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- [00:02]
A
Good morning, everyone, and welcome to Julius Baer's Moving Markets Podcast. It is Wednesday, 29th April, and my name is Helen Frear. I'll be speaking first of all this morning to my colleague Jan Bop, who has a roundup of the latest in financial markets. And then I'll be talking to Dario Messi for an update on bond markets. So that is coming up, but as usual, let's start with the market news. Good morning, Jan. Good morning.
- [00:29]
B
Good morning, Helen.
- [00:30]
A
Now, Jan, two themes dominated everything yesterday, artificial intelligence and oil. Let's start with AI. We've had weeks of optimism, and yesterday the mood turned. What triggered this weakness?
- [00:44]
B
Yeah, I mean, the spark came from a Wall Street Journal report saying that OpenAI recently missed internal targets for new users and sales. And that raised the point broader question investors have been asking for quite some time now, will the enormous sums poured into AI actually deliver the returns people expect? And once that doubt resurfaced, the reaction was quite swift. SoftBank, a key backer of OpenAI, fell almost 10% in Tokyo trading. In the US, partners like Oracle and Core Weave dropped around 5%. And even Nvidia slipped 1.6% from a record high yesterday.
- [01:23]
A
And it didn't stop with equities.
- [01:25]
B
No, you're right, Helen. The weakness spilled into credit markets. Two bonds linked to data center companies came under pressure. So the weakness wasn't just limited to stocks. It was a broader reassessment of risk around the whole AI ecosystem that fed
- [01:41]
A
into the wider market picture. The s and P500 fell half a percent. The NASDAQ lost about 1%. What about outside of the US? How did this play out?
- [01:52]
B
Well, tech underperformed globally. In Europe, healthcare and chemicals also lagged. The Stoxx 600 ended down 0.4%. The UK was the exception. The FTSE 100 eked out a small gain, helped by oil and gas stocks. Now, overnight. In Asia, sentiment improved after Iran signaled it might accept an interim deal to reopen the Strait of Hormuz. But the situation there remains fluid. I'm sure we'll talk about it in a second. For now, the Hang seng is up 1.3%, the Kospi 0.8%. And Nasdaq futures are also pointing higher this morning.
- [02:29]
A
Earnings are now taking center stage, and today's a big day in the earnings season. Feels like a big stress test.
- [02:36]
B
It really is, and it does. Alphabet, Amazon and Meta and Microsoft all report after the close. These companies have carried global equities higher in recent weeks, helping markets recover Losses from the Middle east conflict. So investors want. Yeah, really reassurance that earnings can justify that.
- [02:56]
A
All right, let's turn to oil. Now, the other big driver price has jumped back above $110 a barrel. What was behind this?
- [03:05]
B
Well, oil has risen for seven straight days now. Brent reached almost $112 in yesterday's trading session. Prices climbed as much as 4.6% at one point. Oil hopes for a diplomatic breakthrough faded after reports that President Trump told aides to prepare for an extended blockade of Iran. And although Brent later eased slightly, the message from the market was pretty clear. Supply risks remain front and center.
- [03:34]
A
And then came another headline that surprised many about the UAE leaving OPEC.
- [03:40]
B
Yeah, that was historic news. After roughly six decades, the UAE will exit OPEC and OPEC on 1st of May. It's been the group's third largest producer and importantly, alongside Saudi Arabia, one of the few with significant spare capacity. And that spare capacity has long been OPEC's steering wheel. The UAE also announced plans to ramp up production once it's no longer bound by quotas. And that helped cap oil's increase intraday highs yesterday.
- [04:16]
A
Higher oil prices are clearly rippling through other asset classes, especially bonds.
- [04:21]
B
Yes, you're right, Helen. Bond markets also reacted quite quickly to that. Government bond yields rose across the us, Europe and the uk, with gilts particularly sensitive to the energy shock. The concern is inflation. Higher oil prices raises transport and production costs, and central banks worry this could spill over into wages and prices more broadly.
- [04:47]
A
And it's not just central banks. We saw this very clearly in Europe with the ECB's consumer survey. Consumers now expect inflation of 4% over the next 12 months, up from 2 1/2% just a month earlier. And at the same time, growth expectations are deteriorating.
- [05:05]
B
Yeah, we've seen quite dramatic shifts here. And that makes this week central banks meeting even more delicate. Right. I mean, the Fed meets today, followed by the ECB and the bank of England tomorrow. Rates are expected to stay on hold for now, but markets are already looking ahead, expecting rate hikes by the ECB and BOE as soon as June, while the Fed is expected to sit tight for the rest of the year. And for the Fed, there is an added layer. Today is expected to be Jerome Powell's final meeting before Cabin Wash takes over. To borrow that famous line, there are weeks where decades happen and this week has all the ingredients to be one of them. And with that, back to you, Helen.
- [05:50]
A
Very good. Thank you very much, Jan. Great to speak to you again today.
- [05:53]
B
Thanks for Having me.
- [05:58]
A
Now let's delve a bit deeper into bond markets and move on to you. Dario, good morning and welcome.
- [06:04]
C
Hello. Good morning, Helen.
- [06:06]
A
Let's talk about the Central bank meetings this week, then we'll get the Fed's decision later today. What are we expecting there?
- [06:15]
C
Yeah, I mean, first, indeed it's Fed day, as one of my colleague likes to say. We heard it before, it's a big central week in general. But I have to say I do believe that despite being a bombed guy at the end, I think the update on the earnings front actually probably matters even more. But anyway, what do I expect from the Fed? Well, to be honest, not that much at the moment. There is certainly very little appetite to change anything on the policy front. And I think there is also good reason for that. So economic activity in the US Seems kind of still doing okay. We are behind the shock in the Middle east, but it's certainly not reached kind of a final solution either. Policy rates are still slightly in restrictive territory by most estimates of a neutral rate. So I guess for the Fed it's kind of a comfortable situation to not do anything and just call for patients.
- [07:08]
A
And what are you looking out for then in their communication at the press conference?
- [07:13]
C
I mean, typically you would look out for any kind of guidance. I don't think we will get a lot of this guidance today though. On top. Let's also not forget this is most likely that last meeting for Powell as chair. So recent developments you most likely have seen on the Department of Justice probe cleared the way for Trump's nominee Wash to be confirmed in time for a regular handover in May as a new chair. And what does that mean? Well, first, probably a bit less guidance from Powell's perspective and we will be more kind of focused on any clues on how the whole committee sees things. And secondly, and maybe even more importantly then is we probably also want to know if Powell steps down from the board or not. Remember, technically he still has a seat until January 2028. Traditionally though, a Fed chair would step down after replacement and in that case Trump can nominate again a new member. But yeah, I think in the recent past Powell said he might step down when this whole DOJ probe is behind. But let's see, maybe he gives us some more thoughts on this. Who knows?
- [08:27]
A
Okay, just lastly then, let's talk about the ECB who meet tomorrow. Any thoughts on this one?
- [08:33]
C
Well, this one I think gets a bit more interesting, I feel, at least on a good note, from the bond market perspective, chances for an immediate hike at least they decreased substantially. That's what several Governing Council members have been signaling over the last couple of weeks. This was not so clear a while ago. Remember the very hawkish shift at the beginning of the war. So my focus here will really be kind of to understand how the Council wants to hike in the different scenarios they outlined last month. So remember, we had different scenarios that the ECB projected or the ECB basically offered to us. And there what I want to understand is kind of to better understand what the reaction function is depending on in which scenario we are coming closer to. But for now, my baseline there still remains no policy change, not just for tomorrow, but also not later in the year.
- [09:34]
A
Excellent. Thank you very much, Dario, for the interesting update. Great to have you on the show, as always.
- [09:38]
C
Thank you, Helen for inviting me.
- [09:40]
A
So that's it for today. Thanks again to today's guests and to you, our listeners, for tuning in. I hope you enjoyed the show. If you did and you haven't subscribed yet, then don't forget to do that. And please join us again tomorrow when I'll be back with more colleagues and I'll be getting their latest thoughts on what's moving markets. So have a great day everyone and bye for now. The information and opinions expressed in this podcast constitute marketing material and are not the result of independent financial or investment research. Please refer to www.juliusbear.com legal podcasts for further other important legal information.