Portfolio Manager, Arthur Karas, takes a closer look at the positive showing from the markets yesterday, off the back of optimistic expectations around the US inflation print this week.
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Bruce Whitfield 00:03
On to our market commentator this evening, Arthur Karas, at the Old Mutual Investment Group, and what a good day on markets, Arthur Karas. It's all to do with a resurgent enthusiasm for investments in the United States, I guess.
Arthur Karas 00:17
Very strong markets today, really on the back of a belief that we are going to see a slightly lower inflation print out of the US tomorrow, which will then signal that we're at the top of the inflation cycle, if not the top of the interest rate cycle, because we're still expecting at least one more 75 hike. And on the back of that, we saw a weaker dollar. And to remind everyone, the dollar has been about as strong as what it's been in 20 years. And the dollar weakening a bit helped to boost commodities, because they would have had to reprice in other currencies, and that has sent our market up very strongly on the back of both commodities shares having a good day, and then companies that are beneficiaries of a stronger stock market. Insurance companies also having a really good day.
Bruce Whitfield 01:13
A spectacular day for Discovery, Sanlam, and Old Mutual. amongst others on the day. And commodities also holding up well, platinum prices bouncing back. I mean, it's all part of a massively volatile environment, it's all part of a really uncertain environment, Arthur. And I think it's far too early to call the end of a crisis, because markets are by their very nature massively volatile, and will continue to be, I suspect, for the foreseeable future.
Arthur Karas 01:39
I guess the way to think about is that markets discount the future. So, the stock market most of the time has digested all the information that it thinks is going to lead to a particular outcome over the next 12 months. When that outcome changes, so when something unexpected happens, and you realise that interest rates are going to go higher for longer, or are going to fall quicker than expected, then the market rapidly moves to take that change into account. And that's what we’re seeing. You've got a very uncertain outlook over the horizon, and we have been in an environment of rising interest rates on the backs of this tearaway inflation. So, when we have, um, potentially the peak in US inflation, we had a little bit of good news on the gas front with European governments appearing to make some progress on capping gas prices and providing a bit of relief for consumers and industry in Europe.
And those things make us think, well, maybe the next 12 months are going to be a little bit better. And we'll be looking at a far more benign and positive environment 12 months from now, and then prices very quickly adjust to take that more benign environment into account. But I would agree with you that it's far from over. We're going to see interest rates remain high for some time, even if inflation falls. Do remember we've had a successive pattern of support for the economy, for the stock market, in the US with very low interest rates, first post the global financial crisis, then post-Covid, and all of that support, all of that needs to come out of the market to allow us to move into a more normal situation. And that's going to take some time still.
Bruce Whitfield 03:26
Thank you, Arthur Karas, Portfolio Manager at the Old Mutual Investment Group.