Latest / Paramount Wealth Perspectives / Carry Trade & Earnings - 10/21/24

Transcript

Carry Trade & Earnings - 10/21/24 · Paramount Wealth Perspectives

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  I don't know.
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  Game on.
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  Hello, everyone.
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  Welcome to paramount wealth perspectives.
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  Your go-to podcast for the latest updates on global markets and current economic events.
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  This is your host, Chris Coyle.
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  Each week we strive to bring you expert analysis on market trends, economic shifts.
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  And key financial developments from around the world.
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  Whether you're an investor business leader.
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  Or simply curious about the global economy.
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  Our podcast is here to keep you informed and ahead of the curve.
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  Now let's dive into the markets and explore what shaping the world of finance today.
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  Here with us today.
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  We have Scott Tremlett chief investment officer and managing partner at paramount associates, wealth management.
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  Scott looking back at last week, what are some major events you would like to highlight?
• 0:58
  Thanks, Chris.
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  Us stocks ended the week higher as the Dow S and P 500.
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  And the NASDAQ all gained for the six consecutive week.
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  The S and P 500 did hit another record high on Friday.
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  As for the economic reports.
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  The Philly fed manufacturing index was stronger than expected.
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  Meanwhile, the New York feds empire manufacturing index reverse to the negative.
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  Us manufacturing has been contracting now for 24 straight months.
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  And it's really hard to see improvement with new orders lacking at this point.
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  Housing prices exceeded expectations.
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  However, housing starts and permits.
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  Both fell below forecast.
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  While home-builder sentiment.
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  Saw a slight increase.
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  Weekly mortgage applications dropped sharply due to rising interest rates.
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  Interest rates continue the higher for longer path.
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  As the federal reserve Bostic said that the fed is not in a rush to get to the neutral rate.
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  He did offer three and three and a half percent as the neutral rate that they are targeting.
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  This is prompting us banks to consider aggressive cuts to interest payments.
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  As they do look to protect their margins.
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  I know the interest rates are something you've placed.
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  Great emphasis on lately.
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  In fact, in your 2024 global market outlook.
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  Which is available on our website.
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  You discuss how interest rates can impact international investments.
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  Could you please elaborate on that?
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  Absolutely.
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  Quickly.
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  This is not an endorsement of an investment strategy that investors should take on themselves.
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  Please consult an investment advisor.
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  Give us a call.
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  What you are alluding to Chris is what's called a carry trade.
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  Carry trade is when an investor borrows money in a currency with a low interest rate.
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  And then invest it.
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  And the currency with a higher interest rate.
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  Some do go a step further and then use the higher interest rate currency they own to purchase other investments.
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  The investor is looking to earn the spread.
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  Or the difference between the two rates.
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  This can create risks for investors when the currency valuation moves against their positioning quickly.
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  As an example, this, it did happen in early August when the bank of Japan raised interest rates.
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  And at the same time, the federal reserve Telegraph cutting rates.
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  Central bank policies do move currency valuations.
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  And this time the yen surged as investors had the purchase yen to cover short positions and the Japanese stock market dropped nearly 20%.
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  in just two trading days.
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  I would have to agree with you, Scott and I can see how investing in international markets come with additional risks.
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  You mentioned last week that there were some international economic reports coming.
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  What did you see there?
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  We will start with China.
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  China numbers couldn't keep the Chinese stock market from falling.
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  Another two plus percent.
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  But on the positive side, Chinese retail sales had its biggest year over year increase since may.
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  China's industrial production, beat estimates.
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  China's GDP matched forecasts.
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  But housing prices continued to plunge.
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  China's facing significant challenges, raising questions about whether it's growth model, which does depend on exports and manufacturing investment.
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  Might be reaching its limits.
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  Even Chinese regulators are actively seeking feedback to help sustain the market.
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  Rebound driven by recent fiscal policies aimed at boosting their economy.
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  Well, it sounds like China is in quite an interesting place to say the least.
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  Does this affect other areas of the world?
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  It certainly does Chris.
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  European countries have been hurt by weaker trade with China.
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  Germany in particular has been adversely impacted.
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  Germany itself accounts for almost 50% of all European exports, China.
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  The U S on the other hand is less effected.
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  With less than 10% of us exports going to China.
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  Well, that's good to know that the us is less affected.
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  Before turning to this week.
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  Is there anything else you'd like to add from last week?
• 5:08
  Yes.
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  I would like to add that the European central bank did cut rates by a quarter point.
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  This appears to be the start of a series of rate cuts until the ECB reaches its terminal rate of 2% in June.
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  In the United Kingdom.
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  Inflation fell below 2% for the first time in over three years.
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  Potentially signaling rate cuts are coming there as well.
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  Back in the U S jobless claims fell.
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  Even as hurricanes and strikes at Boeing increased claims expectations going into that print.
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  Uh, us earnings have offered a glimpse into the inner workings of the us economy.
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  As a Friday, third quarter earnings growth stands at 3.4% compared to the 4.4% that was expected.
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  There are bright spots as Netflix, Goldman Sachs, Morgan Stanley and bank of America.
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  Our release results above expectations.
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  Taiwan semiconductor reported strong margins and significant year over year growth in both revenue and net income.
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  American Express's latest report in a case that high-end consumers preferences are shifting.
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  Shifting away from flashy designer labels and are more concerned now with value and sustainability.
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  Retail sales in the U S beat expectations and highlighted a resilience of consumer spending.
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  Which continues to support economic growth in the United States.
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  While there is broad based growth across retail categories.
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  The us economy remains very uneven.
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  With manufacturing in contraction, housing, frozen due to rising interest rates.
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  And middle and low-income households suffering from inflation and the high cost of debt.
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  Overall.
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  It's a mixed bag.
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  With the growth stemming from higher income households in the United States.
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  As always thank you, Scott.
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  It sounds like while there are some highlights, the average us consumer is feeling some increased financial pressure.
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  So, what are you looking at this.
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  A week.
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  This is a big week of earnings with 112 S and P 500 companies reporting.
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  A couple of names.
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  I am focused on our Amazon and ups.
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  Both companies are good gauges on economic activity, consumer behavior.
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  And ups is a good barometer for global trade.
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  We have another us manufacturing number in the Richmond fed number Tuesday.
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  Additionally in the U S we have existing and new home sales.
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  Jobless claims and durable goods.
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  Not to forget.
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  We have the federal reserves beige book.
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  Where the fed provides an overview of economic conditions.
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  And lastly, one of my absolute favorites, the university of Michigan's consumer sentiment report.
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  I think next week we can discuss how that report is important to my investment philosophy.
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  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.
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  For now, thanks for tuning into paramount wealth perspectives.
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  Stay informed.
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  Stay ahead.
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  And join us next week for more key updates shaping the global economy.