Joining us right now is Brian Jacobson, he's senior
investment strategist at all global investments. So, Brian
thanks so much for joining us today. What do
you think of today's market action with everything ending the
day? Mixed. Yeah, it was an interesting
day. I was curious whether or not we would
stay in the green or not, especially since before
markets open tomorrow, we have the C P I
numbers. I think everybody is sort of on tenterhooks
thinking that, you know, is it going to
surprise to the upside or to the downside and that
will likely then dictate a more aggressive direction for the
market? So this might just be the calm before
the storm. I'm glad you mentioned those CPI numbers
, the consumer price index which is coming out tomorrow
. So if things look relatively stable, what could
this mean for the fed interest rate? Yeah.
So our view here at all spring on my systematic
edge team. When we're analyzing the data, we
think that it will come in at around about 0.3%
month on month, which would be a a welcome
deceleration from the numbers back in January and the continuation
of what Chair Powell has referred to as a disinflationary
trend. So it would mean that the numbers are
moving in the right direction and that then would mean
that the fed could perhaps take a pause at its
main meeting when it comes time to decide whether or
not to hike rates that could be we believe fairly
bullish, not just for stocks but for bonds as
well. Now, obviously, the risk is that
were wrong and that it actually comes in hotter than
what we're expecting. In which case we would expect
that we would see equity markets probably sell off,
possibly led by the tech heavy NASDAQ and then also
see yields continue to move higher. Now, if
there is a fed rate hike, what could this
mean for banks, especially with so many in shaky
situations right now? Yeah. So banks have been
struggling under the weight of these higher rates. Uh
They are now having to compete with treasury bills in
order to, you know, as far as the
yields to maintain those deposits. And what we're expecting
to see is that almost regard of what the fed
does is that the loan, uh the the quality
of loans that they're willing to make is going to
have to be higher. And so credit is going
to likely become less available and that could lead to
a slow slide into a shallow recession. The risk
is that if the Fed does more, if they
hike another 25 basis points then instead of a slow
slide, that could be a faster fall into a
recession. Now, you noted that the shift from
people spending on services rather than goods may be slowing
down. So do you think that this is setting
the stage for an economic slowdown at this time?
We think that's entirely possible. So one of the
reasons why we haven't seen a recession in the United
States is that service spending has been very strong,
good spending, non durable goods, durable goods.
Uh So durable goods, things that last three years
or longer like washer dryers, cars, right?
Those have been in a recession. Uh Housing has
been in a recession. And so as a result
, you have a very much a two speed economy
where you have housing and manufacturing having spent most of
2022 in a recession. But service spending as people
continue to pivot from spending on goods during COVID back
to services that was helping to fuel some of the
job gains and the economic momentum. But we're actually
now, if you look at the consumer spending basket
, the percent that they spend on services, it's
kind of back to normal. It's pretty close to
the averages that persisted from the global financial crisis up
until about 2019. Now, we're not back towards
the of where things were before COVID hit, but
people's behaviors and attitudes preferences have changed. And so
there's nothing that says that we have to get back
to the pre COVID peaks for spending on services.
So maybe most of that rotation back into service spending
is behind us. Well, that's thanks to Brian
Jacob and he's the senior investment strategist at all.
Global investment.