Market Watch Ep.25: Why are US yields collapsing?

So hello and welcome to episode 25 of the Market Watch podcast, and I'm joined with Head of Trading Piers Curran. And Piers, the 55-year wait is over.

Ah, it's been a long time, been a long time, but you know, let's not get overexcited, you know, the, the main job's in front of us, so You know, I did put out a—

I did put out a question actually to, to the people in our community, um, the morning after the win against Denmark, and I said, come on, what's the score of the final? And, uh, people very bearish England, to be fair, which I was a little bit disappointed in because I do have some stats here I want to run through.

Okay.

Um, but yeah, I, I don't know, I don't want to be typically British about this. I just want to say, look, England are going to win. Yeah, I mean, that's final. Like, I mean, I feel quite confident personally, but perhaps let me give you some— throw some stats your way and then you can make a more informed decision, perhaps.

Go ahead.

But, um, okay, so, um, England have won just one of the last 8 meetings between these two nations, England and Italy. You'd have to go all the way back to August 2012 How many Italy—

how many of Italy won though? I mean, how many draws have been in there?

So the last two matches, both friendlies, have ended 1-1 draws.

Okay, okay.

Um, but if we go back to August 2012 and England last beat Italy, can you tell me who scored the decisive goal for England?

August 2012, uh, it's probably, uh, most likely going to be someone like Rooney.

Jermaine Defoe off the bench last minute.

Tottenham legend, should have known that. Okay, so before, before you go on with your stats, this is a classic, um, example of spinning stats in a certain way when actually you don't have all the information, and so you've got no right to make the assertion that you're making. So my point is England have only won 1 of the last 8 games against Italy. Fact, right? But with that, it may be that Italy have only won 1 and there have been 6 draws. So actually it's very even.

And actually, to further cement what you're saying, um, I think it's highly inappropriate to look back that far because this is totally different teams. Um, nearly every— well, yeah, every single player is different, right? Right? And actually, the FIFA world rankings would have England at 4 and Italy at 10, I think it is. So, right, in actuality, based on form, performance, and bringing it into the context of today, England are the favorites, undoubtedly. Forget the past. Hence my, hence my confidence.

So I'm not sure about undoubtedly favorites. I mean, go on, carry on. What, you got some more stats?

Yeah, Italy are unbeaten in their last 33 matches in all competitions.

Right, that, that for me, I mean, to say that England are undoubtedly favorites, I think is a— that's an irrational sort of British, or sorry, English mentality. I think that, that stat right there is the biggest one to fear.

They've scored 86 goals, they conceded just 10 on that run. Yeah, that's the longest unbeaten stretch of matches for Italy in their history. Yeah, so they're coming into this, isn't it, for anyone, isn't it?

I think not just Italy, possibly. I think that is actually a world record.

Okay, so England then, another stat: they've won 15 of their last 17 matches at Wembley Stadium, right, in all competitions, and are unbeaten their last 12 in all competitions, keeping 10 clean sheets. Um, how much of a, of a factor do you think Wembley plays Massive.

So I think, look, I think this is a— I think, I think they're two very, um, equal-ish sides. I think they're, they're the stats you just rolled out there, you know, especially Italy unbeaten in 33, but England, you know, what did you say, won 10 of the last 12 and— or whatever it was. I mean, look, these are the two form sides, hence why they're in the final, um, and I think The— I think Italy's advantage, haven't lost in 33, is offset by England's home advantage for this match. And I think that, yeah, I honestly think that's a really big advantage and an unfair one. But hey, it's got to be played somewhere, right? Italy won the World Cup, where? In Italy. France won the World Cup, where? In France. England won the World Cup in 1966. Where did that happen? Oh yeah, at Wembley. You know, home advantage historically has been huge. Argentina won the World Cup. Where was that? Oh, it was in Argentina.

So don't make me even more bullish about this, Piers. But my favorite— well, your favorite stat, I should say, I've left till last, which is Harry Kane Yeah, gone. Has been directly involved in 28 goals in his last 27 appearances for England in all competitions. 19 goals, 9 assists. One more goal from Harry Kane will see him become England's outright highest goalscorer in major tournaments, superseding Mr. Gary Lineker.

Yeah. The man, the legend. I mean, I mean, what, what more can be said? Best striker in the world, but not only scoring goals, creating them. So Italy. And here's the thing, right? Italy, their defense is— sorry about my dog in the background— their defense is the most experienced defense in the world. But with that, so they're quite canny, um, but they're very old. Um, they've got to combine their two center-backs' combined age of 70. And I think this is the key, right? It's England's pace from like Sterling or Sacco, let's say, whoever's going to play. But, and then with, with Kane kind of splitting the defense with balls, like, like for the goal against, um, Denmark, the first goal. So I think Italy's defense is going to come unstuck by Kane plus England's pace. And they're too old. And I think 33 unbeaten, but on Sunday, sorry, that record's going to be taken away.

Are you going to put yourself out there for an end score?

I— yeah, I think, you know, I'm continuing my bullish English, um, attitude, and I think, I think it's going to be an early— if England can get an early goal, a bit like against sort of Ukraine, then I think it could be— well, I'm gonna go 3-1. Actually, you know what, I'm gonna go 4-1. Kane.

Wow.

And that's— you know why I've chosen that scoreline with a hat-trick?

No, go on.

A certain Sir Geoff Hurst scored a hat-trick and England won 4-1 in 1966. Or was it 4-2? Anyway, anyway, I think we're gonna win. Now, what I would say about the game— I mean, there's been a lot of backlash about the way England beat Denmark. With regards to the penalty, with regards to the, the laser. Did you, did you see that? There was some, some idiot in the crowd was flashing a laser on Schmeichel's face. And I think unfortunately that has soured the victory quite considerably. And I think a lot of, um, if you look at the media outside of, outside of England, let's say, then they're certainly kind of picking up on all of that stuff. Um, and I think it's unfair to say that England cheated and got through unfairly. I think that's going too far. I mean, in the end, Schmeichel saved the penalty, so the laser couldn't have had too much of an impact. And yet the ref's decision for the penalty to be given, I mean, all right, fine, was super, super soft. Um, but you know, you take, you take these. We've had some bad luck in the past, um, Lampard scoring against Germany, for example. And the goal not being given.

I remember that. Yeah, right.

And the same happened to Campbell, um, in '98. So we definitely had some bad luck. What about Maradona, 1986? Punched it into the net, you know, literally punched it in.

That's still one of the highlights of, uh, just memorable moments.

We've had our bad luck. Um, and anyway, the stat— we, we beat that. I think we deserve to win that game. Um, you know, dominated possession, 8 shots on target to their 2, um, oh sorry, 10 shots on target to their 3, 8 shots off target to their 2. So I think we dominated and we deserve to win. I think we're rightfully in the final and I think we're going to do the job.

Yeah, I almost kind of like the fact that it's Italy in the final because I think that, I think it's often more difficult. And I think the English mentality of sport in general is often, this has been a weighted factor on the shoulders of performers and it's you know, tackling teams like Denmark is always tricky, but then Italy, I mean, you hear the stat, they've never lost in 33, but you're playing at home at Wembley, 55 years, like, that's just going to give you so much adrenaline. And I think, you know, just can you overcome, I guess, the nerves and the pressure? But overall, um, I think it is a, it's a positive factor, um, in that respect.

But Yeah, and I think just to kind of finish, I think that another criticism has been that, oh, it's been unfair, England have had such an easy route to the final, you know, Ukraine, Denmark, I mean, come on. So, but obviously in any tournament, in the end, to win it, you're going to have to beat the best. And so, you know, ultimately if we do win it, then it will be fully deserved in you know, taking away Italy's 33 unbeaten run, um, that will be a huge achievement. So yeah, you could— if England win, then it would have been deserved.

Of course, if we win, Boris has been talking about a bank holiday. It's going to throw in a bank holiday special on the 19th when also he drops all the lockdown measures.

Ah, is that right? Oh God, imagine. I was going to say, because some people are saying bank holiday on Monday, literally the, the day after. But of course that—

no, of course it's not, it's not maximum political PR, yeah, impact for, for the Boris Johnson government. Let's just throw it in the bank holiday on Freedom Day.

Yeah, I can't imagine. And I have to say, you know, for all the pubs and the, the kind of restaurants out there, this has just been absolutely perfect, amazing, right, given the, the year they've had, this for their businesses and for people's livelihoods. And obviously, outside of just that economic thing, it's just the mood of the nation. You know, you can't— it's very hard to measure it, but it's a very powerful, you know, collective force. And you know, from a consumption point of view and from an economic point of view, you know, England going all the way here definitely has a positive contributing factor, a meaningful positive contributing factor to the overall economic situation.

Okay, I have a stat on that. Of course, Deutsche Bank put out some research, and in France, for example, UEFA estimated the Euro 2016 injected over €1.2 billion into the French economy, right? 2016. In Portugal, 2004, income generated— this is just income generated from the tournament— yeah, um, was estimated at just under a billion.

Um, yeah, I mean, I guess this time it's a bit different for two reasons, in that the tournament has been spread all over Europe, plus of course there's been a a very restricted number of kind of international fans coming in. So I think from that point of view, the economic bonus will be a lot, lot lower than previous tournaments. But I think just the British getting out and enjoying and being positive and spending money, you know, can have a meaningful effect. I keep saying British, sorry, English. I'm pretty sure the Welsh and the Scottish and the Northern Irish are not enjoying what they're seeing.

Yeah, well, I certainly know from one of our Scottish employees, he's been changing over his Scottish football shirt with the respective flag of whoever England is playing against. So he'll be sporting his Scottish Italian football top.

I think the classic was during the Ukraine game, I think it was, I think we'd got to 3-0, he'd already changed it to a Denmark top. Uh, even though the Ukraine match hadn't finished.

Uh, yeah, but that, that goes to my point as well. I mean, Scotland— I mean, here we are, and Scotland couldn't see that through. But that's why I think that, that edge, that just, that kind of, um, just being up for it, the challenge, I think it always helps when you're playing the best. I do thoroughly believe in that, uh, as a statement of intent. But, um, all right, well, let's get to markets then, and let's talk about um, this week, because although England reaching the Euro final is obviously the major news, there's been a really busy week in markets, in fact. And it almost feels like it's been a distinct shift now, and it'd be interesting to get your take on what you think of where we go from here. And I'm going to provide a bit of context. So US government bonds have been rallying pretty much all week. European equities, Wall Street indices came under some considerable selling pressure yesterday. However, I would say that in the futures market this morning, as we're recording this on Friday, a lot of that has already been recovered. But generally worries about inflation, interest rate rises were replaced almost, it seems, by the global economic recovery. And so with that, obviously we can talk a little bit about COVID and vaccines and China and so on. But the yield on a 10-year Treasury bond It's at its lowest level since early February, and it's on track for its biggest weekly drop since June of 2020. The European equity market, which is stacked with cyclical companies, which benefit obviously from economic growth, given what we're suggesting is that's being debated whether— and being questioned, they've seen a pretty broad pullback. And interesting on the sector perspective, Those financials, which we talked about in the recent podcast, which were kind of, we were saying thriving at the time because of the fact that rate expectations are moving higher. Well, this week alone, they're down 5%, 6%. Who's the biggest performers? The mega-cap tech stocks. The juggernaut that is Amazon continues to take over the world and they're up nearly 10%. 10%. Just this week. In a week. Yeah, which is crazy. So year-to-date returns on growth stocks now this week have flipped and are now outperforming value, which— that was a big thing people were talking about a few months back. We kind of— that's the end now of that big outperformance in growth, and here we are, it's flipped again. So initial thoughts on, on some of these moves?

Yeah, it's just, it's been a weird week, definitely. And if I think, um, in the heat of the moment it feels like something big's happening, but then you kind of scramble around for a specific event or headline or news to kind of justify it, and then you're like, well, all right, there's a little— there's little bits here and there. But I mean, I find it— they're just kind of stepping back from it all. It's very— I think we're in that little shift, that week, let's say, where the, um, uh, the, the mood subtly shifts, and maybe you're seeing actual, uh, strategy changing. So when these big asset managers are making strategy shifts, then of course it creates quite a lot of market volatility because they're obviously executing very large trades to make those strategy changes. And those very large trades are the things that are impacting the market price and driving prices, you know, up and down. If you go back to the start of the year, it's quite interesting, right? So listen to this. At the start of the year what were we worried about? We were worried that, you know, as, as the COVID situation was lifting, vaccines, blah, blah, blah, and there's so much stimulus being pumped in, we were worried about that because we thought, hang on, that's going to lead to too rapid growth and it's going to lead to inflation pumping higher, and this is going to push yields higher, right? And we would— that's what we were worried about, okay? So we almost— we were worried about too much stimulus, too rapid growth, too high inflation, too high yields. That's what we were worried about. Today we're worried about the exact opposite. So we're worried about stimulus stopping, we're worried about growth slowing, we're worried about inflation and yields dropping. So do you see how irrational all of that is? What we were worried about 6 months ago is exactly flipped But instead of now being happy with that, because all of those worries have gone away, we're just now worried about the exact opposite. And I think this kind of plays out nicely in what you've just said there with regards to value versus growth. And just so everybody's 100% clear, value investing— like Buffett is the king of value investing, all right? That's about finding undervalued companies. Companies that are trading at a share price that kind of values them below their book value, for example. And it's about investing in those companies, and then those companies, you know, over the long term, um, coming through and returning back to value. Okay, and often you'll find that the value stocks are your less exciting ones. You'll often find that they're more defensive, you know, stuff like healthcare and utilities and food retailers. And often they're dividend-paying stocks as well. Okay, um, so that's your value investing. Growth Well, take Amazon, right? Why would you buy Amazon shares? They're certainly not undervalued, okay? So they're not a value stock, but they're growth. So you're buying them now even though you could argue the value today is correct for the company today, but you're obviously buying them because you believe that company can grow in the future, and therefore the value is going to go up through growth, okay? So that's value versus growth. Now, earlier in the year, we were worried about inflation, and inflation has a really negative impact on some of these growth stocks. And that's why then people rotated into value. Financials are a funny one, because the financials benefited from earlier in the year, because you mentioned yields. So the yield curve steepened earlier in the year. And that's because rates were staying low, and the Fed was super dovish. But at the same time, inflation was really starting to ramp up. And that was pushing up the long end of the yield curve, making the yield curve steeper. That's perfect for banks. It's perfect for their loan books. They're kind of borrowing on the short term where rates are really low, and they're lending on the long term where rates are relatively higher. And that's— their profit margin is really described by the steepness of the yield curve. So what's happened this week? Well, as you said, yields have dumped on the long end. And so, I mean, they've gone down on the short end as well, but not as much. So you've seen the yield curve flatten. So that's the long end has come down more than the short end. That differential between long-term yields and short-term yields has narrowed, and that's the bank's profit margin, right? So that the profit margin for banks' loan books has narrowed, and that's why you've seen some of these financial stocks particularly suffering this week.

Yeah, and just going back to the kind of catalysts then of what we've had, I thought there was a few different areas that we can talk about. First one is that the kind of— it's almost like the match that lit the fire, it seems, for some of these moves was the ISM non-manufacturing PMI. So that came in at 60.6 for the month of June, but that was sharply below even the most pessimistic estimate on the street.

What is that? ISM non-manufacturing PMI.

So To give you the summary, it's effectively then a survey conducted with purchase managers. And think of the— the ISM stands for the Institute of Supply Management, and they look at the nationwide picture in America on two fronts, manufacturing and non-manufacturing, i.e., services. And the one we had this week was services. And that's a big focal point given the composition of the way consumption in the US in terms of its economic picture and its activity. And a lot of people were looking at that based on the premise that it will remain robust because we, we are reopening at this point in time through increased vaccination rates and so on and so forth. It didn't happen. The number was considerably weaker than expected. And how these reports from, from ISM and the PMIs are broken down into is different components. That allows us as market participants to look at different parts of— in a more granular level, like new orders, imports, productions, inventories, prices. We get almost an inflation metric reading. But important one, obviously, that's very— markets are very sensitive to is the jobs market. This, of course, comes on the coattails of what we had from payrolls. Payrolls was perfectly okay. It just wasn't spectacular by any means. This employment component within the service sector in America went from 59.9 to 49.9, which is a— I mean, if you're not used to looking at this data, that's a pretty spectacular fall. The way that these PMIs are calculated is that 50 is the marker in the sand, which is Above 50 is an expansion of that particular component, and below is a contraction. So we are contracting in that specific area of jobs in the service sector over that month, at least in America.

But how much of that is to do with all the things we've been talking about on previous podcasts around these basically labor supply chain issues where, you know, in that services sector, uh, people aren't— they don't want to go back to work. And so there's plenty of jobs available, just no one wants them yet. So in your view, that ISM shock— oh my God, it's dropped. Hang on, that wasn't part of the equation. Panic. Maybe growth slowing, and then all of the associated arguments. Just stop. Isn't it more this time? Isn't it more to do with that labor supply chain issue?

Yeah. I mean, I agree. I mean, even take it one step further. I actually think that the entire move this week is a bit overdone, to be quite honest with you, because going further forward in time, COVID globally is going to get worse. We know that because the Delta variant. And so that's not a big surprise, but obviously warrants being very vigilant as to the ramification that might have on lockdown strategies and economic activity. But I do think that we get that under control, whether now, in the further future, going further forward. And so I don't know. I don't think this is the— again, like what you said at the beginning of the year, we were kind of overstretching our imaginations about the inflation risks and economic boom. Now we're overreacting to the other side of that. And I do think that longer term, I still think there is room for yields to continue to go up. It's just not right now, not today perhaps, but I think this is just a momentary blip. I personally, when we start looking at a multi-month picture rather than less than a week's perspective. So yeah, I think that you're right. I think that we shouldn't overly obsess about that figure because there's some explanation. I do anticipate that that job market will continue to tighten over time because then people will go back to work.

And so, and it's not about— it's about making sure— don't, don't confuse this with a risk-off move. Even though equities dumped sharply, um, you know, that, that on that— well, on, on that one day in particular, um, you know, I, I mean, I say equities, I mean broad indices, did have a sharp down day. They're still right up at their all-time highs, by the way, but It was definitely a kind of sector rotation. Because as you said, Amazon up 10% this week. So it's definitely a sector rotation play. So as I said, quite a meaningful strategy shift. And look, it's come at the end of the first half of the year. And this is typically when asset managers are looking at— they've got their quarterly performances done. And so now they're— it's a very important moment in the year, right? Halfway through. And they're very much making bigger strategy changes at these kind of key milestones during the year. And so I think that's what's happened. You've seen quite a meaningful strategy shift back towards growth. I mean, look, it's not a risk-off. I know when you look at the 10-year US bonds, and it's like, oh my god, price has gone through the roof, and yields have dropped sharply. And that's like a risk-off, right? But then actually, if you look at some of the other parts of the bond markets, like junk bonds, which are high-yield bonds, they're trading at record low yields still. And so, you know, if it was a risk-off, like a meaningful risk-off, then you'd definitely be getting movement down there as well. And we didn't. So actually, another thing to say is that the Fed have subtly shifted their stance over the last few weeks, and starting on June 16th when we had that Fed meeting. So over the last 3 weeks, the Fed's slight change in direction is playing out in markets. And I actually think some of this T-note move to the upside, I think some of it could be a sort of currency play as well, where you're getting international investors now say, well, look, the dollar's been super weak all year because the Fed have been overly dovish. That kind of journey's done. So maybe the dollar is going to strengthen for the second half of the year. So be buying dollar-denominated assets. And one of the best ones to buy, obviously, is T-notes from a sort of risk play. So it could well be that you're getting some currency global currency strategy plays coming into that T-note move. And as you mentioned briefly, there was a technical factor that also helped with that T-note move, just because we broke a very key technical level. And from the kind of price point of view, it was the June high. So from the yield point of view, it was the June low, right? And so that got taken out quite sharply on Tuesday, which helped to just propel, it exaggerated the move.

Now for a lot of our listeners, they might not just be trading, but investing. And we're very fortunate enough to have quite a senior portfolio manager. I mean, when I say senior, he just manages $17 billion. So, you know.

Yeah, $17 billion.

So, but yeah, he was very good in what he was explaining because he was talking about, Perhaps you were the one hosting the conversation. This idea about the active and passive and how it was like when the market's just— when asset prices are going up, like what we have been seeing the initial phase of the beginning of a cycle, it's always the easiest part. Now it gets complicated. But now this is when active management can actually be more effective in a way, because there's more opportunity rather than this everything, everything, Randy's philosophy.

I think the hard work's just about to start, right? I think that the easy, the easy wins, they're behind us now. And there have been some really, really easy wins. Um, it's not quite— I wouldn't quite as broadly say everything's gone up, but it's not far off, right? But as Hany was saying, if you're an active fund manager where you've got to deliver alpha That's your job. That means you've got to outperform the index. That's incredibly difficult when the index is just going through the roof. I mean, don't get me wrong. It's great. Everyone's making money. But as an active fund manager, you've got to beat that index. And that's incredibly hard. But now, in the early phase of the cycle— so that's the part of the economic cycle that comes immediately after the recession, that kind of rebound, relief, you know, we're back— this is where equity markets move the most. And this is where the upside potential for stocks is the greatest. And that's why it's easy to make money in the early part of the cycle. Just buy an index tracker, right? But now the hard work begins, where even if economic growth rates do decelerate— so they stay positive, but they—

and they will, right?

So economic growth rates are going to decelerate in the second half of this year and in 2022. They'll stay positive, so we'll have growth economies, but just at a slower rate. This is the mid part of the cycle. And that's the part of the cycle where it's still positive for equities, don't get me wrong. But growth potential, equity capital appreciation potential is lower. So this is where the active fund manager now, it's easier for them to beat the index just because the index isn't performing as well. And so here it's about trying to find pockets. And this is about sector rotation play. And that's why I'm saying I do believe this week it looks like from how markets have behaved, you've had a pretty major, almost like industry-wide shift in strategy, which has just led to a lot of execution to put these new trades on and to shift around their asset allocations. And that's created a lot of market, kind of short-term market disruption. But I think things will settle. And yeah, we move into the second half of the year where, as we knew was going to happen, inflation is going to start dropping. Um, you know, and so it's not like any of this is a surprise. It's just if you're in the heat of the moment and you're less experienced, and, you know, oil's dropping $5 and the 10-year yield spiking through the roof, and oh my God, the S&P is down 50 points, and, you know, you can really get carried away with all of that. And in that microcosm at that moment, you can think, wow, hang on, something massive is happening when actually it's not.

Well, look, that's the voice of experience there talking. But look, there's two other areas then I want to cover in this podcast, which is other contributing factors to a certain degree that have created this type of sentiment shift or strategy shift, as you say. China, and then we'll talk about COVID and vaccine. So starting off with China, there's been some interesting developments on different fronts really with China at the moment. On Wednesday this week, the government said it would use, quote, timely cuts in the bank's reserve requirement ratio, so the RRR, as they call it, to keep money flowing around the economy. Now, a lot of that's coming on the back of the fact that some of the economic data in China has started to moderate from very high levels. Remember, China was really quick out the gate on the reopening trade against the Western world. Now that's coming off the boil. As they were ahead before, they're almost ahead in the downturn as well. The fact that they already are talking about decreasing the RRR has got people thinking, well, Chinese Q2 GDP is out next week. Surely they know that this is going to be slightly softer, and so therefore they're prepping this up. In combination with that, We've had some inflation metrics come out overnight, so to end this week. And as you all know, there's a big divergence between PPI and CPI. CPI has always remained fairly lackluster throughout, hasn't really shown that any pickup at all. Whereas because of that commodity boom that we've seen, PPI has gone really high. But PPI came off as well last night. So it went from only a minor amount, 8.8% from 9%. But it does come as well with the fact that they've been opening up their SPR and they've been releasing some commodities. We talked about this in a previous podcast episode. So the fact that inflation's also easing, does that also give them further reason to want to ease? And we know they're very interventionist and to keep the market ticking over at a high momentum. Other things, of course, today Washington are going to add at least 10 more Chinese entities to its economic blacklist. This is all to do with human rights issues. So that tit-for-tat kind of very standoffish stance between the US and China trade dialogue is pretty much the status quo at the moment. And then the final thing is internally, we've had big technology crackdowns continuing in China. And that's really weighed on their local market and in Hong Kong, the stock index in the Hang Seng, a lot of those tech firms getting hit. Car hailing firm, kind of the Chinese Uber, Didi. Beijing basically stopped them signing up new users just days after they IPO'd. It was the second biggest American IPO for a Chinese company, and they've stepped in going, "What are you doing with your data? We want your data, please." So yeah, I definitely think for me, this is definitely— there's —there's a few different angles here politically, but I guess focusing on the economic one, which is the one that kind of fits the narrative of what we're discussing— China is slowing, and their central bank is looking to ease. And so as much as we were talking about tightening and hiking and all these other ideas, they're almost going the opposite direction, at least at the moment is what they're hinting. Yeah.

It's a hard one, isn't it, to judge? You're right. Historically, those cutting— a surprise cut to the reserve requirement ratio, which just kind of gives banks more license to lend more money, which is then extra credit for the economy. So it's a diluted version of a rate cut in some ways, right? And so historically, that happening— surprise reserve requirement ratio cut from China would normally, as you're saying and alluded to, would normally be front-running what then becomes bad economic data. So I think we'll have to wait and see. I mean, GDP figures this year are kind of just a bit insane. So it's very hard. I mean, look, their quarter 1 GDP was 18.3%. So even if it comes in— I don't know what it might come in at, right? But it's a bit of a nonsense until we get a few more quarters down the line. And this wild kind of GDP disruption kind of smooths, and then, and then we'll kind of know where we are. So it's very difficult. But yeah, the fact they are making— well, if they do make a move on the RRR, yeah, then fine, that's an indication that things are slowing, um, which is not good. But I'm just looking at their COVID cases though, and I don't know if you can believe these, but their COVID cases don't— but you know, they're pretty much basically zero still. But can that be true?

Yeah. So this fits into— so I was fortunate enough to be running a group at Nomura this week, really keen kind of interns that they've got in for the summer. And we was talking about high-frequency data points. And certainly that was a good one that I was using as an example was the inability to really have transparency of genuine— of what we can deem as credible that the statistics don't really stack up when we're having a global picture with a Delta variant, highly transmissible. You can't have a country of that population not reporting any cases. It's just not statistically hard to believe. And so this was the idea that you could track other meaningful high-frequency data points. And I remember back in— this is probably going back to late February. It was coming out the back end of the Chinese Lunar New Year holidays at the beginning of 2020, before the coronavirus left, let's say, China and then moved to Iran, Italy, northern Italy, if you remember, South Korea and the likes. And we were tracking at that time on TomTom the actual real-time traffic in downtown Shanghai and Beijing. And actually, it was very meaningful data. And we were looking at energy, electricity consumption in a lot of these major cities, and we were looking at different, you know, measurements, thinking creatively, quite laterally, of ways of which we can look at mobility, because then you could tell what the authorities were doing without them actually being explicit, to give you an idea then of how severe or not this case was. And that— so, so from what you've said, I certainly would be Yeah, um, looking at the Chinese official above-board data with somewhat skepticism, but those would be the ways and means I try to counteract that to find something more valid to base assumptions on. Um, but yeah, with COVID so moving over to COVID, um, US COVID-19 cases are up around 11% over the previous week, almost entirely among people who've not been vaccinated. COVID cases, we heard from the newly appointed Health Secretary, Sajid Javid, they're going to go up to 50,000 in the coming weeks and most likely could surge to 100,000 by the summer, is what his statistic is. Obviously, this comes ahead of that, that final unlocking, if you like, happening later on this month. Now, this brought about couple of things. For one, then, um, the Delta variant definitely is becoming the most dominant, um, of the, of the case rates globally. I don't think that's a surprise. The US going up 11% over the previous week, I don't think that's a surprise either, because we were on the previous podcast and we were talking about the mathematical modeling of the outbreak in America that number is going to go up for the next couple of weeks. So it's going to get worse, essentially. Same with the UK. But the calculated risk from the government strategy, of course, in the UK's case, is that of those 9 key categories, the predominant ones at risk or higher chance of being at risk have been double shot— double shotted, if that's a word. And double jabbed. And they— so therefore um, they're at lesser risk and so they can go ahead. Now I thought, yeah, I, I kind of agree with that to a certain extent, but then I've been looking at some of the European statistics this morning and Spain was the one that jumped out. So in Spain, some 40% of the 60 to 69 year old population in Spain have still not received a second dose. So remember, this took place in England quite a while ago. And hence the reason why the government can have more confidence, because they were the ones who were likely to be admitted to ICU, put pressure on the infrastructure in the NHS, and so on. So the other statistic in Spain, 25% of 40 to 49 age group have not even had a jab yet in Spain. So, so that to me is quite worrying because as we know, this latest, um, Delta variant is highly transmissible comparative to the already multiple times more transmissible Kent variation that was there, the Alpha. And so I find it hard to think, and, and that's why I do think that there probably is a bit of a combination of this thrown in to create this week's market moves that we've seen, which is the fact that, look, okay, in the UK that's one thing, but elsewhere globally, I mean I was— I said to you earlier this week, check out how many people have been vaccinated in South Africa. I mean, we're talking single-digit percentage have only had one. Yeah. And then you look at that scaling up in some of the other emerging kind of undeveloped countries. And so Brazil, India, there are incredibly low vaccination rates. I mean, they're heading in the right direction, but very shallow. In terms of the speed. And so there's definitely risks, I think, still with this, and particularly the mainland Europe one being the fact that, look, I know British travelers are going to have to be— have received a double dose, but as of the lock— as of July 19th, there's going to be 140 countries which will now be open for us to travel to, including the likes of Spain amongst others. So yeah, it's definitely for me, it's a space to watch, I think. And I can't help but feel like we've been here many times before. It's kind of like the summer of 2020, if you remember. It kind of felt like, oh, that wasn't so bad. It's kind of everything improved dramatically, only then to get considerably worse again. And I know then we didn't have any vaccine. So now is starkly different. But, um, this case rate happening, and, and, and particularly as well, I don't know the data yet because it's too early, but, um, long COVID, you know, these, these young people. I mean, it's all well and good saying 100,000 people are going to catch COVID Oh, that's okay, they're not going to go into ICU, so it doesn't matter. So people aren't going to die. Yeah, but what about long long-standing health complications, of which we do— we don't know what those are really long term. But certainly there's evidence to suggest that young people can suffer in different ways other than obviously the worst-case scenario. Um, yeah, so yeah, I mean, there's obviously—

there's a huge amount we don't know about this virus, um, but then there's now a huge amount we do know about it. So, you know, I, I always think that ultimately you've got to go with what you know, even though there are perhaps obviously risks and uncertainties around what we don't know. And right now what we know is, you know, you've got to get jabbed, got to get this virus— uh, sorry, got to get this, um, vaccine. Um, and then there's a huge problem with that. Yeah, the global community needs to be vaccinated. And until that happens, we're going to have waves and waves and waves. And that— the real risk there is that that enables more variants to breed and grow. And, and of course, then there's the risk around the effect, you know, effectiveness of these vaccines that have already been created.

Um, yeah, which on that point, um, you'll recall there was that Israeli Health Ministry study earlier this week. And again, I think this is another contributing factor to some of the nervousness in markets this week. BioNTech-Pfizer vaccine was— has been proven less effective at halting the spread of the Delta variant than the previous strains of the coronavirus. The stats being that the vaccine, the BioNTech-Pfizer one, is 64% effective at preventing infection among those who are fully inoculated. Efficacy against previous strains, so non— other than Delta, was at 94%. Now that Israeli study, I wouldn't put all my eggs in one basket because their numbers are way more dramatic than some other studies have shown. Obviously the media will latch on to that and pump that story because it's more sensational in a way, but it certainly is interesting. And one thing Pfizer have been working on is they're planning on requesting US emergency authorization as soon as next month for a third booster shot. Of COVID-19 vaccine, and the data there looks great. I mean, the study early on from initial data from early human trial data has shown that third dose of the existing coronavirus vaccine is safe and can raise neutralizing antibody levels by 5 to 10-fold compared with the original vaccine.

So is that just having a third shot of the current vaccine, or is this booster one a new type of—

my understanding is just a third shot, right?

Now, see, what I've got a real problem with here is, yeah, is now all the Americans in, you know, for their third shot when half of the world haven't had one. Know what I mean? I think before we start third jabbing the rich, we need to get one and two jabs into the poorer nations.

But you and I know that that's, that's the, that's a better solution to control the, the virus and help the global economy and thus people's lives on a global level. But there's, but there's nothing like an existential threat to human life to promote then protection of your tribe. Indeed. And so yeah, I'm afraid, uh, well, I hope I should put it that way, that we see a better route forward overall. But look, we'll wrap it there. I'll let you, you know, go and get your England shirt washed and ironed. Dry cleaned. Is it the Gascoigne '96 one that you'll be—

I'm actually going for the 1966 red England shirt. Full sleeve. Um, it's coming, it's coming home.

Okay, and you can check out Piers Curran's Instagram account to see that, uh, when it comes. But cool. All right everyone, uh, stay safe, take care, have a great weekend, enjoy the game, and we'll catch you next week. Cheers, see you all.