What's Happening In Financial Markets Right Now (Stocks, Bonds, FX, Commodities)

Hello and welcome back to the show. And I must say, Piers, I've had to field a number of complaints about missing an episode with Piers Curran over the last week.

Ah, so what, all those complaints, what, that added up to like one, maybe?

It was two, but you know, there's still complaints. No, it was more, it was—

I'll take two.

But no, no, in this episode I wanted to I kind of provide a bit of, I guess, feedback to you on what we could talk about, which was a lot of students were saying, you know, things are coming up, things are livening back up in terms of, you know, not just markets, but the application season. And I know a lot of banks go a little bit different in terms of when they do their assessment centers and interviews, but I know one big US bank actually has an assessment center tomorrow. So we've got to get this episode out. ASAP. But there's some other things rolling over as well coming up in the coming weeks. So what I thought we could do is just talk about some of the big topics, the what would you need to know to survive a kind of technical interview talking about global macro markets. So the big things, the growth, the inflation, the interest rates, what's happening. Because I had a chat with some students yesterday and they were, I think, pretty convincing in terms of knowing what the news was. Perhaps not so good at articulating how the market was really reacting through the journey of the first 6 months of this year. And they certainly weren't very good at connecting the dots about actual specific price movement when it came to different asset classes.

Yeah.

Which I know that you are the main man for. So yeah, over to you.

Yeah. Well, no, I mean, it's always tricky with, well, any kind of, obviously any interview, Right. Any assessment process, obviously it's always difficult and people are very nervous and it's always that fear of the unknown. What am I going to get asked? What do I need to know? And I would always like, the first thing I would always say is that, you know, always remember, try and go with the mindset that, you know, you're not, they're not looking to trip you up here. The people interviewing you are looking for an intelligent, engaged conversation and they're trying to prompt you and obviously probe to see where your knowledge is and then try and just go from there in terms of having some follow-up questions. And so look, I'd say, and the problem with markets, it's always changing, right? Every week, you know, even every day, certainly every month, you know, certainly in the world of Trump, you know, stuff is volatile. And so you've always gotta be reading up, spending some time every day just Just touching base, what's going on today, what's happened, any big themes. And so you obviously, like anything, you've got to invest some time to become fluent. And ultimately, how are you going to get a job with these big banks? You need to have some really strong commercial awareness. You need to be confident and fluent in having a discussion about, you know, what can be difficult stuff. So I'd always always go from the big macro themes, right? I'm a macro guy, so, you know, I'd always, I'm always thinking like super top level, no matter what year it is, you know, what is happening with the kind of big three things. And that I would call that GDP growth. I'd call it inflation and interest rates. Okay. These are the big three things. They're all highly interlinked and it's just where are we in the cycle? And then, right, what are the big powerful contributing factors to all of those three? Thinking about from a monetary or a fiscal or a geopolitical perspective, you know, what are the big forces on those three? And then ultimately, how are markets behaving? And it's normally the market behavior is normally around expectations about how we see those three things playing out in the months ahead. So what do we think is going to happen to GDP growth in the second half of 2025? You know, how do we anticipate inflation to change and therefore how will people like the Federal Reserve, you know, go about setting their interest rate strategy? Okay, so that's at a super top level then. And those things that can influence those three are changing, right? But right now in 2025, In some ways it's pretty easy because you just need 5 letters that forms one word, and that is Trump.

I thought you were gonna say taco, but yeah, that was only 4, but that's 4 letters.

Trump, basically Trump, you can pretty much lead everything back to Trump in some way. Okay. So if we, and it's hard to kind of know where to go with this conversation, but I would say if you're thinking about the big themes around Trump, then I would say it kind of falls into two buckets. Obviously it's tariffs, right? And that's been the front and center risk since January. And where are we in that whole episode? And we'll touch on where in a second, but right, you gotta be on top of the tariff situation. Now, of course, tariffs tie into, obviously that's a risk and an uncertainty for things like GDP growth. Are tariffs going to impact growth? Not just in the US, remember, but what about China, for example, and others? And then, right, are tariffs going to be inflationary or not? Are people just panicking for nothing about that? And then back, final one of the trio, the interest rate thing. How are the Fed going to play that out? And I think it's super difficult for the Fed at the moment because it's so uncertain as to where this is all going to go. The Fed are quite rightly just, as we say, standing pat. They're just kind of saying, look, we're not going to change anything for now. We want to see more evidence. Okay? So obviously tariffs. Then I think the new, the new err one to the conversation, and I've been banging on about this on the pod for a few weeks, but it's about the debt situation and it's the deficit situation in the US. Okay? And we've had the big beautiful bill. So this is all political, right? Both the tariff thing. And this debt thing at the moment, the number one item on the list of influencing growth, inflation, interest rates, the number one is US politics. Okay? So with the deficit, we're really worried that the debt situation is getting out of control, and we'll dive into this in a bit more detail in a second. We're really worried that the deficit situation is out of control. We've had You know, debt downgrades, you know, is this bill that Trump's trying to get through Congress, you know, is that going to be a good thing for GDP growth or is it going to be a bad thing for the deficit and debt? And actually, is it both of those things together? And then you got a problem because one, obviously more GDP growth, awesome, great, but at what cost? And ultimately the difficult thing for markets and what we're trying to get our head around is which of these is going to be the more powerful force, the positive GDP growth force. Is that going to trump everything and become a positive story, or is the cost of that growth going to be too great and the debt situation starts to escalate and that negative force becomes the dominant thing, right? And here we're caught between those two at the moment, and I think that can be nicely summed up with what is a pretty confusing financial market landscape at this moment. So meaning if you go and look at then, and I would say 3 things here when you're looking at, I'd say 4 things maybe when you're looking at markets, I'm looking at stocks, right? So what's going on with US stocks and they're back to all, they're almost at all-time highs. So stocks are kind of shrugging this off and are preferring to perhaps lean more towards that positive outcome, glass half full. But then if you go and look at the bond markets, bond yields are incredibly high, which then feeds into the kind of concerns around the debt situation, of course. And so bond markets are maybe looking at glass half full stuff, and then the dollar has been weakening. And so actually, just to complete this first section, since Liberation Day, that's Trump's famous day at the start of April where he kind of re-ratcheted up his tariff Um, war. Uh, since then there's been two big, big themes in markets, and one is rising bond yields and the other is a weakening dollar. And if you're going to go into an interview today, you need to be prepared to talk about particularly those two things.

Right. So that, that, that last point then would be somewhat counterintuitive. So Those who are studying classical economics might go, right, yeah, I know the answer to this one, which could see them undone pretty quickly because it would probably show that you're not actually following markets day to day because you're just going off the textbook.

So, yeah.

So what, first of all, what's the actual theoretical way that these relationships should work? And then what is and why is what's happening?

So the theory goes that you might get in your textbook, well, if yields are higher, well then that often attracts money into your country. You get inflows coming in because international investors want to take advantage of those higher yields by moving their money into dollars and buying treasuries because you get higher interest rates on that. So higher yields can often lead to, you know, an inflow and currency appreciation. But it's not that, it's the opposite. And here you've got some alarmists out there in the media and I'm going to brand them alarmists. And Anthony Cheung's moving into the alarmist camp. I'll, given your comment to me, when was it yesterday? Oh no, Monday, wasn't it? What was it that you said to me? It's like, hang on, have we got any dollar? Like as a company now, Amplify me. Have we got any dollar reserves and shouldn't we be looking to immediately exit all of our dollar positions?

Hey, hey, who's sensational now? That's not what I said.

But look, there's alarm out there about this weird scenario, higher yields, weakening currency. Some are calling it and comparing it to emerging market type crisis. Because what can happen, this vicious cycle that often happens to emerging markets when the debt situation is getting outta control, right? If you are suddenly worried this country can't afford its debt anymore, well then what tends to happen is you sell bonds, you sell that debt, but selling it means the price goes down and the yield goes up, making it even harder for that country to afford the debt. 'Cause it's the interest payments go up with those yields, right? And so you sell the bonds and then you repatriate your cash. So that's then an FX transaction. So like, let's say you are holding some Argentinian bonds, and this has happened several times in the last couple of decades. There's been a bit of a stampede, right? As international investors exit. So they're selling Argentinian bonds 'cause they think they're going to default, driving down price and driving up yield, increasing the chances of default. Then you've got pesos. Right? You're going to then take your pesos and you're going to sell them and I'm going to buy sterling, okay? To bring my money back home. But that means the currency's value drops as well. And then you get this vicious cycle because the more the yields rise, the more the panic of default, the more international investors exit their trades and repatriate money. And this vicious cycle often gets out of control and leads to carnage and chaos and default and IMF bailouts and all the rest of it. Okay? There's some in the media who are suggesting that the US are looking like an emerging market debt crisis here. This is false in my opinion. This is false news. And that's because there's one thing about yields rising. I mean, yes, US yields are rising. I mean, go and check out the 30-year yield. It's nudging 5%. Why is that important? It's important because we haven't really had 5% yields on a 30-year Treasury since 2007. Okay, so it's incredibly high, but yields are rising all over the planet. So here's your big difference. Yields, yes, they're rising in the US, but they're rising in the UK, they're rising in Europe. Check out the Japanese 30-year yield. We spoke about that the other day. That's an all-time ever high. Yields are rising everywhere. Now that's a key differentiator here because if yields are rising in the US, well then you're not going to— if they're rising everywhere, right? It's about yield differential. You're only going to get the typical move into the US to take advantage of higher yields appreciating the dollar. The normal way of things isn't happening because yields are rising everywhere. So you don't need to, you're not getting extra yield by going to the US now. You can get it everywhere else also, right? So there's, there's less inflow into the US because of that, right? But then you might think, well, aren't there outflows then? And this is where that panic comes from. And maybe the reason for, I mean, there's a few reasons, right? There's the debt sustainability thing, which I've really just mentioned, but then there's also the international demand side, which we've mentioned. And then it's Trump. It's always back to Trump, right? Because look, at the moment there's a little bit of an anti-Trump sort of positioning from a lot of the rest of the world because Trump's bullying them into this tariff situation, right? And so there's definitely a negative, you would say, bias against US assets at the moment, which is helping that dollar probably to weaken. But look, I'd say the dollar, and you can measure the dollar obviously against any individual currency you want and fine, The dollar, like against the pound, is at 1.35, which is the highest we've seen for years, right? That's the pound being expensive and the dollar being weak. Euro dollar's at 1.1385, right? Really? So the dollar's weak against a lot of these currencies, but we'll often talk about what's called the dollar index when we're thinking about the dollar's value against a basket of currencies. And what's kind of psychological and the reason why it's getting a lot of airtime in the press is that the dollar index is below 100. Which is just a really key psychological level, that puts it at the lowest we've seen since 2022. So it's a 3 and a half, it's a 3 and a bit year low for the dollar index, right? But yes, 3 and a half years, fine, is really low. But go back over the last couple of decades and 100 on the dollar index is about average. So I think you can look at this in a different way when you're thinking about the dollar. I think we've come to the end of a period, really post-COVID, where the dollar's been abnormally expensive and actually it's just returned to its mean, I would say. So the dollar move, I'm not getting too alarmed about. Now, I am very anxious about the debt situation, which is a separate thing. But I think from a dollar weakness perspective, I think we've kind of got a bit carried away panicking about that and perhaps unnecessarily.

So that divergence has been happening over really the last, what, 3 weeks?

Yeah.

So you're, would you be on the side of that they will converge and they'll come back to the normal pattern of things, or what does there need to be a trigger point in your mind from a near-term macro event? Around this debt talk that then's going to bring things together.

So the near-term macro, yeah. So always the macro journey will determine where we end up, right? And so what's on the radar for the next few months? And well, A, on the tariff front, really the two things, it's China and it's the EU, right? And with China, we've got August 12th is the key date because Trump basically said, right, let's have a 90-day reprieve. Remember they were ratcheting tariffs up to 145% and they said, right, let's wind these all the way back into whatever, I can't even remember now, was it 30%? Whilst we have 90 days to chat, negotiate, and come up with a better deal, right? That 90-day period ends on August the 12th. Trump just overnight, there's a little throwaway comment, he said, zhi, Xi, sorry, is hard to make a deal with. So there's a little insight into how negotiations are going. Obviously, I would assume Xi here is kind of playing a hard game and digging his heels in. I think stuff like the US courts, or some of the US courts, making the whole tariff thing illegal has helped all the other countries that are on the negotiating table. So probably Xi is taking advantage of that and Trump's saying, look, it's hard to make a deal, right? But we've got another couple of months until August 12th. Before that is the EU reprieve, 90 days that comes to an end on July 9th. So we're only kind of 5 weeks away from that now. So those deadlines are key and what happens on, you know, in these negotiations along the way is really important. Then it's about debt, right? And it's, does the beautiful, big, beautiful bill get passed by the Senate? Remember, it's been passed by the House of Representatives. Will it get passed by the Senate? And there's really two big prob— there's two big things in this bill. One's really positive and one's really negative. And again, it just comes down to your judgment as an investor as to which one you think's more powerful. The positive is this bill is to extend Trump tax cuts. They're the tax cuts Trump implemented in his first term, right? Over 4 years ago now. Biden maintains those cuts. But they're due to expire this summer. Okay. So this bill is to put into law and make those tax cuts permanent. So if this bill doesn't get through, you're going to get a massive tax hike on the US, which will be highly negative for things like GDP growth and so on. Right? So if the bill gets through, you could say there's a big positive, it's a big economic stimulus. Because it'll extend the tax cuts, right? That's the positive side. However, at what cost? Because tax cut or maintaining tax cuts means you're not going to get a bump in revenue for the government by taxes going up. And that's then a problem if the government's got a really large deficit and debt. So that to fund the extended tax cuts, they're having to increase the deficit. Making it more alarming as to whether that's sustainable, especially when interest rates stay high. And so interest debt costs for the US in 2026, they're going to be above a trillion dollars just to service their debt interest, right? The last time yields on the 30-year were at 5% was in 2007. So what was the debt situation in 2007? All right, that's pre-financial crisis, but in 2007, the debt-to-GDP ratio in the US was 62.9%. Today it's 124%. So it's basically doubled. Debt-to-GDP is doubled, right? And so the last time debt interest costs were this high, their debt-to-GDP situation was half. So you got a really big issue of large amounts of debt and interest rates staying high. And so that's the negative from this bill. If this bill gets passed through the Senate, it's going to be very, very, very interesting to see how markets react. Do they go big guns, wahey, extended tax cuts, buy stocks, S&P new all-time highs, or do bond yields spike? 'Cause investors are like, nah, this ain't going to work out. You can't afford this. Bond yield spike becoming then the bigger force leading to a massive risk-off and stocks get killed.

So at the moment then, stocks are just buying their time and slowly edging up higher and higher. But you are saying that though the risk factor to that continuation of record high territory in equities, not to say it won't continue, but the risk to the rally, it will increase. Given those near-term events.

Yeah, right. And stocks are interesting. I mean, actually, and we're obsessed with the US and I know on this we're very high. Well, I'm very guilty of just kind of mainly talking US, but they are the biggest game in town. But German stocks, new all-time highs today, right? So there's stocks going up here globally despite tariff uncertainty. But you could say, well, that tariff uncertainty's massively come down because Trump's conceding, right? So that's what the stock market's saying. They're saying Trump's not going to follow through on any of this bad stuff. A deal will get done and, you know, let's go. And you know, if you're looking more medium term, people thinking about the AI revolution leading to productivity gains and GDP growth acceleration is on the horizon, right? So fine, DAX all-time high. Go and look at US stocks though. They're not all-time highs, but they're pretty much back there. All right. The NASDAQ is trading 21,700 nearly. The all-time high is just above 22,000. So look, US stocks are almost back to their all-time highs, but it's been quite a narrow rebound. This is quite familiar territory. Because the reason for the US stock market rebound is mostly the Mag Seven. Again, this is a 2024 thing where we call this a very narrow-based rally where it's just a handful of stocks in the index that are responsible for most of the gains. To put some numbers on it, the S&P's up 7% since the start of May, but 4% of that is just from 7 companies. And it's the Mag 7 except for swapping one of those out. It take out Apple from the traditional Mag 7. Apple are right in the crosshairs of the tariff risk, so they haven't recovered. But actually weirdly Broadcom comes back. If you put Broadcom in for Apple, then you've got this new makeshift Mag 7 that's responsible for most of these gains. But again, I always come back to these two arguments. There's another two sets of arguments. Well, is this good news then that the stock market's rallied in the US? Half would say it's actually bad news because of that narrow argument. If the rally's based on only a few companies, it's not sustainable. It'll never last. Right. But then the other argument is actually US tech are the leaders everyone else follows. So actually they're the first ones to go. And actually the others will follow. And actually this is just the beginning then of a rally. So the beauty of markets and the beauty of being in an interview situation, you can say whatever you want as your opinion, right? You could be super bearish, doom and gloom, the world's going to end, or you could be super mega bullish and this is the beginning of a beautiful secular rally. And both arguments are valid. As long as you are hitting it with the right evidence. Okay. No one knows what's going to happen. And I think uncertainty's particularly elevated, which is why you got this weird situation where stock markets are saying everything's cool, everything's fine, don't worry, as you were. And bond markets, the kind of alarm bell is softly flashing. And it, whether that bond market alarm bell ratchets up or not. I think ultimately will be the lead indicator to where we go next.

And it was the bond market before when stocks were really selling off. When the bond market went was when Trump did a tactical turn on China before. Is there anything within like who's trading these different asset classes? So as a normal Joe, I'm not there trading the 30-year bond, for example, but large institutional funds are. So does that come into this as some context as to why equities might behave slightly different?

Yeah, that's an interesting one. Are you suggesting that the bond market is more intelligent?

Like from a sort of— that is not what I said, Piers Karamasoff.

Intelligent from a, you know, these are professional traders that are really playing in the bond markets versus the stock market where there's a lot of retail. Like other, in other words, amateur trader volumes. Maybe you could say that, but ultimately if the bond market— stock markets are at all-time highs, right? The rich, mainly the rich own stocks. Okay? So if the stock market drops, fine, the rich are going to lose 10, 20% of their incredibly valuable portfolios. It's not going to necessarily impact Main Street. Right? Bond markets are entirely different. If they move, everyone feels it. And that's because it governs the cost of borrowing. And ultimately, if the cost of borrowing changes, if you own a house and you've got a mortgage, well then your mortgage rates are going to go up. If you've got a credit card that's rammed full of debt, your interest payments on your credit card's going to go up and so on and so forth, right? And it's going to lead to companies changing their strategy. If the borrowing cost for businesses goes up sharply, they're going to borrow less, which means they're going to have to streamline. And then you start to get people getting laid off. So people start losing their jobs, and then you start to get that slide into a recession that affects everyone in the country, right? And so ultimately bond yields are the king and that's it.

Piers, this is not an interview to join the rates desk, by the way.

Oh, shit. Sorry, what is this?

This is the cash equities. Oh, sorry, sorry.

Scrap that. Scrap that. Stocks are, stocks are key. Buy Nvidia.

Well, look, just to conclude then, was commodities because we've spoken in recent weeks about gold was kind of just tapping away at all-time highs, seemed pretty relentless, had a little bit of a pullback, but then just shot back up again. Yeah. And something we don't talk often about is Bitcoin and just crypto in general. So how's it looking then in commodities? 'Cause there's a few things that play out, you know, in the broader picture on the supply and demand side with OPEC have been making a few changes as well. Yeah. So how does that fit into this Trump tariff debt picture?

Yeah, so, well, let's talk, oil first then, because it does play an important role on one of, particularly on one of those things on inflation, for example, right? So if oil prices are going to drop, which they have, so oil prices are, I forget, they're like down $63, but that's like in terms of a multi-year low. Let me just get the right stat here. That's the lowest we've seen since the start of 2021, right? So oil's really low, cheap energy, great. Okay. That's deflationary. Good. Helps with that inflation situation. And it's economically, it's economic stimulus in a way, 'cause energy's cheap. So people and companies are spending less on energy and they got more money to spend on everything else, right? So you could say that's a positive thing, but then at exactly the same time, gold's all-time highs indicating that as a safe haven, kind of vehicle that's getting strong demand. So again, you got a real conflicting set of market situations here, but Bitcoin has just broken back above $100,000. Okay. And Bitcoin made a new all-time high just over the last few weeks, right? And is Bitcoin finally maybe becoming that safe haven status that the Bitcoin enthusiasts have been trying to persuade me for about 15 years that Bitcoin is a safe haven. And I'd be going, no, it's not. No, it's not. No, it's not. Maybe now it is. And that is tied into debt, right? And government debt situations. And so maybe Bitcoin's starting to show a flavor of safe haven here. Anyway, it's at an all-time high. So gold and Bitcoin are going, well, hang on a minute, there's risks on the horizon. Let's get, let's put some of our portfolio into some safe places. But oil, yeah, so that, so oil is because of OPEC increasing production and maybe people are concerned about global growth, right? So demand risk. And so that's why oil is low. It's just, is it low enough to provide an economic stimulus enough to mean we fall on the positive side of of, well, we're right on the tightrope. Let's maybe finish like this. We're on the tightrope here and it could go either way. And it's either growth is strong enough to pay for all this debt and we're panicking and it's not a big deal. And growth is strong enough to deal with interest rates staying high and maybe the AI story can gather momentum and really fire that growth story and we're panicking about nothing. Right? Hopefully that's the, the side we fall on. The other side is, is definitely very gloomy, and that is actually growth will not rescue the day, and therefore we've got a stagflation risk where inflation's too high to be able to cut rates. So interest rates stay high, leading this debt crisis to a place where no one wants to see. And that's where you get this dip and turn into an incredibly negative kind of vicious spiral. So we really are on a tightrope at the moment. And some markets are saying stocks are like, we're here, growth's coming, don't worry. Bonds and maybe gold and maybe Bitcoin are suggesting, hang on, we're a little bit more worried than you lot are over in the stock market.

Just a final question, I did see some data out of China yesterday. This was a, their manufacturing sector had its worst slump since September 2022. So how much of an eye would you cast into this macro picture about the economic performance of China?

I think you gotta be really careful because we also had some ISM and PMI data out of the US that was really bad on the manufacturing side. You gotta be really careful about where you're comparing things to, because Trump and his Liberation Day tariffs, right, was at the start of April. So what happened in March? Everyone bought a load of stuff. So inventory stocking at pre-tariff hike prices, right? So go and look at the data for it from, for March, and you saw, you know, a huge bump up, right? Of course you then get the equal and opposite collapse in April because people stocked up in March, right? So you are, you are seeing a really big disruption. I think really with all of this data, you've gotta really wait till May. We've gotta get, we need the May data, if not June, right? By the time we get to the midpoint of the year, I think we can look back and just average it all out through this Trump-driven volatility, average it all out, and only then will you really get a true understanding as to where things sit. So I wouldn't get too alarmed about some of these crazy stats. Like, yeah, biggest drop in Chinese manufacturing since September. Well, yeah, but March was really strong.

So, yeah, that's a very good point. All right, well look, what we'll do is we will open up the comment section and Piers and I will be replying to help as best as we can. So if you're watching this on YouTube or if you're on Spotify, we are now publishing our podcast in video form on Spotify. So let us know what you think. Now you get to see the faces behind the voices and, you know, is it a yay or nay? Does it hit the mark or not?

Okay. I'm bearish.

But yeah, otherwise, yeah, feel free to leave a comment on Spotify as well. That has access for us to also reply. So if there's any questions, any views, any thoughts, or any way we can help, if you do have a pending interview, we're more than happy to do so. All right. Thanks as always, Piers, and take care, everyone.

Thanks a lot.