Market update: leia os destaques do mês
Confira os principais pontos abordados na live que teve a participação de Marcelo Menusso, Niraj Patel e Marcelo Aagesen
Por Itaú Private Bank
Na última quinta-feira, 17, realizamos nosso terceiro encontro “Market Update”, uma live mensal que aborda o que mais movimentou o cenário mundial e os mercados globais no mês. Nesta edição, participaram do bate-papo o convidado Marcelo Menusso, Chief Credit Strategist do Itaú Private Bank, além de Niraj Patel, Chief Equities Strategy, e Marcelo Aagesen, Head de Global Markets and Strategy, ambos do Itaú Private Bank International.
Confira alguns destaques da conversa:
Diminui a volatilidade em renda fixa, mas ela permanece na renda variável
- Mercados internacionais, que estavam muito voláteis, especialmente no Reino Unido, parecem ter recebido bem a renúncia de Liz Truss e a posse de Rishi Sunak como primeiro-ministro, trazendo momentaneamente mais estabilidade aos investimentos em renda fixa, tanto no Reino Unido quanto na Europa;
- A conferência de imprensa de Jerome Powell realizada no início do mês esteve em linha com as expectativas do mercado, mas os anúncios que se seguiram provocaram volatilidade nos mercados;
- O Dow Jones, o S&P 500 e o Nasdaq, que operavam em queda antes da decisão do Fed (Federal Reserve), passaram a subir logo que o quarto aumento de 0,75 pp foi anunciado. Porém, o quadro se inverteu após o início da coletiva de Jerome Powell, presidente do Fed, ao sinalizar o que esperar no próximo mês;
- O mercado de renda variável, apesar do resultado melhor do que o esperado com relação à inflação nos Estados Unidos, reagiu mal ao que percebeu como uma sinalização mais hawkish de Powell, ou seja, foram percebidos sinais de elevação de juros e contração monetária;
A situação geopolítica
- Há movimentações que trazem preocupação ao redor do globo, em especial o conflito Rússia e Ucrânia, cuja resolução ainda parece distante;
- Tensão também entre Taiwan e China, esta última que mantém a política de zero Covid e um setor imobiliário que ainda ensaia de medidas contra a especulação imobiliária;
- O cenário segue com bastante incerteza e as perspectivas são de estagflação em 2023.
Cenário americano
- O CPI (Índice de preços ao consumidor) e o PPI (Índice de preços ao produtor) vieram melhores do que o esperado e isso segue ajudando os mercados;
- Apesar dos índices positivos, a inflação ainda está entre 7 e 8% e longe da meta de 2%;
- A probabilidade para a próxima reunião do FeD, que ocorre em 14 de dezembro, de estabelecer a nova taxa de juros está igualmente dividida entre 50 e 75 pb;
- O dólar alto está afetando as exportações e, portanto, reduzindo parte da atividade econômica;
- A temporada de divulgação de balanços do terceiro trimestre das empresas americanas está no fim, o que provoca muita volatilidade. Destaca-se a boa performance dos setores da indústria, energia e bancos, já a parte do S&P que fica por conta da tecnologia não se saiu muito bem.
A seguir, assista ao vídeo na íntegra (em inglês):
0:02 foreign 0:39 foreign 1:04 and thank you for joining us for our second monthly International strategy call my name is Raj Patel and I'm the 1:11 chief Equity strategist at Italian I'm joined by Marcella Olson who is the head of global markets and strategy 1:18 a lot has happened since our last update so why don't we begin with what is going on in the National markets and what we 1:23 should be watching going forward thank you very much Raj it's a pleasure being here again guys thanks for your 1:30 introduction I will as the first one we will be moderating this call and also 1:35 ask a bunch of questions to Raj and also who's joining us as a guest uh marcelona 1:41 Lewis is our chief credit strategist and a lot has happening uh fixed income market so I think that's going to be uh 1:48 very interesting one last thing we will be uh running this call in English uh 1:54 because there it is international markets and my friend right is American but if you are if you want to place 2:01 questions in Portuguese that's fine as well so it's up to you guys uh 2:06 so let's kick off um I'll start with you uh if you do introduce yourself please go ahead but 2:12 if you want to jump in right into the questions what are some of the important things that happen uh last month in the 2:19 international markets especially in fixed income since you are the specialist here 2:25 yeah good afternoon everyone so 2022 definitely a very volatile year right 2:31 lots of ups and downs and lots of um event pool developments 2:38 and last month was no no exceptions so if you recall a month ago we had a lot 2:45 going on in the UK right with the the UK guilt market and the local 2:51 Pension funds a lot of volatility that obviously impact the global fixed income markets that affected a lot of the 2:58 youths what happened since then is first of all we had some political 3:04 developments in the UK so the Prime Minister Lee Strauss she resigned and 3:10 then we have Rich sunak taking over as the new prime minister and the market 3:16 welcomed this development so since then we saw more stability news in the UK in 3:22 Europe and that also obviously helped the global fixed income markets right so 3:28 we started this period with some sort of relief but that quickly turned around and we had then the effort and see the 3:35 FED meeting and this meeting was perceived as more focused by the market especially the 3:41 press conference by by chair Powell that affected a lot interest rates and uh 3:48 generated a lot of volatility in fixed income markets so uh we faced a lot of 3:54 turbulence in that period more recently we actually had again some more positive 3:59 developments coming from inflation in the United States so the CPI print came 4:05 in better than expected and that again helped markets basically the one of the 4:13 key impacts from this new uh or or better inflation print is expectations 4:18 for interest rates globally speaking so before that print the better print the 4:25 CPI print in the United States the probabilities for the next fed meeting which takes place on December 4:32 14th they were kind of equally split between 50 and 75 base points uh 4:37 interest rate height now the market is more on the camp of 50 business points high in this upcoming meeting so we'll 4:44 see there's a lot of ups and downs and the market keeps very volatile but more 4:52 recently this new or more recent CPI prints they cut they kind of um helped 4:58 yields and and fixed income markets are for now at least with a little better 5:03 mood yeah that's that's very insightful and everybody seems to be data driven 5:09 nowadays not only the fact so we'll see what comes next so before before you keep going uh Marcelo feed online rice 5:15 how did how did the equity markets react to a better inflation data and when I say better it's still it's high settings 5:22 right but at least better than expected uh in the Moves In the interest rates yeah so I mean similar to what marcelona 5:29 used to described in terms of fixed income markets Equity markets have been very volatile all year and especially 5:34 the last month since our previous update um you know Equity markets uh again you 5:41 know with Jay Powell's press conference reacted negatively to what was perceived as a more haucus uh press conference 5:48 since then the inflation data helped support Equity markets uh the mechanism 5:53 is through multiples so multiples on the equity side uh you know all year have 6:00 been moving lower as interest rates have gone up and that's you know partly is you know are all there are alternatives 6:06 to equities as yields move up and also you know the discount rate that's used to Discount future cash flows from 6:12 companies results no lower present value so you know that's been a headwind for equities you know the more recent data 6:18 that has both of you described on CPI and PPI helped bring interest rates 6:24 lower and help to improve the the multiple for equities um you know the other piece of news is 6:30 earnings which we can discuss later but you know in terms of the interest rate uh inflation uh picture if we can you 6:37 know get to lower inflation and lower rates that would help markets but we're 6:43 going to be data dependent as you said month to month I think you need to see a trend um that's more than just a month for 6:50 central banks and the FED to you know really change and so I'll hope to see what happens next and for now at least 6:55 it's up to come down markets a little bit Yeah 100 right uh so can we let's let's don't mind let's 7:03 try to translate this into our portfolio right how are we positioning ourselves in terms of uh all the fixed income 7:11 um asset classes merger markets uh high yield investment grade even treasury so 7:16 can you can you discuss a little bit about that no absolutely so one of the recent changes that we 7:24 made back in September was we move um our positioning in U.S treasuries to 7:30 overweight and why did we do that basically back then the 10-year treasury 7:35 was around four percent a little bit higher than that so at that point the risk reward is kind 7:44 of more balanced to the upside into the downside so the evaluations they started to be much more attractive and we also 7:53 thought that a lot of the moves in U.S treasuries they were due to the 7:58 volatility in the UK guilt Market so that justified 8:03 moving in our view the position in U.S treasuries to slightly overweight as of 8:11 now the decision has been working out so uh we will see what happens from here 8:17 but it's also important to mention that besides evaluations being more balanced 8:22 and actually attractive it's important to mention that U.S treasuries they are also an interesting 8:28 hedging instrument so let's say if if the current economy indeed cools down 8:34 and potentially enters a recession your strategies can work very well as a hedge 8:40 for the overall portfolks so um that was one of the moves that we 8:45 made the other thing that we believe is very interesting right now is U.S investment grade and why is that U.S 8:53 investment grade yields they move a lot with U.S Treasures it's those two asset 8:58 classes they're very correlated so right now we we think that the levels of yields 9:05 and spreads they're interesting for U.S investment rate uh so that basically means that investors they can pick up 9:12 very interesting use and those views are actually not that far off from the current inflation right 9:18 so we're talking here youths in investment in grade five six percent sometimes even more so that's now too 9:25 far aware away from where inflation is right now which is um over seven percent but if inflation 9:32 um Fades or um eases a little bit you're already matching inflation with you as 9:38 investment rate so basically the way we're thinking is this is a good opportunity and we are reflecting that 9:45 in our portfolio of going higher in quality and capturing credit quality which is very important 9:51 on the flip side the risky part of credit or fixed income namely U.S high 9:57 yield and emerging markets that we're a little more cautious you're certainly getting very interesting youths and 10:03 their opportunities no one questions that but we think that spreads they are still not reflecting a potential 10:10 downside scenario so we think that spreads they have room to widen to weaken if we see an economic slowdown 10:18 and and a research which could impact higher default rates and more more 10:24 problems for the risky part of fixed income so right now the where we were positioning is you know we are favoring 10:30 quality and we're capturing interesting opportunities in in these parts of of 10:36 fixed income namely again U.S treasuries and U.S investment grade 10:41 again just before I move on do you think it's fair to say that right now we are favoring quality as you mentioned but a 10:48 higher difference in spreads could potentially change that this is even though spreads are already well in 10:54 absolute terms looking good for image em or or IU but not enough for us to 11:01 already be thinking about moving that so it's still favoring quality over 11:07 okay that's exactly right and and one also important thing that is worth 11:12 mentioning for emerging markets is that um the geopolitical risks are very high 11:19 right now right so their tensions Ukraine and Russia though that situation is not resolved yet and there is no 11:26 resolution inside it seems to be a very it is a very complex situation that it's 11:31 going to take time to sort itself out you also have um tensions regarding China and Taiwan 11:39 so that's also potentially a downside risk and then since we're also talking 11:45 about China which is obviously very important for emerging markets more recently the announced some measures for 11:52 the real estate sector that's helping on the margin recently but you know the 11:58 risks are still there for the second real estate sector is still a lot of the faults and and potential risk and 12:04 obviously also the zero code policy which can affect growth rates and impact 12:10 commodity prices and so on so you're exactly right um this press they have widened 12:17 evaluations they seem interesting but they are not pricing in a more serious 12:22 deterioration so right now we think it makes sense to be on the partial side 12:28 as we approach 2023 great thank you um Marcelo for that 12:34 update on thanks think um I was gonna ask a question actually to Marcella Olsen um you wrote a recent piece a research 12:40 uh you know that clients get on uh the weekly globe and it was about financial conditions and I thought it was 12:46 interesting because it ties in with what's going on with the CPI PPI and how markets reacted uh to that news so do 12:52 you mind giving a brief update in terms of what you wrote about in that piece not at all not at all thank you right so the 12:58 the globe the weekly Globe is a report that we put out so the strategy team put out on a weekly basis several different 13:05 topics short enough but sweet pre for clients 13:10 and for internal consumer as well I think I always recommend so I have a pleasure to growth last weeks or this 13:16 week's I think which is something that Gina our chief Economist always talks about and we kind of decided it would be 13:23 more while mentioning so Financial conditions is actually a can be understood as a combination of factors 13:29 that affect growth or uh economic activity uh one of the most tracked 13:34 indexes for financial conditions is it's the Goldman Sachs one uh 13:42 this index actually composed by several factors uh the the level of currencies 13:50 or US dollar against uh by a set of currencies um corporate credit spreads uh so how 13:56 much companies are paying to fund themselves equities so the level of equity markets in U.S and nominal 14:03 interest rates for different materials so from the FED funds which is overnight all the way to the 14:09 the 10 years or whatever the itineries if you if you can if you think 14:14 about it a higher U.S dollar is very restrictive very restrictive for American economy right U.S economy 14:22 because it affects negatively exports and make uh trade based in US dollar 14:27 more expensive so that reduced a little bit uh economic activity same goes for corporate credit spread it's a higher uh 14:35 Triple C Triple B whatever the uh corporate that you're looking at the higher the spread the more expensive for 14:42 companies to fund themselves to uh I don't know just innovate and invest in 14:49 different projects or run activities as a whole again restrict uh very restrictive as well for economy as a 14:56 whole the level of equity so think about American Family personal savings or household savings it's heavily invested 15:04 in U.S equities right they have this it's much more cultural for and in 15:09 Brazil It's usually the other way around but it's more Marcellus Mendoza Court fixed income than it is right sport in 15:15 terms of equities so wealth um uh sorry wealth effect it's something 15:22 that families or households always look at and feel a little bit more what's called richer or a little bit more on on 15:30 the Poor Side again psychological effect and and that reduces consumption and and 15:36 slows our economy as a whole uh as that goal so a lower um U.S Equity price levels would also 15:44 affect negatively the the going forward in terms of economic activity and last 15:49 but not least the nominal interest rates against very similar to corporate credit spreads but also affecting households 15:55 and mortgages and all that so A Higher rate so higher nominal rates would also 16:02 weep back negatively um economic activity which is something that actually power and all Central 16:08 Bankers are looking for right now in order to reduce inflation that's exactly what I want to do so if you think about 16:15 it last week one the print for CPI uh kind of triggered a one of the 16:23 highest highest uh relaxation for financial conditions in 16:29 the last 40 years that means that all of the sudden uh it's slightly below expected uh CPI 16:37 triggered a very very positive reaction from the market so if SNP was three 16:45 percent even before Market was open and it it went up another two percent during Market time so everything US dollar went 16:53 down we we saw the 10-year treasuries uh reducing quite a lot so that that that's 16:59 definitely good and positive for the markets but at the same time we're not necessarily done with the with the whole 17:07 uh Central Bank go in order to reduce inflation to down to two percent we're 17:13 still at seven seven to eight percent inflation we're still seeing uh I don't 17:19 know savings I mean very high levels household savings we see 17:25 employment in nearly the maximum employment rate so the thing is lack of 17:31 liquidity might be placing a maybe affected somewhat this relaxation in 17:37 terms of market and that can be concerned in terms of if you if you're sitting in Central Bank if you are a central banker and you see 17:44 all that because inflation was 0.2 below expectations you might think well this 17:51 might not be enough so there is there are risks that comes into that and Market reaction will definitely vary uh 17:57 strong stronger than I would expect with this so we'll see again data dependent we see how that plays out uh well until 18:04 it's still high so I think one good way to track whether Central Bank card 18:10 getting closer to their goal in terms of inflation or not they strike Financial conditions which is something uh 18:18 then we can drag through throughout the markets but yeah so that's in in five minutes great thank you for 18:25 that update I can discuss briefly um what's been going on in the equity markets yeah I was going to ask you that 18:31 so just before recall right we were talking Equity you can understand a 18:37 separately printing but two big things going on right now that you were discussing first of all earning season which we're about to be done uh and the 18:44 13th which is the well we explained better than you do you mind going over distribute topics for your recyclers 18:51 yeah so you know I think I started the conversation um you know inflation interests has been 18:57 one factor which is the multiple side of value the equity markets the other part is our names you know what are companies 19:02 saying about our news and what's the earnings outlook for the next quarter and for 2023. 19:08 um so you know we are close to the end of third quarter uh earnings reporting season and you know there's definitely 19:14 lots of volatility both upside and downside volatility depending on the company that reported earnings and the 19:21 sectors that reported I'd say General really you know the more cyclical parts of the S P 500 actually did relatively 19:28 okay if you look at energy Banks Industrials actually had good 19:33 performance uh I think you know as part of that was that there was maybe some uh 19:39 fear that you know things are weaker now and maybe the Outlook would be a little bit weaker uh based on you know some of 19:45 the the factors we've been talking about uh you know spilling over higher interest rates so in reality I think 19:51 that helped to calm investors uh in some of those sectors and as you saw rallies in some of the more cyclical Parts uh on 19:57 the flip side you know uh you know very large uh part of the s p which is the 20:03 U.S technology sector had maybe not as strong results and and and you know 20:10 worse stock price performance um you know if you look at uh you know first company to report in the tech 20:16 sector was Netflix and actually had good results um and good numbers so the stock actually did perform well but after 20:22 Netflix uh in a lot of the U.S large cap technology companies had weaker third 20:28 quarter and more importantly weaker guidance for fourth quarter so if you look at uh you know Microsoft alphabet 20:35 um Amazon um you know all have you know weaker results Apple actually did okay Apple 20:41 had inline results in an inline guidance but after the reported earnings there 20:46 were press reports that they're having problems with their iPhone production uh due to the covet zero strategy that 20:54 China is employing the Marcela manuso discussed so that did then cost weakness in Apple after they reported earnings uh 21:00 you know the main headwinds for the companies uh when they reported uh you know weaker results on the technology 21:06 side was the FX headwinds so the stronger dollar resulted in weaker results of weaker guidance it's a 21:14 translation impact right if you have foreign earnings and Euros um the other piece was you know their 21:19 business in Europe was weaker so you are seeing corporates and consumers in Europe uh you know spending less and and 21:25 some of that you know came in from corporate spending Less on computing power right you think about Amazon and 21:32 Microsoft their Cloud business customers were saying how can we save money in this environment uh and you know those 21:38 companies are focused on cost and they you know held back in terms of how much you're spending on computing power you 21:44 can look at a cloud you can look at a PC uh and so that was maybe just a quick uh 21:49 characterization of how earnings for the third quarter looked you know very few companies give guidance for 2023. so we 21:57 still have to wait till January to hear what they say about next year um so that will you know obviously create volatility based on how they 22:02 initiate give guidance for next year and we'll have to wait and see just before we move to 13th uh and I think we're 22:10 going to get a lot of insights from that as well so you mentioned how basically single names but also uh sectors indeed 22:18 throughout the the last uh earnings season cycle right so but looking forward and I know we have a 22:25 couple of questions looking for for the market as a whole but in terms of sector what are a couple of sectors that you 22:30 have constructed you're going for for the last few Quarters at least I think in terms of sectors uh I think 22:38 being in the more defensive sectors is still um the way to be right for a similar to what Marcelo manusto 22:44 discussed you know quality investment grade I think within equities you want to stick with quality you want to stick 22:50 with uh the best companies the best sectors that are less economically sensitive so again 22:56 um you know utilities as an example um you know health care I think most people will still spend on health care 23:02 whether there's you know slightly weaker growth or or stronger growth I think 23:07 most people still go get the medical checkups and take the drugs that they need um so I think healthcare REITs 23:15 which is um real estate um you know the real estate companies in the s p there are you know some cyclical 23:22 aspects right you think about office and hotels but there are a lot of defensive uh real estate companies right Warehouse 23:30 um storage uh you know rental markets you know Apartments you know people are gonna still have to pay their rent right 23:35 and so those are a little bit more defensive so I'd say in terms of sectors and defensive sectors and look 23:41 technology historically has been a defensive sector um because of the growth you know in 23:46 previous Cycles are so strong that they were able to outgrow in a recession you know you've seen a slightly different 23:52 Dynamics so far one you've seen multiples come down for technology as we 23:58 talked about with higher interest rates but the second piece is they're a little bit more economically sensitive this 24:03 time because it becomes such a bigger piece of the economy right but it's hard when you're already are so large now in 24:10 the 2008 economic cycle and Amazon was still in the early stages now they're much more mature company and so I think 24:16 there is a economic sensitivity to a lot of the technology sector but that was maybe not as apparent in previous cycles 24:22 and future cash flows for growth companies should separate a little bit more once the yields go super high yeah 24:29 so let me link to this just again I don't want to keep interrupting it but a couple of questions came out and one of 24:34 them is related to fans right but are we ever going to be safe to buy things again is that because that 24:41 was a big team the best yeah five years so so look I think what is once we we 24:47 have a better um Clarity and the path of interest rates and it ties in back with inflation that 24:54 will help the multiple right so again this morning um one of the FED officials said you know rates you know could go anywhere 25:01 from five to seven percent right that's still a pretty wide range so it'd be nice to have a little bit of a better picture of where inflation is in the 25:09 medium to long term and where um interest rates are in the medium to long term so they have I think we're 25:15 close to it right I mean 12 months ago rates were zero or close to it and now we're almost three percent so we're 25:21 closer to whatever the terminal rate that everyone talks about right what is a terminal rate uh you know what's 25:27 normal or interest rate so that will help so I think you know in the next hopefully two quarters we'll get better Clarity on 25:33 the multiple side that impacts fans the the second part is the earnings which I discussed um some of the outlooks were 25:41 negatively impacted from um you know FX so again if the dollar and FX volatility decreases a little bit 25:48 I think that will help because you can circuit now I don't have to worry about how much of the earnings for Microsoft gonna move because of the move in the FX 25:55 so you can you know better forecast earnings so I think that will help and the last piece is but I guess 26:02 maybe two more pieces one one is companies are restructuring in the fan you know broader technology sector so 26:09 they're doing things that they can do to control and improve earnings so um meta 26:15 announced uh hiring freeze and then layoffs um Amazon announced a hiding freeze and 26:21 now layoffs so they are trying to you know control the Outlook a little bit you know they probably I mean they 26:26 clearly over expanded after covid because demand was so strong and they said this is going to last forever and 26:31 now they're kind of normalizing your business and kind of bringing uh the business back into some kind of maybe 26:37 normalcy the big other thing I was going to say is the big elephant in the room for some 26:43 of the Fang stocks has been tick tock not to go into too many details but if you look at meta 26:49 um even Netflix talked about it in YouTube which is part of alphabet they're losing to tick tock right this 26:55 is uh become the new place to advertise but also a new place for a lot of people 27:00 with the kids probably know this um so you know it's become very popular the question is is how popular is it 27:08 going to become is are they going to continue to gain market share and one big thing is is the US government going to ban it because there's been a lot of 27:14 legislation and things talked about that U.S could ban Tick Tock because it's owned by the Chinese 27:19 um and they're worried about data security so if if we wake up tomorrow and all of a sudden one of the largest 27:25 competitors has been taking you know viewership away from Facebook Instagram 27:30 Netflix and YouTube is shut down that will move advertising uh dollars back to 27:37 some of these platforms so we'll have to see how that plays out um and then you know this kind of segues 27:42 into the 13f filings there have been some recent uh activist activities uh in 27:48 one of the things uh alphabet where um again I can I can segue into that if you 27:54 want or we have enough questions there was a great answer in terms of thanks uh 27:59 I think what I got at least was we do need a little bit more stability and visibility so it's very hard to forecast 28:05 microeconomical microeconomical data so that makes everything harder at the same 28:11 time affects quite a lot this specific sector so yeah any kind of um lower 28:16 volatility in interest rates and in FX will help because that then helps with 28:22 the Outlook um and then you know then the market will be willing to clearly give a slightly higher multiples okay we kind 28:28 of have a better picture of what the earnings are like and look The Cost Cuts coming through will help too because that will improve earnings so you know 28:34 that's something so moving towards the 13th 13f is a 28:39 well you explain but it's something that we can get a lot of insights from and Raj published a 28:44 reporter reporter about it again it's more than happy to share uh I think the 28:51 majority of the client should get if you don't please talk to your maker investor but it's something that we put out he do 28:58 a lot of research about it and every quarter we get insight from the big 29:03 players also for the real money yeah so in the US there's a regulatory requirement that each quarter 29:10 um uh you know large funds have to disclose what they own of public companies in the US 29:17 um it's it's delayed by 15 days so it was just released on November uh 15th 29:24 for what large funds owned at the end of the third quarter so you can go in and 29:29 look at the filings and look at the SEC filings to see what these large funds uh bought and sold and what they own so we 29:37 do put together a report so again as Marcelo mentioned if you're interested obviously reach out to a banker investor 29:43 and we try to summarize what maybe some themes are that some of these investors are are doing the one I mentioned um TCI 29:50 Partners it's a big UK hedge fund actually sinek who's now the prime minister of UK 29:56 used to be at TCI they added to their stake in alphabet this past quarter and 30:03 they actually became more activist they sent a letter to the CEO and the board with um some suggestions in terms of 30:10 what the company should do to improve the earnings Outlook and they included you know cutting costs and and jobs but 30:18 also they have a a big division that's losing money and future bets you know kind of uh you know investing for the 30:25 future but it generates a lot of losses and it was kind of a you know suggested 30:31 that maybe they need to pair back some of those Ambitions so um I have a link in the report people can take a look 30:37 um you know at the letter if they might so I thought that was interesting um another piece you know Berkshire Hathaway continues to to buy energy so 30:46 they added to their their Holdings in the energy sector so clearly you know making a bet on energy and the fact 30:52 maybe you know tied into the war but Energy prices higher for longer um and then in terms of the technology 30:59 sector um you know did you asked a question wrong thing but you know it has been a popular 31:04 overweight for a lot of investors and you did see um you know a few investors continue to 31:10 decrease their Holdings in Microsoft it's still a large holding for a lot of the funds that we track they just you 31:15 know became um you know something that they probably figured that they needed to reduce maybe you know lower the volatility uh you 31:22 know diversify away so we did see uh that change with the uh the 13 up filings and the one last piece you know 31:29 Berkshire Hathaway also bought Taiwan semiconductor I thought that was interesting because you know 31:35 there's been a lot this year with China Taiwan tensions and obviously the US uh being involved in that as well and the 31:41 fact that Berkshire Hathaway is spying time ON Semiconductor they do own Apple which is tied into the supply chain and 31:47 telling somebody you know sells it to Apple but I think it was interesting that the uh you know initiated an 31:53 investment in Taiwan semiconductor Taiwan semiconductor is a great company but the big overhang all year has been 31:59 the tensions between China uh and Taiwan in the U.S and so you know it's 32:04 interesting and you know he has a long-term Horizon right Berkshire Hathaway and Warren Buffett maybe they think ultimately this is an opportunity 32:11 to buy an attractive business and a good price but I thought it was worth highlighting that that was a new 32:17 investment for Berkshire Hathaway yeah yeah 100 I got a couple of uh questions 32:23 before we go through for looking and all of the rest of the 32:28 panel uh it's it's mostly directed to Minnesota so uh 32:34 during during your speech during your one of your answers you mentioned that there are even in Emerging Market if you 32:40 know you're not 100 constructive for the sector as a whole there are some opportunities between it uh so if we can 32:46 discuss a little bit more about those specific opportunities situation or 32:52 uh duration that I like or specific countries or sectors and also uh I know 32:59 it's not necessarily your specialty but after all about Brazil so uh uh despite all the headlines the 33:07 Brazilian CES created the full swaps which measure credit spreads for for a country or company 33:13 hasn't moved much do you think foreign investors are less nervous about Brazil than local investors so two part 33:19 questions yeah maybe maybe I start with the second one 33:25 which is actually an interesting one that I get quite often 33:31 um you know my view is the explanation and in fact it is true it was very 33:38 interesting this morning there was a lot of volatility in Brazilian assets so I checked the CDs 33:43 and obviously it was widening but it was widening kind of in line with other 33:48 Emerging Markets countries you know such as Colombia Colombia is a very good comp because also double b policy Latin 33:55 America also has companies that export so and it 34:01 was dividing him was kind of in line with Colombia and turkey so you know in 34:06 the morning like this morning you would expect it to be moving much more than it 34:12 actually did there are two reasons why I think Brazil credit 34:18 and that obviously is reflected in the CDs is well-behaved as of now one talking 34:27 about this ordering is that the the debt is very high but it's mostly local debt 34:34 the actual stock of foreign denominated debt is low so that's one thing that 34:42 investors like the the liabilities in foreign currency they're manageable 34:47 so that's on the Sovereign side which I think helps explain why the the credit side has been well 34:55 behaved so far on the corporate side you know I've been doing this for 15 years 35:02 and it's very clear that the Brazilian corporates the asset class right now is 35:08 much more mature than it was 10 15 years ago so basically these 35:14 companies their well-known companies a lot of them they're exporters so they benefit when the local currency weakens 35:21 and uh they've been through crisis before one thing that I like a lot is 35:26 that they did a great job in terms of refinancing that so when interest rates were very low they did a lot of 35:33 liability management which basically is you issued that at very low rates and 35:38 you pay down or you extend the maturities that you currently have so they're in very good shape to to 35:44 navigate more turbulent times and international investors they're used with some of these issues you know 35:51 they're familiar with those Brazilian corporate issues so I think those two factors on the serving on the corporate 35:57 side helped explain why the move incredible Brazilian credit and in the 36:03 Brazilian CDs has not been more pronounced obviously uh where there continues or 36:10 not it's an open question the fiscal metrics deteriorate then we 36:16 could see an impact uh more pronounced impact coming but for now 36:21 those are the two things on the serving on the corporate side that I believe have helped explain why the credit on 36:29 the international side is more behaved than most people would probably expect 36:35 the second question regarding opportunities um yeah it's in a situation like this in 36:42 America like 2022 you can definitely find interesting spots so one thing I want a few sectors 36:49 that we like for example are exporters um that benefit precisely when the local 36:54 currencies they weaken and they actually degenerate more cash flows obviously exporters is a very 37:02 um broad term so be more specific there are a few sectors that uh are doing very 37:11 well right now so one one sector that we like a lot for example is the pop and paper sector so those companies they've 37:17 been reporting very strong earnings you know and they're bucking the trend most of the companies the the that we follow 37:23 they're actually reporting weaker earnings and they're giving a weaker Outlook open paper is one example where 37:30 you can find good opportunities so you know definitely um some opportunities out there and 37:36 again without necessarily extending duration too much you know there's no need for you to 37:42 quote unquote be a hero right you can just just stick to the simple 37:48 prioritize quality and the return center you know much better now than uh than a 37:55 year ago just just on that um topic you know if you if you stop to 38:01 think about it it's just a year ago when the the 10-year the U.S treasury was one 38:06 percent or even below that right so in investment grade 38:11 um you're getting like two three percent now with the 10-year at 3.8 percent four 38:17 percent you're getting five six percent so you know uh I don't think there's 38:24 need to complicate things and stick to to to to to the simple with quality and 38:31 popping paper Zachary is one clear example of where we think there's 38:37 a lot of value right now that's awesome just highlighting our reinforcing 38:42 uh being underweight in one specific asset class doesn't mean that we don't have exposure at all so it's still still 38:49 a plan of finding the best opportunity so this is extremely rich thank you 38:56 so Rajan minus a question for both maybe you start gradually uh 39:02 what would the market be looking going for we'll be looking for going for what what kind of risks or again we mentioned 39:09 data dependent ethical science inflation prints will be one of the but what what else what would you be looking at your 39:16 screens or the markets at all yeah so and I think we've discussed this a lot but I think the the inflation Outlook 39:22 from now until the next fomc meeting uh in December uh Marcelo Medusa discussed 39:27 uh will be important uh you know because I think that will um uh determine what the market price is 39:33 in for the December meeting and also for future uh interest rate uh uh hikes so I 39:39 think that's going to be important you know fed officials have been coming out and speaking as well so they're trying to guide the market you know it's 39:45 include that will matter in terms of equities it's it's going to be and continue to be volatile 39:50 um I think the 2023 outlooks today uh talked about briefly when they give 39:55 those outlooks in January that's going to be important some companies do get Outlook calls and and analyst meetings 40:01 in December so you could see some initial kind of guidance for next year that comes out in some of these Outlook 40:08 calls so we'll have to wait and see what they say about that I would generally think that U.S corporate is going to be a conservative when they um when they 40:15 give um their their guidance so I think they don't want to disappoint that they don't like uh you know disappointing the 40:22 relative to their guidance I think the initial guidance will be conservative so those are the things to look out for 40:28 um you know AMS which is a which is a product that we have that allows investors to invest in the top picks and 40:34 watch lists that we have um you know there is still cash uh more 40:40 than normal it's roughly 20 cash since our last update we've we've deployed more so we went from kind of close to 30 40:46 percent in cash now down to twenty percent but twenty percent is still um you know higher than what we expect 40:52 to have in the long term so I think we're going to use the the volatility over the next you know a few months 40:58 um and some of the data here to you know one you also get a better picture of what's going on uh and then lastly you 41:03 know we are underweight European equities and we have been and and clearly the other variable that's still 41:09 there for European equities is is the Russia Ukraine conflict of War um you know it's highly unpredictable 41:15 and will be volatile uh you know we hope that this this gets resolved but it just it it adds an extra layer of volatility 41:23 and uncertainty uh in Europe and so that's just something to be mindful and obviously the market is going to be 41:29 looking at those headlines awesome awesome and those same question but if I can add just pick backing on something 41:35 that uh Raj Mage right a couple of fat officials are also making statements and 41:41 and trying to drive the market what they want to go and it definitely needs to really be more restrictive uh from what 41:48 I see there's a there's a big consensus and I know you're not necessarily the great strategies but giving your asset 41:56 classes so linked to reality solely post linked to to rates the consensus is 50 42:01 beeps right and I see terminal rates four to five funds a little bit higher than a month ago I've seen five-ish 42:09 maybe mid fives and different different reports so same question so what will 42:15 you be or the market will be looking um before the next cycle and how do you 42:20 reconcile the it's called hawkish time from from fed 42:26 and Federal bank which are Cloud officials 42:31 yeah you guys are totally right it's all about the data um employment is also one that people 42:38 who watch very closely even though as raj pointed out 42:43 the inflation data is is probably the one metric if I had to pick one that's 42:50 gonna be uh more important in very 42:55 widely observed in terms of direction from here one also important thing that I want to 43:01 highlight now that we enter year end and it's something that our rate strategy is uh Alejandro as Davis mentioned a lot is 43:11 the liquidity of U.S Treasures right because we are experienced not not just we 43:17 talked a lot about rates but uh also it's important not to forget that we also have QT going on and QT and 43:26 qualitative tightening basically means that the FED is not actively buying any longer 43:32 bonds right actually it's not buying and letting those bonds to to just mature so 43:41 basically the liquidity in U.S treasuries is lower now and usually end 43:48 of the year that liquidity tends to dry up even more also because U.S banks they 43:54 they tend to hold cash into your end so um you know that could make markets even 44:02 more volatile the volatility in interest rates has been phenomenal in in 44:09 massive in 2022. so the the way that we manage that um similar to to what Raj is 44:17 doing in the equity AMS we're doing very a very following a very similar strategy 44:24 for the credit AMS so we are holding a little more cash than usual I would say the average 44:30 cash holding is five to seven percent I would say and right now we are around 10 44:36 percent so basically our strategy is is your 44:41 other will be bouts of volatility um from time to time and when those 44:47 periods um happen when you see those big increases in volatility usually 44:54 uh there are opportunities to to to to to pick up a few uh about so you know 45:00 when that happens we deploy parts of that access cache that we have right now 45:05 and as I mentioned before um Quality is something that makes sense 45:10 in our mind so U.S investment rate is one sector that we are we're one asset 45:16 classier we're focusing on as I mentioned exporters high quality uh like for example open paper where 45:23 um also also uh focusing on and then duration I would say this sweet spot right now is 45:30 around five years of duration that's basically bonds I would say between five and ten years of maturity 45:37 [Music] um you can obviously find higher eu's going down the credit curve or or or it's standing and then 45:45 you can capture you know anywhere between seven and twelve percent in in regrets 45:54 which is very juicy but you know it's it's also important to to sleep at night 45:59 so uh we we we think that high quality paying you 46:04 six seven percent is is great so that's the way that uh we are navigating the 46:11 spirit first of all those are probably the methods that people are going to watch going forward 46:18 um very closely and that's in our mind the best strategy in fixed income to 46:23 follow in the spirit of high volatility great great thank you um and just before 46:31 into the closing statements and just share your summary overall view for both 46:36 equities and credit they do have uh one question that I would uh like to 46:42 ask can it's mostly for you right so we are underweight in European activists for for some time and just mention it 46:49 and in your opinion what would what would make your change your mind I mean what 46:55 would again what could possibly go into Europe in the short term that's called next two quarters that you would say 47:01 well maybe this is which can increase a little bit Yeah so 47:06 um in our in our monthly strategy committee we actually have a positive outlook a month ago on New York in 47:12 equities and that was the thought is that that one valuations got to a level um the multiples in Europe were around 47:19 15 times earnings and um got to around 11 times earnings yeah 47:24 their evaluation yeah yeah so you know because the valuation piece goes back to that level uh or even lower 47:32 it would be a trigger uh especially if it's combined with a better Outlook 47:37 obviously if there's a better Outlook the Market's probably not going to be cheaper so it's tough to get the combination of both of those uh but if 47:45 we get any kind of clarity on some of the things that you know Russia Ukraine but you know Europe gets more impacted 47:52 than the US the US goes in a recession the US goes in a recession you know Europe will be having even worse 47:58 recession right I mean they're already in a much uh tougher scenario right now and so some of these risks that we talk 48:04 about um and you know we focus a lot in the US because it is you know the largest market 48:10 um those are even worse for for Europe and so you know the inflation picture if you look at what the UK just reported for inflation much higher uh you know 48:17 they're gonna have to do a lot more fiscal monetary uh tightening to bring the the inflation rate down there so I 48:23 think um all the data dependency that we talk about uh it it it's the same for Europe 48:30 so I think you know seeing some of this data get better seeing uh you know again if there's a resolution of the war the 48:35 markets probably are you going to be pricing a lot of that in mind we hear that news but uh you know there can 48:41 always still be further upside after uh that type of resolution again I don't think any of us could predict that so 48:46 trying to to predict that now is tough and just to reduce it but I think for the multiples again I got to attractive 48:53 levels uh it could be something that we said like we want to go from right now two notches underweight and going from 48:59 two notches to even one notch under weight would make sense potentially awesome 49:04 um so close from remarks middle so what are your couple of lines couple of a paragraph 49:11 summary for for your conclusion yeah I I think we already touched on the 49:19 main points the one thing that's also important to mention is that um because of this big big repricing in 49:26 in uh in raids uh a lot of bonds are trading well below par below their face 49:33 value which is also some some interesting uh thing that we're observing in in 49:39 um in 2022 so um yeah I just want to reiterate 49:46 um that volatility is painful but you know also creates opportunity uh I think right now 49:54 in 2000 just a year ago as I mentioned right for you to get youth in 50:00 fixed income you had basically two choices you had to either go very low in the 50:06 credit quality and buy a very deep High youth or you had to extend 50:11 maturities up to you know 30 years none of those conditions are present 50:18 right now so 2022 is being very painful but I think it's a great opportunity to 50:24 improve the credit quality of the portfolio to capture decent very decent units that we haven't seen in a long 50:31 while so um the message is you know focus on 50:37 quality manage the duration of your portfolio and you know when there's periods of 50:45 volatility it also um for those that have some cash 50:51 to spend it could translate into into opportunities and and one last thing is 50:58 um you know those periods are painful but over time usually uh 51:06 it pays off to be disciplined and to be patient you know if you buy fixed income 51:12 might six seven percent it's going to be bumpy uh we don't know when inflation is going 51:19 to stabilize or not but um over the long run you know for 51:25 people who have a long-term View and stick with credits that they like with 51:31 funds or assets that they like it usually pays off so um 51:36 you know who knows what the future will bring right but it might be the case that we're gonna 51:42 look back to 2022 or early 2020 I think wow those levels were used that were 51:49 incredible you know so it's very interesting the market Cycles are very 51:54 interesting but for now I think you know you should be good if you stay with high 51:59 quality short duration and with use that are already very close to inflation 52:05 without you needing to go to complicated credits and running a lot of radius 52:11 speed credit risk or duration risk I think their opportunities right now in our 52:19 space that we're not there a year ago so a lot has changed in 2022 and you know there's 52:26 always a good angle positive angle for uh for the way that markets move 52:32 that's my last message here great conclusion uh right same question 52:37 but I also get one last question before you you go yeah and it's a it's a very simple one then we can we can make very 52:44 complex are we are we living a Beta Market or Alpha Market is there's a 52:50 security selection Market or just go with the flow and choose at the end as a sense of it's a security 52:57 selection market right because there's there's a lot of um you know companies 53:03 um as we go through this slow down a different or into recession that could end up being um you know negatively impacted by there 53:10 could you know be some other areas where there's great long-term opportunities as the market correct 53:16 um and high quality businesses again we talk about you know quality it's again if you can get quality businesses 53:22 um at a good a reasonable price um in a market correction that's what you want but there will be companies 53:27 that uh you know potentially don't make it uh through this cycle depending on how bad the recession or or what the 53:35 growth Outlet looks like maybe it's not a recession but you know maybe certain parts of the economy will be more negatively impacted than others so I'd 53:41 say it's a stock selection type of a market you know fun remarks conclusion your 53:47 summary yeah I mean I think um I discussed this last uh uh last time we spoke and um I've read about this um and 53:54 I think the the way I characterize the market is it's a range Market I don't think you can get too excited as the 54:00 market goes up um and and try not to get too bearish when we're at the lows um you know the things that will cap the 54:06 market will be evaluation you know in the US you know still up to 16 times earnings multiple now even with the 54:13 rally so it's not you could say super cheap um you know inflation is still too high 54:18 right I mean you talked about this you know one print doesn't make when the inflation picture go away so I think you 54:24 know inflation in higher interest rates are still going to be a headwind until we start to see kind of more sustained 54:30 um uh you know numbers that point to a lower level inflation and on the on the 54:36 other side the downside support for equities in the US will come from stock BuyBacks they're still you know cash that companies have to deploy 54:43 um into into the market or yeah you have to find a way to use the cash and so they'll be continuing to buy back their 54:49 shares um and you know earnings for now you know we talked about uh Federal code earnings they're still relatively okay 54:55 you know we're not in a recession yet so um I think that the the earnings if they continue to kind of hold in will be 55:01 supportive um and we'll have to wait and see how the data plays out into next year but for now 55:07 um you know with the current set of economic uh growth and the earnings that we're seeing from companies it's it's 55:13 still a case I think those are the factors to think about uh kind of capping the market and what can help to support the market and you're still 55:19 sticking with the 3 500 40 yeah 100 000 range I've used that kind of range in 55:24 the s p you know 3 500 the downside to 4100. you know there's a lot of strategies that that have have thrown 55:30 out much lower numbers uh you know 3 200 3000 so again um again I don't think any of us like 55:36 Marcelo Medusa said can predict the future but you know using those levels as areas to maybe start looking for the 55:43 right opportunities you asked you know which sectors you know or you know which quality businesses can you buy when we 55:48 get to that level and how it you know to have uh um you know kind of you know those 55:54 things in mind and prepared for that thank you very much so thank you very much Raj it was a pleasure 56:01 um and we'll have the next market update live uh next 56:06 month so guys thank you very much and I'll see you uh in December all right thank you