Carry Trade & Earnings - 10/21/24

Tune in to learn about what happened last week in the Global Markets, and some major events happening this week to watch out for!

Transcript

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I don't know. Game on. Hello, everyone. Welcome to paramount wealth perspectives. Your go-to podcast for the latest updates on global markets and current economic events. This is your host, Chris Coyle. Each week we strive to bring you expert analysis on market trends, economic shifts. And key financial developments from around the world. Whether you're an investor business leader. Or simply curious about the global economy. Our podcast is here to keep you informed and ahead of the curve. Now let's dive into the markets and explore what shaping the world of finance today. Here with us today. We have Scott Tremlett chief investment officer and managing partner at paramount associates, wealth management. Scott looking back at last week, what are some major events you would like to highlight? Thanks, Chris. Us stocks ended the week higher as the Dow S and P 500. And the NASDAQ all gained for the six consecutive week. The S and P 500 did hit another record high on Friday. As for the economic reports. The Philly fed manufacturing index was stronger than expected. Meanwhile, the New York feds empire manufacturing index reverse to the negative. Us manufacturing has been contracting now for 24 straight months. And it's really hard to see improvement with new orders lacking at this point. Housing prices exceeded expectations. However, housing starts and permits. Both fell below forecast. While home-builder sentiment. Saw a slight increase. Weekly mortgage applications dropped sharply due to rising interest rates. Interest rates continue the higher for longer path. As the federal reserve Bostic said that the fed is not in a rush to get to the neutral rate. He did offer three and three and a half percent as the neutral rate that they are targeting. This is prompting us banks to consider aggressive cuts to interest payments. As they do look to protect their margins. I know the interest rates are something you've placed. Great emphasis on lately. In fact, in your 2024 global market outlook. Which is available on our website. You discuss how interest rates can impact international investments. Could you please elaborate on that? Absolutely. Quickly. This is not an endorsement of an investment strategy that investors should take on themselves. Please consult an investment advisor. Give us a call. What you are alluding to Chris is what's called a carry trade. Carry trade is when an investor borrows money in a currency with a low interest rate. And then invest it. And the currency with a higher interest rate. Some do go a step further and then use the higher interest rate currency they own to purchase other investments. The investor is looking to earn the spread. Or the difference between the two rates. This can create risks for investors when the currency valuation moves against their positioning quickly. As an example, this, it did happen in early August when the bank of Japan raised interest rates. And at the same time, the federal reserve Telegraph cutting rates. Central bank policies do move currency valuations. And this time the yen surged as investors had the purchase yen to cover short positions and the Japanese stock market dropped nearly 20%. in just two trading days. I would have to agree with you, Scott and I can see how investing in international markets come with additional risks. You mentioned last week that there were some international economic reports coming. What did you see there? We will start with China. China numbers couldn't keep the Chinese stock market from falling. Another two plus percent. But on the positive side, Chinese retail sales had its biggest year over year increase since may. China's industrial production, beat estimates. China's GDP matched forecasts. But housing prices continued to plunge. China's facing significant challenges, raising questions about whether it's growth model, which does depend on exports and manufacturing investment. Might be reaching its limits. Even Chinese regulators are actively seeking feedback to help sustain the market. Rebound driven by recent fiscal policies aimed at boosting their economy. Well, it sounds like China is in quite an interesting place to say the least. Does this affect other areas of the world? It certainly does Chris. European countries have been hurt by weaker trade with China. Germany in particular has been adversely impacted. Germany itself accounts for almost 50% of all European exports, China. The U S on the other hand is less effected. With less than 10% of us exports going to China. Well, that's good to know that the us is less affected. Before turning to this week. Is there anything else you'd like to add from last week? Yes. I would like to add that the European central bank did cut rates by a quarter point. This appears to be the start of a series of rate cuts until the ECB reaches its terminal rate of 2% in June. In the United Kingdom. Inflation fell below 2% for the first time in over three years. Potentially signaling rate cuts are coming there as well. Back in the U S jobless claims fell. Even as hurricanes and strikes at Boeing increased claims expectations going into that print. Uh, us earnings have offered a glimpse into the inner workings of the us economy. As a Friday, third quarter earnings growth stands at 3.4% compared to the 4.4% that was expected. There are bright spots as Netflix, Goldman Sachs, Morgan Stanley and bank of America. Our release results above expectations. Taiwan semiconductor reported strong margins and significant year over year growth in both revenue and net income. American Express's latest report in a case that high-end consumers preferences are shifting. Shifting away from flashy designer labels and are more concerned now with value and sustainability. Retail sales in the U S beat expectations and highlighted a resilience of consumer spending. Which continues to support economic growth in the United States. While there is broad based growth across retail categories. The us economy remains very uneven. With manufacturing in contraction, housing, frozen due to rising interest rates. And middle and low-income households suffering from inflation and the high cost of debt. Overall. It's a mixed bag. With the growth stemming from higher income households in the United States. As always thank you, Scott. It sounds like while there are some highlights, the average us consumer is feeling some increased financial pressure. So, what are you looking at this. A week. This is a big week of earnings with 112 S and P 500 companies reporting. A couple of names. I am focused on our Amazon and ups. Both companies are good gauges on economic activity, consumer behavior. And ups is a good barometer for global trade. We have another us manufacturing number in the Richmond fed number Tuesday. Additionally in the U S we have existing and new home sales. Jobless claims and durable goods. Not to forget. We have the federal reserves beige book. Where the fed provides an overview of economic conditions. And lastly, one of my absolute favorites, the university of Michigan's consumer sentiment report. I think next week we can discuss how that report is important to my investment philosophy. Well, we will certainly have to keep an eye out for those reports and I'm sure we will have plenty to discuss next Monday. For now, thanks for tuning into paramount wealth perspectives. Stay informed. Stay ahead. And join us next week for more key updates shaping the global economy.