Latest / Best of Business / Brendan Larsen: Milford Asset Management expert on markets calming down from Middle East conflict shock

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Brendan Larsen: Milford Asset Management expert on markets calming down from Middle East conflict shock · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks. It'd be
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  Speaker 2: First Brandan Last and Milford ascidt Management, High Brandon Evening, Heather,
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  Speaker 2: all right, we're eleven days into this conflict with I Run.
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  Speaker 2: Now the markets have calmed a little, haven't they.
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  Speaker 3: Look It's fair to say they have, but there remains,
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  Speaker 3: I guess a heightened sense of uncertainty in the market.
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  Speaker 3: I mean, last week the escalation did cause some large
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  Speaker 3: gyrations and markets, to say the least, so oil obviously
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  Speaker 3: the most impacted asset. We saw prices surge to a
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  Speaker 3: hive around one hundred and twenty US dollars a barrel.
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  Speaker 3: I mean, as a result of this, you know, risky
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  Speaker 3: assets broadly came under pressure. We saw the likes of
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  Speaker 3: Europe and Asia really heavily impacted, as these regions are
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  Speaker 3: particular are net oil importers, meaning that they could face
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  Speaker 3: a really large impact on their terms of trades should
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  Speaker 3: oil prices.
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  Speaker 4: Remain at these elevated levels.
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  Speaker 3: Since this peak, you know, we've seen some signs of
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  Speaker 3: the US administration trying to calm markets. Speculation of of
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  Speaker 3: G seven oil reserves being released. You know, it's not
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  Speaker 3: yet to eventuate, but it did help calm markets a
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  Speaker 3: wee bit. We've also seen the US administration outline a
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  Speaker 3: plan to provide insurance to some of these vessels via
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  Speaker 3: the treasury and outlining things like potential military escorts as
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  Speaker 3: well to ensure sort of safe passage through the threat
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  Speaker 3: of homers. Despite that, there's not really been a clear
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  Speaker 3: understanding of what's actually required to stop this war from
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  Speaker 3: from either side. Really, even as you know recent as
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  Speaker 3: a few hours ago, the dialogue between the US and
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  Speaker 3: Iran has remained threatening.
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  Speaker 4: So you know, a lot of uncertainty still persists.
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  Speaker 2: So how do you see, Brandon the economic effects of
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  Speaker 2: what is going on here?
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  Speaker 3: Look, the key question for US is really how long
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  Speaker 3: this conflict persists, so that'll be the key driver of
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  Speaker 3: the extent of any economic impact. The initial reaction last
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  Speaker 3: week was you know, bond's weakening rather than strengthening like
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  Speaker 3: they would in a traditional risk off environment.
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  Speaker 4: And the real reason for this is clearly because of
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  Speaker 4: oil being involved.
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  Speaker 3: So oil prices spiking meant that markets moved to price
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  Speaker 3: in and more inflationary dynamic, which would be bad for bonds.
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  Speaker 4: So trying to quantify that is difficult.
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  Speaker 3: But a standard rule of thumb is a sustained ten
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  Speaker 3: percent increase in oil prices results in about a thirty
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  Speaker 3: basis point increase in headline inflation globally, and so that
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  Speaker 3: would therefore translate into a GDP hit of about ten
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  Speaker 3: basis points. So you can see how much you can
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  Speaker 3: flex his assumptions dependent on how long oil stays at
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  Speaker 3: the at these high levels.
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  Speaker 2: I mean, okay, so it's not good for growth, it's
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  Speaker 2: not good for inflation, but it's not a disaster. What
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  Speaker 2: do you think the central banks are likely to do
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  Speaker 2: in response?
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  Speaker 3: Look, I think that's right and aggregate. But I guess
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  Speaker 3: the way you think about it is this will differ
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  Speaker 3: materially between regions. The US, for example, was already seeing
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  Speaker 3: signs of inflation accelerating prior to this oil shock, and
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  Speaker 3: so this could really compound some of their issues. This
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  Speaker 3: comes at a time where employment growth in the US
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  Speaker 3: is now quite weak, and so it makes the Federal
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  Speaker 3: reserves job even more difficult, balancing both parts of their
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  Speaker 3: dual mandate. In New Zealand, we think our central bank
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  Speaker 3: can look through any inflation reimpacts. We do have excess
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  Speaker 3: capacity in the economy, and Governor Breman did outline in
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  Speaker 3: the last press conference that the Central Bank would look
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  Speaker 3: through transitory inflation in Australia. We do think the story
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  Speaker 3: could be a little bit more different that this central
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  Speaker 3: Bank have already been worried about inflation, and as recently
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  Speaker 3: as yesterday their Deputy governor alluded to potentially needing to
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  Speaker 3: act on this faster, potentially as soon as next week.
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  Speaker 3: So there's a lot of moving parts and plenty of uncertainty.
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  Speaker 2: Hy Brendan, thank you so much for talking us through
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  Speaker 2: Brandon Last and little Ford Asset Management.
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