Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: Thank you for listening.
Speaker: Hello and welcome to the Macro Viewpoint from HSBC Global Research, our weekly podcast featuring the views of leading HSBC analysts on the outlook for the global economy and markets.
Speaker: I'm Piers Butler.
Speaker: Coming up this week, world goods trade continues to recover.
Speaker: But could this be masking some underlying issues?
Speaker: We speak to Shanela Rajanagam, trade economist.
Speaker: Mark McDonnell, head of data science and analytics, explains how we have used natural language processing analysis to investigate what companies are saying about inflationary pressures on earnings calls.
Speaker: And Fabio Balboni, senior European economist, brings us up to speed on the latest COVID-19 situation across the continent and what he's expecting from the ECB's June meeting.
Speaker: This podcast was recorded on Thursday, the 27th of May, 2021.
Speaker: Our full disclosures and disclaimers can be found in the link attached to this podcast.
Speaker: We begin this week with a focus on trade, where Shanela Rajanagam, trade economist, has been assessing the latest monthly trends.
Speaker: She joins me now.
Speaker: Shanela, welcome to the podcast.
Speaker: Thanks, Piers.
Speaker: So in this second edition of your Trade Tracker, there's lots of really interesting data which I wanted to talk to you about.
Speaker: Firstly, the US consumer appears to be powering ahead in terms of recovery.
Speaker: What impact is that having on global trade?
Speaker: Yeah, that's right.
Speaker: So despite all this ongoing trade turbulence, despite ongoing shipping disruption, trade into the US remains quite strong.
Speaker: In fact, the US trade deficit reached a record high in March 2021, as US consumers continue to buy up foreign goods.
Speaker: And this was largely on the back of these fiscal stimulus measures.
Speaker: Now, US imports of consumer goods, which includes things like apparel, furniture, household appliances, that was actually up
Speaker: 38% year on year in March this year.
Speaker: So really strong numbers there.
Speaker: And this is all helping to support the broader global goods trade recovery.
Speaker: So demand for consumer goods does remain quite strong from Western economies, and that's helping to spur export flows from Asia.
Speaker: Now we talk a lot about post-pandemic recovery, but I wanted to actually focus on post-Brexit and the UK.
Speaker: What are the trade numbers there?
Speaker: Well, UK-EU trade does remain quite weak still.
Speaker: Now, we did have at the end of the transition period, there was a lot of stockpiling, so that could kind of muddy the numbers somewhat.
Speaker: But notwithstanding this, EU imports from the UK in the first quarter of this year still remain well down on pre-pandemic levels.
Speaker: There are some signs that UK exports have started to recover since January, perhaps as some of those stocks start to unwind.
Speaker: But still, on the import side, the UK did import more from non-EU markets compared to from the EU in the first quarter.
Speaker: So still quite weak trade there.
Speaker: Now, we've all heard about the shortage of semiconductor chips.
Speaker: And it does look from your numbers as if some people are benefiting from that shortage and others are suffering.
Speaker: Can you give us a bit more on that?
Speaker: That's right.
Speaker: So, semiconductors do remain in hot demand at the moment, helping to support Asian export flows.
Speaker: So, for example, Taiwan's exports of semiconductors to other Asian partners, such as mainland China, Korea, Japan, was actually up in the first four months of this year, not only compared to last year, but compared to the same period in 2019.
Speaker: But on the other hand, the chip crunch is affecting trade in other industries.
Speaker: So for instance, Mexican car exports remain quite weak.
Speaker: It was down nearly 17% in the first quarter of this year, reflecting in part the chip shortage, but also affecting Mexico's autos import share in the US.
Speaker: And finally, Shanela, can you comment on COVID and the situation in India?
Speaker: Sure.
Speaker: So as we've written about before, trade in vaccines is very important, but it does remain quite unbalanced.
Speaker: So there's a lot of reliance on a small number of vaccine producers and markets and India being one of them.
Speaker: Now, given the COVID situation in India, India's exports of COVID-19 vaccines have slowed right down as the economy rushes to vaccinate its own population.
Speaker: Now, the issue is that these vaccine exports are only expected to resume towards the end of the year, which could really hinder rollouts in other developing markets.
Speaker: Because as I mentioned, India was set to be a large supplier of vaccines to the COVAX initiative.
Speaker: Shanana, thank you very much.
Speaker: Thanks, Piers.
Speaker: Inflation has been a huge focus for investors recently.
Speaker: And this week, our data science team has been using natural language processing, or NLP, to analyze what companies have been saying about it on earnings calls.
Speaker: Mark McDonnell is head of data science and analytics.
Speaker: Mark, welcome to the podcast.
Speaker: So Mark, what did your analysis on inflation find?
Speaker: Well, you're right, it is the key topic at the moment.
Speaker: And there's been lots of discussion about the prospect of an inflationary spiral, which is why we looked at this in the first place, because if inflation is becoming a bigger concern, then you would expect to see it being spoken about a lot more on earnings calls.
Speaker: What we find is that, you know, if you just look at inflation from the perspective of people using that specific word, then this is being spoken about more frequently than at any time previously in our database.
Speaker: which sounds quite scary.
Speaker: But obviously, the specific word inflation is just one of many ways that company management can talk about inflationary pressures.
Speaker: They can mention prices going up or costs going up or wage pressures.
Speaker: And when you broaden out the search to look at this more full definition of inflation, then what you find is that, yes, companies are talking more about inflation, but it's not at extreme levels compared to its own history.
Speaker: Are there any variations between regions and sectors?
Speaker: Yes, well, this is quite interesting.
Speaker: So if you look at regional level, then what we see is within developed markets, there's not a great difference from one region to another, but within emerging markets, there is, where we see CIMIA and LATAM have been discussing this at higher frequency than in Asia.
Speaker: However, this is probably more a result of sectoral differences between different regions.
Speaker: What we find when we look at the sector level
Speaker: is that actually discussions of inflation are very concentrated within specific sectors.
Speaker: So if we look at sectors such as basic materials, then we see that they've been talking about it a lot more than usual.
Speaker: Whereas if we look at some sectors like tech, tech, for that entire history, hasn't really spoken much about inflation.
Speaker: And there are some sectors such as utilities, which are actually discussing it less frequently now than they have been in history.
Speaker: And all of this kind of points to a bit more of a benign inflation environment because it's hard to imagine a true inflationary spiral when inflationary pressures are so concentrated within specific sectors.
Speaker: So what are companies actually saying?
Speaker: So on the inflation side, there are lots of discussions about strong demand and pent up demand.
Speaker: Particularly, there are definitely contributions to this discussion coming from the supply side.
Speaker: So there's been lots more discussion of supply chains.
Speaker: and a very sharp spike in discussions of shortages.
Speaker: Again, though, these discussions of shortages are very concentrated within specific sectors.
Speaker: And a lot of the discussions, they're really about the issues with the semiconductor chip shortages that we're having at the moment.
Speaker: What impact has the increased focus on inflation had on the sentiment of earnings calls this quarter?
Speaker: Less than you might expect.
Speaker: So if we look at regional level,
Speaker: And you can see that the sentiment in US earnings calls is still very, very high.
Speaker: We see more of an influence when we look at the sector level.
Speaker: Most notably, you see that the technology sector, which has for a long time been the most positive sector when it comes to sentiment, when they're speaking about the future, that sentiment now is lower than it was a quarter ago.
Speaker: And again, when we look at the terms that have been like key trending terms within tech earnings calls,
Speaker: We do see lots of mentions of supply constraints and this whole issue with semiconductor chips.
Speaker: I think that is beginning to weigh on sentiment from the tech sector.
Speaker: You've also updated your predictive machine learning models.
Speaker: Is there anything you'd like to highlight?
Speaker: Yes, in Data Matters, we always update many of our models.
Speaker: I think the one that people are focusing on a lot at the moment is the predicting pullbacks models.
Speaker: These are models that give tactical one-month signals for equity markets.
Speaker: The probability of pullback for most indicators there has ticked up slightly in the last couple of weeks, but it's still below 50%.
Speaker: So most of the models are showing a relatively moderate risk of pullbacks.
Speaker: The main thing's pushing the predictions higher is often developments in the bond market.
Speaker: And the main thing's pushing the predictions lower is the fact that economic data for the most part has been coming in better than expected in most regions recently.
Speaker: Marc, that's a great summary.
Speaker: Thanks very much.
Speaker: Thank you very much for having me on.
Speaker: Let's finish up this week with an update on the COVID-19 situation here in Europe.
Speaker: Fabio Balboni is our senior European economist and he joins us now.
Speaker: Fabio, what's the latest on infection rates and restrictions?
Speaker: So infection rates are continuing to come down pretty much across the border and that's despite countries having loosened the restriction.
Speaker: So that is good news in terms of the ability of countries to continue to lose a restriction in the future.
Speaker: And indeed, so far countries remain on track in terms of their pledges to loosen some of the remaining lockdowns in the coming month.
Speaker: However, we've had some increasing concerns, particularly in the UK, for the Indian variant of the COVID-19 virus, which is becoming more prevalent.
Speaker: And that could potentially lead to the timeline being pushed further out in terms of lifting the restrictions in the UK.
Speaker: And we've also seen other countries in Europe, most notably Germany and France,
Speaker: earlier this week imposing a quarantine requirement on travellers from the UK.
Speaker: So that potentially could be a bit of a setback from also the perspective of reopening the economies for tourism.
Speaker: The good news, however,
Speaker: is that a study has shown that there is still a high efficacy of the vaccines against the India variant of the virus, particularly after two shots.
Speaker: What's the latest economic data showing us?
Speaker: Yeah, well, data reflect pretty much that increasing optimism among households and firms about the prospect for
Speaker: economic recovery as restrictions are being lifted.
Speaker: So we've seen incredibly strong retail sales in the UK, for example, in April, plus 9.2% month on month.
Speaker: We've seen a very good service across the Eurozone, really from the PMIs to the domestic business service
Speaker: in France and Germany, in some cases even reaching a higher level than before the crisis and in some cases the PMI is even all-time high.
Speaker: Clearly there is a lot of optimism among firms about the prospect for reopening the economy and activity levels are increasing and particularly in the services sector, which so far has been lacking behind.
Speaker: And when we look at the consumer side, again, consumer confidence has been picking up and that bodes well with the possibility of households winding down some of the excess savings that accumulated the last year, particularly considering that some of the unemployment fears are also receding.
Speaker: So with infection rates coming down and restrictions gradually being lifted, are government support measures going to be wound down?
Speaker: Well, this remains the biggest challenge going forward for Europe.
Speaker: So far, most of the emergency measures have been rolled over, but in the coming months, some are due to expire.
Speaker: And indeed, for example, in Italy, after very heated discussion among the government parties, the Prime Minister has confirmed that the emergency short-term work schemes will be run down
Speaker: from the end of July for the manufacturing and the construction sector and at the end of October for the rest of the economy.
Speaker: So that potentially could pose some challenges, particularly considering that in the latest data available, which is April, there were still more than 200 million hours used under the schemes.
Speaker: winding down those schemes could create some social tensions or alternatively could push the government into further extension.
Speaker: We could h ave a negative implication in terms of fiscal deficits, of course.
Speaker: Similarly, in Spain, we've seen that the government so far hasn't been able to strike a deal between
Speaker: the trade unions and the firms in terms of extending the short-term work compensation schemes beyond the current deadline of the 31st of March.
Speaker: So clearly, this remains the key policy challenge going forward, how to wound down some of those policy support measures and particularly how to time them to prevent potentially nipping a recovery in the bud.
Speaker: Let's finish by looking ahead to the ECB's June meeting.
Speaker: The debate around the potential tapering of asset purchases is hotting up.
Speaker: What's your view?
Speaker: Well, this has been a very important week for the ECB because we had seen all the way through last week increasing market expectation for a possible early tapering of the pandemic emergency purchase program without too much of a pushback from the
Speaker: the ECB and that led to a significant tightening of finance and condition which is what the ECB wanted to prevent.
Speaker: We've seen rising yields, rising periphery bond spread.
Speaker: But this year, the ECB has started a little bit more of a pushback and in particularly, board member Fabio Panetta highlighted the importance of not withdrawing policy stimulus too early
Speaker: And that's in line with our view, which we have reiterated in our ECB preview this week, where we do not expect any tapering of PEP in June.
Speaker: We think that tapering later in the year is potentially much better in terms of reducing the volatility risk of financial markets and reducing, therefore, the risk of an unwarranted tightening of financial conditions.
Speaker: Fabio, thanks very much.
Speaker: Thank you very much.
Speaker: So that's it for another week.
Speaker: Thank you to our guests, Shanela Rajanayagam, Mark McDonald, and Fabio Balboni.
Speaker: And thank you to all of you for listening to today's podcast.
Speaker: We'll be back again next week.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint, Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
