01-07-2025
Bank of Singapore's Ayub on US Stocks, Fed
00:00
Through your market view. It's interesting. You're neutral on U.S. equities. You're overweight Europe and and Asia, I should say ex Japan. We've just had a booming June for Wall Street, though. So. So why are you not why are you a bit more skeptical when it comes to U.S. stocks, when we take a step back and look at the volatility in terms of US policy that we've seen year to date, it looks to me like the markets are pricing in a very rosy scenario. So there's certainly a perception of a dovish Fed and there is the relief rally that we had last week in response to thankfully the calming of tensions in the Middle East. And there has actually been good earnings out of the US. But what we're really calling for is having a well-diversified portfolio. So still have your allocation to US equities, but we're not as overweight as what we were throughout 2024, where you had perceptions of a dovish Fed. You've got Goldman now calling for a September cut, projecting that because it thinks that the tariff impact on inflation will be a bit smaller than expected, Do you not see a September card? Not necessarily so. At the moment. Our chief investment office is actually only calling for one rate cut by year end. No one knows, right? No one knows. And this is actually, you know, the million dollar question. But the point is that most economists, when they look at the data, are all talking about July being the earliest before we can actually see the past with tariffs coming through into the inflation data. And that's exactly what Chair Powell said in his testimony to Congress as well, that we have to wait for June and July data. So I think it pays to be patient, because if those inflation numbers do come through, it's not definitive. But if they do come through, that does have quite strong implications compared to what the market is pricing in right now, which is just over two in a bit of rate cuts by year. But given your view on U.S. stocks, is that because you see a US recession? Not necessarily, but we are calling for stagflation. I think unfortunately, the highest inflation that we're going to see, no OECD countries is likely to be in the US, given the their view on tariffs and how that policy has been communicated to markets. We just heard the interview with Scott Benson and there's been so much speculation about when the president's going to name a Fed chair, right. Whether or not this new Fed chair is on the FOMC already or not, do you think that they're going to undermine Jerome Powell? So I think when we take a step back, I really do think that this is what we're going to continue to see over the next couple of years is this fight between the US administration and the strength of the institutions in the US? I think, you know, what I take away from all of this is these consistent attacks actually on an independent institution like the Fed and the fact that he can say President Trump can say that, well, I'm trying to pressurize the Fed to cutting rates earlier than what they see is feasible. So you don't think that Trump would eliminate his punchbag then? No, not not necessarily. But I just think that, you know, when we think about the situation, it's much more political in nature than it is economic. And even the perception of the Fed being dovish right now is from those two governors that President Trump has, you know, officially sort of put forward as replacements for Chair Powell. So they're off essentially auditioning for the role. So I think when we actually look at the numbers, when we actually look at the data, yes, the US labor market is strong. We'll see what happens on Thursday with regards to payrolls.
