00:00Paul, here in Europe, it seems like the only thing you need to know is that oil prices have been
00:03going up all this week,
00:04and we're now nearly, we're just flirting with $106 a barrel as I look at Brent.
00:08And that seems to be what matters to European stocks.
00:10Meanwhile, the Nasdaq is focused much more on Intel and that particular story.
00:15How are you looking at this particular divergence right now?
00:21Yeah, divergence is the word, I think, Anna.
00:24Good morning.
00:24So, the market is really sort of grappling with these two different things that are going on, right?
00:30On the one hand, we have the AI boom still getting priced in or repriced in.
00:35And so, we're seeing that continuing acceleration of U.S. tech-heavy equities and, for that matter, North Asian stocks
00:41as well.
00:42But each day this week, each day that this conflict goes on, we're seeing those oil prices steadily increase.
00:49And this has been the biggest percent increase since that first week of the war as well.
00:53And that tells you that we're really seeing sort of stasis, no signs of a shift in the talks between
00:58U.S. and Iran, at least in the public sphere.
01:02And the market is starting to get more and more worried about that because we know, and we've been saying
01:06it for eight weeks now,
01:07that the longer that this goes on, the tighter the energy supplies get,
01:11and the more that there's going to be an impact on the economy over time, starting probably in Asia and
01:16then spreading west.
01:18Do we resolve the problem of kind of how this market is working?
01:22Oil prices up on one hand, but the semi-sector up on the other hand.
01:26Does it get resolved by looking at who is buying?
01:29It's interesting, the markets team here forwarding me a note that came out of Goldman Sachs talking about the fact
01:33that pension funds have actually been selling,
01:35but it's the CTAs and to a certain extent re-risking of hedge funds that have been basically chasing this
01:40market.
01:40Is it that kind of internal flow that tells you about what is happening here that actually big picture institutions
01:47are very nervous about this kind of environment?
01:50But the CTAs, the momentum chasers, have had to get on board and basically chase this tech story as hard
01:56as they have been.
01:59Yeah, and if that's the case, then that sets us up for a rather shaky times, right?
02:04Because those are the sort of flightier, faster money investors that are just as likely to get out again as
02:08they are to hang on in there.
02:10So unless you get a capitulation where you have more of the long-term investors folding into that because of
02:17fear of missing out
02:17and because of their underperformance relative to the gauge, then at some point the market will potentially run out of
02:24momentum,
02:24and that could be a dangerous point, or we get to a moment where we have a bit of a
02:29volatility shock again,
02:30some sort of a flare-up, and that turns us around even more critically.
02:34What I do think is that some longer-term investors are taking a view as well because you're seeing that
02:39show up in the relative stability in the bond space
02:42and in the currency space where people are moving back into the carry trade.
02:45So because there's lower volatility, people are thinking, all right, target this right, you know, short yen where interest rates
02:52aren't going anywhere particularly fast.
02:53Have a look at higher yielding emerging markets, energy producers, places like that where you can put some money and
02:58still continue to pick up yield.
03:00And that seems to be a safe investment, again, with that proviso that it could all go wrong if we
03:05do have another flare-up in the Middle East.
03:07Here we go.
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