbert
The market has made it quite a big issue. I'm not as concerned as the market about it. I really like Kevin Warsh as a replacement.

00:09:09:00 - 00:09:11:00
Jane Parry
He's the new incoming Chairman of the Fed.

00:09:11:00 - 00:09:31:00
Tom Hibbert
Exactly. I really do rate him. I agree with a lot of his views on Fed policy in recent years. I think he's a very good replacement. I don't see any evidence that he will, you know, act as a puppet of the administration. He might have some views that share a lot of the views of the administration.

00:09:31:00 - 00:09:33:00
Jane Parry
But that's a different thing.

00:09:33:00 - 00:09:49:00
Tom Hibbert
That's, you know, that’s not an issue by itself, you know, and the Fed will still remain a committee with committee led decisions. I think injecting a little difference of opinion is actually probably a healthy thing into the Federal Reserve. So I think it's a bit of a red herring, the whole political interference thing.

00:09:49:00 - 00:10:00:00
Jane Parry
So, if you had to boil all of this down, just thinking about our clients and long-term investors and what should they be focusing on the most? Is it earnings? Is it rates? Is it geopolitics?

00:10:00:00 - 00:10:03:00
Tom Hibbert
Yeah, everything altogether really is important.

00:10:03:00 - 00:10:05:00
Jane Parry
Sit on that fence.

00:10:05:00 - 00:10:41:00
Tom Hibbert
Yeah, sit on the fence. I'll try and be more opinionated. Look, I think earnings have been a real highlight and it just shows how the strength of the corporate landscape that's underlies the investment environment that we're in at the moment. Yes, there's a lot that you can get worried about. But fundamentally, when you look through all of that fog, there's a really solid backdrop. The question for me, the key question, is to what extent is that fundamental strength reflected in valuations And you know markets are quite expensive, so you're paying up for that quality.

00:10:41:00 - 00:11:09:00
Jane Parry
Yeah. All right. Understood. OK. Well, I think it's probably time for me to sum up what is in my Canaccord take away coffee cup this week. So, April's rally was driven by the fundamentals. We just talked about earnings led and not just by excitement, not people just getting carried away with the markets. US earnings growth in particular is very strong. We talked about AI investment, particularly with the headline tech names, the Magnificent 7, but probably broadening out a little bit as well.

00:11:09:00 - 00:11:19:00
Tom Hibbert
Yeah, well, the focus is shifting. It's becoming more scrupulous in terms of investors really need to start seeing the returns on that investment.

00:11:19:00 - 00:11:40:00
Jane Parry
And while inflation is still a concern, the central banks have been talking about that they are treading carefully as growth outside the US cools. So just keeping an eye on that one. So for long term investors, I think it's the same message as we say most weeks, stay anchored in earnings really and quality, keep diversified and perhaps don't let all the short-term noise distract from some of the long-term opportunity that we're seeing.

00:11:40:00 - 00:11:42:00
Tom Hibbert
Precisely that.

00:11:42:00 - 00:12:02:00
Jane Parry
So thank you so much for listening to the Canaccord Coffee Break podcast. We do appreciate it. If you've enjoyed it, don't forget to hit follow on Spotify or Apple or your podcast channel of choice. And then you will never miss an episode. And as always, we'd love to hear your thoughts. Drop us a line. Ask us questions. Coffeebreak@canaccord.com.

00:12:02:00 - 00:12:09:00
Tom Hibbert
And you have a break from me next week. Then you've got the excellent Leah Bramwell back on the podcast. So everyone will be glad to hear that.

00:12:09:00 - 00:12:10:00
Jane Parry
Thank you very much.

00:12:10:00 - 00:12:11:00
Tom Hibbert
Thank you.

00:12:11:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific personal entity. It is accurate at the time of recording and is subject to change.

00:00:10:00 - 00:00:22:00
Jane Parry
Good morning and welcome to the Canaccord Coffee Break Podcast. I'm Jane Parry, the Chief Marketing Officer here at Canaccord Wealth, and I'm delighted to be joined by Tom Hibbert from our Chief Investment Office.

00:00:22:00 - 00:00:23:00
Tom Hibbert
Hello everyone.

00:00:23:00 - 00:01:43:00
Jane Parry
Morning, morning. And as you know, Tom is here to help me cut through the noise, demystify what's going on in the markets, hopefully in a simple and easy to understand manner, and then you can feel more informed, confident and more in control of your financial future. So this week, Tom, we are focusing on oil because right now, it seems it's the market's most direct pressure point. And the big question I'd like you to help us answer today, please, is why hasn't a $100 oil price triggered the kind of panic we've seen in the past? And really, what should investors actually do about it? So grab your coffee, you've got your coffee, and let's dive on in. So, as I say, mainly talking about oil and oil prices this week, this seems to be the most immediate transmission channel, they say, from the Middle East conflict into the market. And prices have moved from about $60.00 a barrel to about $100 a barrel. And I think we would say they are surging rather than spiralling out of control. And I saw that some commentators have noted that the move still looks contained relative to the scale of the disruption and also compared with historical shocks.

00:01:43:00 - 00:01:45:00
Tom Hibbert
Exactly.

00:01:45:00 - 00:02:00:00
Jane Parry
And I know that you put in this week's weekly markets review that the 1973 Arab oil embargo removed roughly 5% of global supply but drove a 400% price surge. So this is very different from that situation.

00:02:00:00 - 00:02:33:00
Tom Hibbert
Yeah, it's a bigger share of global supply that goes through the Strait of Hormuz. It's 20%, it's a fifth of global supply that goes through the Strait of Hormuz. So it's a much bigger shock but a much smaller price shift that we've seen. And you know, there's a few interesting reasons for that. The first is that, you know, supply has been disrupted, but it hasn't been, it hasn't completely disappeared. It's been of quite an adaptive market.

00:02:33:00 - 00:02:34:00
Jane Parry
An adaptive market? What does that mean?

00:02:34:00 - 00:03:08:00
Tom Hibbert
In that, you know, Saudi Arabia, the UAE, they've found alternative ways to sort of reroute what would have previously gone through the Straits of Hormuz. So they've pushed alternative pipeline infrastructure to capacity, effectively, and that's diverted flows away from the Strait. So what they've managed to replace is about seven million barrels per day, which is about 35% of the supply shock.

00:03:08:00 - 00:03:10:00
Jane Parry
That previously went through the strait?

00:03:10:00 - 00:03:42:00
Tom Hibbert
Exactly. So the seven million barrels a day compares to about 20 million that was going through the straight on a daily basis. Second, that we've seen, you know, a lot of emergency supply from strategic reserves. We've seen strategic reserves being released into the market, which has helped dampen the supply shock. And also there's been this policy flexibility from, particularly from the US, to accommodate sanctioned barrels from, you know, from other countries. Sanctions on Russia have been softened, for instance.

00:03:42:00 - 00:03:46:00
Jane Parry
So that they can then sell their oil globally.

00:03:46:00 - 00:03:49:00
Tom Hibbert
Yeah. And that's injected additional liquidity into the market.

00:03:49:00 - 00:03:50:00
Jane Parry
No pun intended.

00:03:50:00 - 00:03:59:00
Tom Hibbert
No pun intended. And then you've got this - there's the global price for oil, which people tend to look at the nearest sort of futures contract.

00:03:59:00 - 00:04:03:00
Jane Parry
Hang on a minute. Hang on a minute. The near the what?    

00:04:03:00 - 00:04:50:00
Tom Hibbert
Yeah, the nearest term futures contracts. So the point is it's not the physical market, it's not the spot market today. It’s not like you go into a shop and buy oil. If you try and do that, you buy oil today in some sort of specific location, it might be much more difficult than the price that you see on your Bloomberg Terminal, $100 a barrel. And we've seen that. So physical markets, particularly in Asia, have been a lot tighter. You've seen prices up to $260 a barrel, buyers paying substantial premiums to secure this very sort of limited supply. And I think that's the key. So global benchmarks and the futures that people look at understate the severity of local disruptions in the spot market.

00:04:50:00 - 00:04:52:00
Jane Parry
OK, I think I get all that.

00:04:52:00 - 00:05:20:00
Tom Hibbert
And then finally you've got this saying that the cure for high oil prices is high oil prices, in that when you have high oil prices, it constrains demand. And if you've got lower demand for oil on the back of that or high oil prices, for example, might trigger a growth shock, you have lower oil prices on the back of that. And we've already seen the International Energy Agency lower their expected global oil demand for this year.

00:05:20:00 - 00:05:27:00
Jane Parry
OK. So things that they're talking about, fewer air flights, less air travel, that sort of thing.

00:05:27:00 - 00:05:30:00
Tom Hibbert
Yeah, those are a few good examples.

00:05:30:00 - 00:05:45:00
Jane Parry
So what about the other thing I was hearing? So there's a supply and demand, but also that there's simply less energy intensity than in previous decades, therefore not quite the same shock as there would have been in the 1970s. Does that make sense?

00:05:45:00 - 00:06:34:00
Tom Hibbert
Yes. And in fact, I think that's the most important, important point. So people are saying now that maybe 150, maybe $200 for oil is the new 100, the price that it takes really to trigger a global economic slowdown, which is why we haven't seen the panic across markets. We've got an elevated oil price, but because the global economy is less energy intensive than in previous decades, we've got a more diverse source of energy supply with less oil reliance that actually it takes a much higher oil price to trigger the same sort of slowdown as we may have seen in the 70s.

00:06:34:00 - 00:06:42:00
Jane Parry
So what would make you sort of genuinely more concerned from here? What indicators are you watching most closely?

00:06:42:00 - 00:06:49:00
Tom Hibbert
Sure. I think the key thing has to be inflation and we're already seeing inflation pick up on the back of this.

00:06:49:00 - 00:06:51:00
Jane Parry
So the energy shock is feeding through into inflation.

00:06:51:00 - 00:07:07:00
Tom Hibbert
Into inflation, but it's feeding through purely in energy prices. I mean energy prices direct into inflation. So that's where the concentration is. The real worry is if you see that broaden out into other areas, so into the demand side in particular.

00:07:07:00 - 00:07:13:00
Jane Parry
OK. We’ve talked about the supply side and demand side on the podcast in the in the past.

00:07:13:00 - 00:08:05:00
Tom Hibbert
Right, exactly. So, you know, if we start seeing wage growth really pick up or if businesses who have, obviously energy is a key input into business costs, will businesses put their prices up for their products? And you know, that is a concern. There's less of, they'll find that more difficult because the economy was already slowing. Demand was already, you know, quite constrained. Consumer spending was, you know, reasonable, but wasn't as sort of hot as it was in previous periods of inflation in recent in recent times. So there's less of an obvious transmission for that to happen. But that's something that we're looking at and we're already seeing inflation, inflation in the UK rose to 3.3% last week, up from 3%. But as I say, all of that so far is attributable to energy prices.

00:08:05:00 - 00:08:13:00
Jane Parry
So core inflation relatively contained at the moment and longer-term inflation expectations still fairly anchored.

00:08:13:00 - 00:08:35:00
Tom Hibbert
Yeah. That's and that's the other key point actually. So the general view is that this is a sort of transitory energy shock because the demand side of the economy is still quite weak and slowing. So if you look at the market expectations for inflation, the market still sees inflation undershooting the Bank of England's 2% target over the medium term.

00:08:35:00 - 00:08:39:00
Jane Parry
So, talking about the Bank of England then, what does this mean for central banks and interest rates? Any impact?

00:08:39:00 - 00:09:08:00
Tom Hibbert
Yeah, there obviously are, because previously central banks wanted to cut interest rates and were sort of progressing with their easing cycles. This has thrown a major spanner in the works for most central banks and they're now going to find it much more difficult to cut interest rates in the face of an obvious inflation, inflationary impulse. So, we've got a whole host of central bank meetings next week.

00:09:08:00 - 00:09:10:00
Jane Parry
Oh, you'll love that. You love the Central Bank meetings don’t you.

00:09:10:00 - 00:10:43:00
Tom Hibbert
I do. We've got the Bank of England, we've got the Feds, we've got the ECB, we've got the Bank of Japan. I think we've got 10 in in total, Bank of Canada. So it's all happening and the general pattern that we're seeing is that central banks are now just on hold. So rate cuts have been delayed. But I think the bar for renewed tightening, that means what it'll take them to start raising interest rates again, is still very high, given the fact that this still looks very much like a supply side shock. And I think as long as expectations, inflation expectations, we're watching those medium-term inflation expectations, as long as they stay anchored and those second-round effects are contained, this is more likely to slow the pace of easing rather than reverse it back to interest rate hikes. And then the last thing I'll say is obviously there's a lot of uncertainty around the ongoing, this ceasefire at the moment, that it's very fragile. You know, we could say Schrodinger is strait of Hormuz because no one knows whether it's open or closed. It's simultaneously open and closed, supposedly, but as long as a resolution to the conflicts and everything that's happening in the Middle East is elusive, bond yields will still stay elevated. And we're seeing that in the UK and Europe in particular, which are most sensitive to this energy crisis. And also, as long as the conflict, you know, continues, the probability for more structurally embedded inflation, is increased. So those are the key concerns.

00:10:43:00 - 00:11:22:00
Jane Parry
Thank you. Well, thank you very much for your time today. Let me sum up what is in my Canaccord take away coffee cup today. So we talked about oil prices being higher, but not necessarily disorderly. The markets are more adaptive, you said, than in past crises. That means they can adapt more because they can get supply from elsewhere, turn on a few more taps. Inflation impacts are being closely watched but remain contained. Central banks are cautious but not panicking. And you're looking forward to next week's meetings. And overall, I think what we're saying is perspective matters really more than the headlines at the moment.

00:11:22:00 - 00:11:34:00
Tom Hibbert
I think the key message is it's reassuring how adaptive the market has been and how robust the economy has been on the back of elevated and not spiralling oil prices.

00:11:34:00 - 00:11:44:00
Jane Parry
So as ever, I think this week is another good reminder that portfolios need to be built for resilience, diversity, just to accommodate these sorts of things going on in the world.

00:11:44:00 - 00:11:45:00
Tom Hibbert
Absolutely.

00:11:45:00 - 00:12:02:00
Jane Parry
So thank you again for listening to the Canaccord Coffee Break Podcast. If you've enjoyed it, don't forget to hit follow on Spotify or Apple or your podcast channel of choice so you never miss an episode. And as always, we'd love to hear your thoughts. Drop us an e-mail coffeebreak@canaccord.com. Thank you.

00:12:02:00 - 00:12:04:00
Tom Hibbert
Thank you. Thank you, Jane.

00:12:04:00
Speaker 3
Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance. The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific personal entity. It is accurate at the time of recording and is subject to change.

If you require an older transcript, please get in touch coffeebreak@canaccord.com.