Joshua Mahony, Chief Market Analyst at Scope Markets spoke to CGTN Europe. He said the US shutdown's impact on markets has been short-lived, with gold seeing a rally during the first few weeks.
00:00Keith Market Analyst at Scope Markets, Joshua Mahoney, joins me now.
00:03Always good to see you, Josh.
00:05Let's start with the U.S. shutdown.
00:07What's been the impact of this stalemate on the markets these long weeks?
00:13I mean, it's an interesting one because I would actually say it's not had a huge impact.
00:18I mean, of course, we know there's been volatility and some downside for stocks,
00:21but that's just been a recent affair.
00:22Of course, this has now rolled on for 40 days.
00:25And prior to today's rebound, an actual fact you compare, say, the Nasdaq where it is on Friday
00:32compared to where it was at the beginning of the shutdown, and it was higher anyway.
00:36I think for the most part, markets are willing to look beyond these events now
00:40because if you've been trading or investing long enough, you would have seen it in the past.
00:45And generally, once you see an end to the shutdown, markets perform very well from there on in.
00:49Probably the big benefactor really was gold in the first couple of weeks
00:52that we saw after that shutdown started.
00:55We saw a massive rally up to that 4,400 peak.
01:00Of course, it's come back a bit since.
01:02But really, this was a sort of indication of the sort of breakdown within Washington
01:07that is part of the reason why many people like to move their money into assets such as gold.
01:12OK, we'll have to see if the rally holds.
01:14Let's talk about the China-U.S. trade truce.
01:17Investors like it, but what does it really mean for the markets and for American farmers?
01:22Well, I mean, it's definitely good news because it's just one of the major risks that's off the table.
01:30From the perspective of the markets, of course, we had the big sort of looming 100% tariffs over our heads.
01:38And that, of course, raised the possibility of a rampant rise in terms of inflation.
01:43Suddenly, the Federal Reserve's pathway lower becomes very murky.
01:46Indeed, that data-dependent approach means they pretty much would have to stop cutting rates.
01:52So that's off the table.
01:54We see a reduction in terms of tariffs.
01:56The farmers in the agricultural sector finally get some of their soybeans sent over.
02:02But I would, with my sceptical approach, probably say that the deal that Trump's got is pretty much akin to what was in place under Joe Biden anyway.
02:11I mean, he's just getting rare earth minerals and he's getting purchases of agricultural goods,
02:15both of which were in play when he first entered the White House earlier in the year.
02:19That's interesting.
02:21Listen, I can't remember if you're a Guinness kind of guy or, you know, a Baileys drinker,
02:26but you've probably been looking at the Diageo story.
02:28They've appointed Tesco's turnaround guy, Drastic Dave, as some call him, as CEO.
02:33He's got quite a pedigree in building brands.
02:36What's the story at Diageo and why do the markets like this hire?
02:42Well, funnily enough, I'm a Guinness guy, right?
02:44And Guinness is probably the one sort of story of strength within Diageo,
02:49so much so that some people say they should spin it off as its own entity.
02:53I think if you look at the pubs nowadays, young people don't really go to the pubs so much,
02:56whether it's the price of it or just a different outlook in terms of drinking alcohol.
03:02But certainly the stock's been suffering in part because revenues have pretty much been flat over the years,
03:07earnings sort of drifting lower.
03:09So they really have stopped growing.
03:10That means earnings per share, sorry, a price to earnings ratio actually gets into territory
03:15that many see as being attractive.
03:16But it's the ability to turn them around that suddenly sees Dave Lewis's entry into the role as particularly interesting.
03:24Previously at Unilever, where he drastically cut the amount of products that they had.
03:28I think it was from $1,600 to $400.
03:32So a massive cut on that front.
03:33Suddenly you see a massive reduction in terms of costs and improvements in terms of profitability.
03:38Then he went to Tesco's and we saw a massive turnaround following the horse meat scandal.
03:43Since then, he's not actually had a CEO role since 2020.
03:46So they've managed to bring him back into the fold.
03:49This is a massive coup for the company.
03:52And for many looking at price of earnings ratio,
03:54they might think this could be a great time to be able to jump into this stock
03:57that has a huge number of big name spirits and alcoholic drinks
04:03and 0% Guinness for that matter under its wings.
04:07So, yeah, really interesting story in the UK space at the moment.
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