Powell's Senate testimony, FTC ruling on drug prices: Catalysts

Federal Reserve Chair Jerome Powell begins two days of testimonies before the US Senate on the current state of the economy, which investors will be listening to for cues on when the Fed could cut interest rates. On today's episode of Catalysts, Seana Smith and Madison Mills report on Powell's testimony as the market awaits key inflation data out this week.

Jim Townsend, former Deputy Assistant Secretary of Defense for European and NATO policy, joins the program to talk on the significance of President Biden hosting the NATO summit this week and what a second term of Trump leadership could mean for Ukraine in its war effort against Russia.

BlueBay senior emerging markets (EM) sovereign strategist Timothy Ash divulges the emerging markets he is seeing new investment opportunities, such as Argentina and Egypt.

Other top trending tickers on the Yahoo Finance platform include Chewy (CHWY), Helen of Troy Limited (HELE), and pharmacy benefit managers (PBMs) like CVS Caremark (CVS), Cigna Group (CI), and UnitedHealth Group (UNH) as Federal Trade Commission (FTC) officials rule on these benefit managers' ability to control drug price.

This post was written by Luke Carberry Mogan.

Video transcript

Just after 10 a.m. here in New York City.

I'm Shana Smith alongside Madison Mills.

Let's dive into the catalyst moving markets today that chair J Powell kicking off his two days of testimony before Congress today.

Will he give investors any insights about the potential for September rate cut will discuss?

And foreign leaders are meeting in Washington DC for the 75th and NATO summit pressure will be on President Biden as he looks to reassure allies as well as American voters that he fit for another four years and we got earning season just around the corner.

Analysts of big banks are expecting corporate America to deliver yet another blow out quarter.

We're going to discuss how earnings could impact the current market rally.

First FJ Powell said semi annual testimony before the Senate banking committee getting underway as we speak.

Yahoo Finance.

That reporter Jennifer Burger has the latest on that for us.

Good morning John, that JP appears to be inching closer to gaining the confidence needed to cut rates expected to say in a semi annual testimony before the Senate this morning that he's encouraged with the latest cooler readings on inflation data and that more good data would strengthen his confidence.

He expected to say in prepared remarks that quote, the most recent inflation readings have shown some modest further progress and more good data would strengthen our confidence that inflation is moving sustainably toward 2%.

Now, how did reiterate that the FED will cut rates until officials have gained greater confidence that inflation is falling sustainably back towards 2%?

Pell noted that the FED will continue to make decisions on monetary policy on a meeting by meeting basis.

He reiterated that lowering rates too quickly could reverse progress on bringing down inflation while keeping rates elevated for too long could weaken the economy and the job market.

Republicans expected to press Powell on bank capital rules while Democrats are expected to pressure him to lower rates.

Senate Banking Committee chair Sharon Brown expected to say in opening remarks this morning that quote keeping rates too high for too long threatens workers paychecks while keeping other costs high, particularly housing housing prices and rents continue to go up perhaps in anticipation of that.

How expected to reiterate in his opening testimony that the fed is committed to bringing inflation back down to 2% and underscored that Congress has trusted the fed with operational independence to take a longer term view to meet the goals of maximum employment and price stability.

This hearing coming ahead of a fresh reading on inflation due out Thursday on the consumer price index, investors pricing in a better than 70% chance that the fed can initiate its first rate cut come September the hearing.

Kicking off right now in Washington where Powell will face more than two hours of questions from senators will see whether we get any more clues as to what the lower rates.

All right, Jennifer, thank you so much for joining us on that.

We really appreciate it for more on Powell's testimony in the prospects of an upcoming rate cut.

We're going to bring in the park P He's George Banks, Private Bank, America Cio.

Thank you so much for being here with us.

I want to talk about this specific quote that we're getting in right now from Jay Powell saying if we too little late, that could unduly weaken this economy if you are in your role right now.

For throughout the rest of the day here, how much of a bullish signal is that for the markets today?

Yes.

Thank you, Madison for having me.

I think these comments are not too different than the ones that Chairman Powell had for Sintra the last week at the forum.

And you can feel that the fed is facing the pressure now of making this the labor market statistics which are starting to come in much weaker than expected.

Just to give you an idea the unemployment rate.

Now at 4.1% the median reading on the June was 4% so that you can give the, a little bit more of a platform to start talking about a rate cut.

As your reporter said, 75% odds of a September rate cut.

I think that's a pretty decent signpost.

However, I would like to caution the listeners just to think about that rate cut is a panacea for another leg up in the market.

Just look at what happened at the cut rates, June 6th and the Euro stocks are actually down 2.5% over the last one month.

So a rate cut does not necessarily mean that it's going to be a catalyst for another leg up in the equity markets.

I think there are a whole host of other factors at play here and there is a saying, don't really the pause fear the cut because a lot of unknowns are still there with regards to the cuts, the magnitude, the duration, what really is they are neutral?

So a lot of those questions are going to be, the markets are going to be facing those questions come the time of a rate cut deepa given the comparisons that you just made to what happened now in the cut rates.

Do you think it's going to play out then?

Similarly here in the US just in terms of the immediate pressure that we can see on the markets?

Sure, I think, you know, the economy has would stand a higher rate of interest rates.

So that's something that we should all take a little bit of confidence from, however, the fiscal impulse might be missing this time around and why do I say it?

It's an election year, no matter who comes in the White House next year, the chances are that you are not going to have the same kind of deficit spending that allowed us to have a really strong recovery post the pandemic.

So the first case was that the market, given the fiscal stimulus was able to, you know, overdo the monetary policy tightening.

However, if the monetary policy is still tight and restrictive and the fiscal impulse is not there, how would the economy react?

That's a big unknown.

That's a big question mark.

So I feel you don't want to just get carried away by this narrative that the rate cut is going to really start solving all our issues with regards to the deficit spending and the market is going to go up in a linear projection from here on.

Well, I'm curious then, what are you thinking?

Not just of the upcoming earnings cycle here, but of the third quarter earnings cycle.

We're hearing some analyst coming out saying that they expect choppiness in that third quarter.

What do you think?

Yeah, I think the high water mark might be the second quarter.

I mean, in terms of eps growth year over year, you're looking at a 9% increase for the second quarter.

And again, the focus is going to be on the big tech, you know, July 22nd week because that's where, you know, you're looking at 30% increase, you know, over a year ago, on the earnings side, I think when you look into the second half of the Madison, you can easily make a call that things should start to ease out a bit, meaning it should not go on at 9 10% clip, especially given the length of the monetary tightening that we have seen.

And even though there is some case for optimism that can be made, most companies are still saying that the pricing inputs are still above.

So they are not really doing Capex spending, they are not really hiring as much as you would like to see.

And labor market statistics that I quoted earlier a case in point.

So I think you are going to see a relatively good number this year, we are looking at $245 for the old calendar year, 2024 which can ease up, go up to 265 to 270 come next year.

So it's not a bad earnings backdrop.

However, it's going to be very sector specific and it's going to be very industry specific.

So being a little bit more, you know, sort of active, makes a lot more sense and deep about going off that what you were just saying there, given the fact that the earnings bar has been set so high this quarter, those companies that do beat expectations exceeded what the street is looking for.

Will they not be rewarded at the same clip that they have been historically speaking, I think they will be because we are in a slower growth environment.

So growth is at a premium in a slower growth environment.

So the investors might reward those companies who are gaining market share, whose top line revenues are beating estimates and have the pricing discipline.

So I think those things are very important.

Having said that I would not rule out the A it as well.

You know, the last couple of quarters, around 20 to 25% of the earnings reports have mentioned A I as a possible way to gather market share.

I think that trend probably also continues this time around.

All right, depop Yi, great to have you here.

Deutsche Bank's Private Bank, America's Chief Investment Officer.

Thanks so much.

Thank you.

We are going to take a quick break here.

We will be right back just about 40 minutes into the trading day.

You're looking at gains for the S and P and the NASA, the dow though under a bit of pressure will be right back.

Daniel NATO summit kicking off today in Washington DC amid heightened geopolitical tensions as the three day summit gets underway.

President Biden will also be fighting to prove that he's fit for a second term and put some of those concerns to rest about his ability to lead for more for what's at stake we want to bring in Jim Townsend.

He is a former Deputy Assistant Secretary of Defense for European and NATO policy.

It's great to have you here.

So let's just start with what is at stake here for President Biden specifically and even beyond the foreign policy measures, which will obviously be talked about here over the next three days.

What do you think or does he need to prove anything to foreign leaders that he is fit for a second term?

Well, he does have to prove uh to foreign leaders, but I think more importantly, he's got to prove to the American people.

Uh and certainly members of his own party, he's got a press conference that he will give at the end of the summit where traditionally uh the president talks about the things that have been decided and it presents uh the successes of the summit and we'll be watching carefully how he speaks what he does.

Uh That will be a big test both for the allies as well as the Americans.

It's interesting because Biden is not the only political figure who is participating this week who is facing a little bit of pushback from the electorate back at home.

I think of Olaf Schultz, for example.

Uh what does that do to the overall potential for action items to come from this week?

Given that you've got so many of these political figures who are facing a lot of volatility for their own jobs.

Really?

Well, you're right.

Uh The UK is bringing a brand new team, uh labor team to the summit.

Uh Of course, Macron has shown up, he's a weakened French president uh with a new team as well.

Uh or at least a team that's uh a bit of a caretaker status now.

So they do have a, an impact on what's decided.

Uh It's not gonna be as great as one thinks because much of this was decided earlier on by former governments, but the new ones are coming in.

This is a test on how they present themselves publicly.

Uh There won't be decisions made uh because those again have been decided earlier too.

A lot of this is how they get along with their new colleagues, uh uh how they present themselves in their country uh publicly.

There's a lot of public events during the 75th anniversary.

Uh So, uh so the impact really won't be felt until a couple of months from now when new issues come up, new decisions have to be made by these new teams.

And we'll see how well they do.

My question to you is also when it comes to the possibility of a second Trump presidency, when we think about everything that he has had to say, very critical of NATO uh during his first uh presidency just a couple of years ago.

What what do you think the future and this would probably come up in some regard?

You, you would think over the next three days, but the US s role in NATO, what do you think that will potentially look like if we do see a former president Trump elected here for a second time?

Well, that's the question all the allies are asking.

They are already in town.

They went to a baseball game yesterday and there's been some uh reception since and as I've talked to them, that's always the first question.

Uh So what's gonna happen if Trump is elected?

Uh will it be different this time?

Uh What's the possibility?

So I think the point I've been making is that the NATO that Trump would deal with if he's elected in November, the NATO that he will deal with is different than the 14 years ago.

It's been facing Putin, it's been at war if you will on the European continent for a while now.

Uh the allies are spending a lot of money on defense.

Now.

There's quite an effort in Europe to reach the capabilities that Trump four years ago said that NATO nations needed to do.

So his argument uh that the allies are free riders, their allies aren't doing enough.

That argument doesn't hold anymore.

So if he were to become president, he's going to have to get used to a new NATO, a wartime NATO and NATO where the allies are doing a lot, particularly assisting Ukraine.

In fact, in some areas they're doing more than the US is doing.

So we'll have to see.

But at the same time, the anxiousness level, if you will of allies is off the charts right now, watching what might happen, how could a Trump presidency impact the overall picture in Ukraine to what extent is that a potential headwind for Ukraine in really getting the support it needs moving forward in this effort.

Well, for sure, that's what Kiev is anxious about.

Uh other allies are, are anxious too because they don't want to be left alone dealing with Ukraine and Putin should uh should Trump make a decision to disengage a bit from NATO?

We hope that's not what he does, but this would definitely have an impact, particularly if Trump makes a separate deal with Putin and Putin says to Trump, look, I I don't want NATO on my borders.

I want you uh to get us forces out of Europe or I want to see uh the US not do as much for Ukraine if that's what Putin is asking for and Trump is willing to give it to them.

That's where there's the problem I think is that is that relationship between those two more than anything else and how that might play out Jim, I know you're very experienced in working with European and NATO policy.

And in your 10 year, you've also specifically worked on the challenge of Russia in Europe.

I'm curious, just you thinking as the war has continued, if you've been surprised by the length of it and also if you are in a position to advise whoever ends up in the White House come November 5th, what would you tell them to do in an effort to bring this war to an end?

Well, that's, that is the great question and you're absolutely right on all, all of what you've said.

Uh There were a lot of surprises, there was a lot of underestimation of Ukraine, overestimation of the Russians.

Uh I also surprised about how warfare in this day and age burns through so much ammunition and so many end items.

So I think, I think we have been finding ourselves, uh, not making the right decisions all the time in terms of the kinds of support that we need to give Ukraine the bottom line.

Is that right now?

It's at, it's, it's, it's almost at a stalemate.

There was a time when the Russians, uh, just a few weeks ago looked like they were quite on the March, but, but Ukraine has held them back, things have frozen on the battlefield now.

Uh And so I think the administration, whoever comes in in November is gonna have to deal with this problem, which is if you want Ukraine to win, you're gonna have to give them a lot more equipment and more sophisticated equipment than we have given them in the past, if you're afraid of upsetting the Russians, uh if you're afraid of escalation, then Ukraine will probably not win back that plan that was taken from them by the Russians.

So there's some fundamental decisions that have to be made by this new administration coming in.

Either you're going to give them what it takes to win in terms of Ukraine taking back their assistance, taking back the land that they lost to Russia, or they're going to have to cut a deal.

And if a deal is cut, it means that Ukraine will probably lose that land that the Russians have taken.

And that's what we're faced with.

The new administration is faced with some pretty stark decisions coming up, Jim when you take a look at the tragic events that have played out obviously over the last several months.

But, but this week with the hospital attack from Russia in Ukraine on the uh pediatric cancer hospital, does that prove that even with this historic package, a package that we're expected to be announced here at NATO for Ukraine?

That, that Ukraine in fact, does need more aid and, and how much more, I guess that's the question many foreign leaders are asking.

But from your experience, how much more assistance do you think Ukraine needs ultimately, if they do want to come out victorious?

Well, for sure, uh in terms of just needs today, air defense is uh just critical.

We haven't given them enough whether it's patriot systems from the United States or some European air defense systems.

Uh, obviously your pictures show right now the destruction that comes when you don't have enough air defense.

So that's a today problem.

Uh If we want them to win, uh, we're gonna have to help them deal with a manpower shortage that they have.

There's not enough Ukrainians to really fill out the military to the, to the degree they will need to have.

If they're going to push back on the Russians who have more, they're going to need armor, they're going to need those F-16s that were promised with munitions and fuel and all that comes with having a modern air force.

They're going to need drones and sophisticated drones and sophisticated ways to counter Russian drones.

There is, there's so much more, unfortunately that Ukraine is going to need if they're going to take back the lands that they've lost.

Uh, and, uh, we'll see if the allies are up to that.

We'll see if the US is up to that.

And if, and if we're not, then we're going to have to get used to the idea that the land that the Russians have taken might never be given, get the Ukraine may never get that back.

Uh, and, uh, and that's the, that's part of that fundamental question that's going to have to be decided by Ukraine talking to its allies and we hope that we agree that we're going to give Ukraine what they need, but it's going to be a lot and it's going to be expensive.

Yeah, the stakes of that, of course, incredibly high, Jim, thank you so much for joining us.

We really appreciate your insights.

That's Jim Townsend.

He's the former Deputy Assistant Secretary for Defense for European and NATO policy.

We're going to turn our attention now to Tesla short sellers are feeling the brunt of the stocks recent rally.

A growing number of hedge funds had piled into short bets back in June.

And according to data provider, Hazel Tree, about 18% of the 500 hedge funds that the company tracks had a net short position on Tesla as of last month and that is the highest percentage in more than a year since the beginning of June.

Tesla's share price has now soared around 40%.

So bad news for those short sellers joining us now to discuss, we've got Ihor Duski S3 partners managing director Ior, thank you so much for joining us.

You've spoken about this publicly before here.

So I want to get a number from you.

How much have Tesla short sellers lost since the stock made its public debut back in 2010 right now.

It's above $60 billion.

I think it hits around 63 billion as of right now.

So $63 billion is it just too expensive for anyone to be betting against this custom?

This company regardless of their fundamentals.

Well, short sellers, I've been up and down in this name over the past couple of years.

It was the number one short in the market now.

It's down to number four behind NVIDIA Apple and Microsoft.

So there has been a little bit of uh you know, give and take in the name but uh short still, you know, this is like the OG uh short, everyone's still in it.

Yeah, you are.

That's what I wanted to ask you just how often do you see traders, investors shorting a name like Tesla.

When you take a look at this activity that we see now comparing that historically, is it anything really out of the ordinary?

It doesn't sound like it.

Well, we are seeing some short covering recently.

I mean, there's been a little bit of a squeeze uh short covering going on and it's, it's a really important name for a lot of, a lot of hedge funds because this is the volatility that people are looking for in order to make a good profit, you know, in the name because you can get big bang for your buck.

So I I want to talk a little bit more about this because we have investors who come on and talk about the upcoming announcements that are going to come from Tesla and really continue to be bullish signals for the name moving forward.

I'm thinking about the continuous bullish sentiment around the Robo taxi for example, to what extent are those investors betting on something that is likely to become a reality for this stock versus just kind of a pipe dream that Elon Musk is more than happy to continue to fuel.

Tesla's always had some, you know, manufacturing, uh you know, possibilities where they're, where they're growing their, their different type of cars, different type of uh services in their cars.

But really this name is, is not just a fundamental trade.

This is a trade that's a little more technical market driven because you've got a ton of long holders that are just Tesla forever.

Uh And, and really, it's what the market is doing rather than exactly what Tesla is doing.

So let's talk about some of the other um heavily shorted stocks at, at least when you compare it to others.

NVIDIA is the latest is, is the largest short that we've seen in dollar terms.

What do you make of that in video?

You know, it's, it's a two way short.

You've got people that are shorting it because it's an overheated stock.

Uh They're seeing that.

Wow, this run up is just tremendous.

It's got to come back to Earth.

And also now it's a short because it's a hedge to the market.

People are shorting NVIDIA in order to hedge their entire portfolio and he and hedge their tech holdings.

So you've got, you know, two different types of short selling going on in this thing.

How does that compare to short selling that we might have seen or any activity we might have seen heading into something like the.com boom because we continue to have people comparing an NVIDIA to a Cisco.

But obviously, the company fundamentals are very different.

So I'm curious what you're seeing in that comparison.

You know, it's probably closer to an apple where people would short apple because it was the tech name in the market.

NVIDIA is now the tech name in the market.

So you've got uh you know, a little bit of a change of uh of uh you know, the the top dog uh from Apple, Tesla to NVIDIA, NVIDIA is now, you know, by far the largest short in the market, you know, most dollars at risk.

Should we expect this activity to pick up as we head into earning season?

Yeah, we're seeing, you know, over the second quarter, we've seen the information technology sector short selling rise by $33 billion.

It it's still a big short.

People are looking at a little bit of a return to the media.

I would guess where you're saying, well, this one sector is, is such a huge run, other sectors have to catch up.

So I'll go along uh energy and you know, short info or short the technology sector.

So I think you're going to see continued short selling.

You mentioned Apple.

And I'm curious you, you say in your data that it's the most shorted stock over the last 30 days that really interests me because that's the same window about that.

We've seen Apple really reverse its downward pressure that we've seen over the course of the year so far.

What do you make of that reaction to some of the positive catalysts for Apple in terms of the just seeing the amount of short selling on this name?

Yeah, again, it's not just, you know, fundamental uh investing here.

We're looking at a lot of traders that are looking momentum and technical, you know, graphs and, and saying, hey, you know what, I want to short this name, I want to go along this name.

Uh the market is no longer, you know, best a breed worse a breed.

It's really, you know, you can be a, as a war.

Buffett said he goes, it's not good enough for you to be right.

The market has that think you're right.

So, uh you know, more, more traders are going and looking at, you know, uh recent activity in the short side and kind of running along with that crowd or getting out ahead of the crowd, getting out of a name.

So stuff like uh uh you know, NVIDIA booking.com, uh you know, names like uh in the consumer discretionary, like uh uh Starbucks and, and Chipotle.

These are names are getting shorted and I think more people are shorting these names.

All right, are dusky.

Always great to talk to you three partners, managing director.

Thanks so much for hopping on.

Thank you.

Let's take a look at some trending tickers that we have here this morning.

Starting it off with Chewy.

You're looking at shares falling just around 1.5% after Argus research downgraded the stock to hold from buy.

Now, the analyst behind that call saying that she expects further declines in Chewy's active customers.

Uh Christina Ruggieri is that analyst lowering her recommendation on the stock.

She also went on to say that she expects a substantial investment spending as the company looks to expand into Canada.

In addition, she also writes the fact that the stock is trading at a premium to its peer group and that's based on price to sales and um metrics that she has seen here.

She also anticipates an increase in trading volume and volatility due to some of that shift that we have seen.

But again, Chewy shares, they are up on that one month chart and that three month chart, they are looking at gains, some of those uh valuation concerns that are coming into play with the rise of nearly 40% Maddie.

Yeah.

And in the note, she talks about how they have been on a run of over 48 percent over the past quarter.

So that's compared to relatively flat results across the Russell 2000 index.

So certainly an out performer when you compare it to its peers on the Russell it's interesting that the call is relatively short term here.

It's really about the valuations that we're seeing with a name like Chewy compared to what she sees their growth looking like in the next couple of quarters.

And that's because they're gonna be using some of that free cash flow to reinvest in the company.

She talks about how they are going in on non discretionary products and services.

Those represent 85% of Chuy's revenue.

So the company is going to continue pouring into that.

They're working on piloting a vet care clinic this year.

That's gonna be a high margin service, but it's going to cost them a little bit more up front on the R and D side of things.

So that could be a long term benefit for the company.

But in the short term, it is going to lead to some additional R and D spending that might show up on the balance sheet and therefore in their earnings moving forward here.

She does also cite the again, as you said, shaw of the continued declines in active customers and the weakness in the overall economy.

Adding this to the list of names that we've seen, citing that weakened consumer really starting to buckle under the weight of inflation.

I'm curious to see how that shows up in the broader earnings cycle as it kicks off here.

All right, Mattie, let's talk about a name that's under significant amount of pressure here today.

And then as Helen of Troy shares are falling this morning after a big earnings miss sinking just over 30%.

Now, it's marking the biggest drop so far that we have seen on record.

Now, the company behind the likes of Hydro Flask, Revlon Dry Bar missing analyst expectations on both the top and bottom line.

Also saying that it expects the problems that it faced in fiscal first quarter to continue that sales decline the firm to lower its annual outlook and that's sending shares uh falling here today when you take a look at what they are expecting.

Now, this consumer products company cut its adjusted EPS guidance for the full year.

It also missed what the street had been looking for here.

When you take a look at some of the weakness within this report.

They also pointed to the hair care weakness that that really led some of the uh drop that we did see this past earnings.

That's interesting.

I'm sorry, sir to cut you off.

I was just, I was just taking a look to see as you were talking what the kind of sympathy names might look like in comparison here.

I'm not actually seeing a lot if I took a look at Procter and Gamble, Walmart and Target.

Actually, Proctor and Gamble is the only one down today, not necessarily in sympathy, but it, it is interesting given that this is the name that's gonna be backing, you know, your uh dry bars, as you mentioned, uh your um revlon, for example, a lot of those consumer facing names, Ulta Beauty is down today.

That could be a potential move in sympathy with this because they do cite consumer weakness in particular.

And that is just the latest as we were just talking about with Chuy, right.

This is another company citing that consumer weakness, uh executives on the call saying as a result they are lowering or on the earnings print rather they're lowering their annual outlook, delaying the delivery of long term finances in terms of their strategic plan here.

Citing that consumer weakness, uh really indicative to me of consumers starting to buckle again under the weight of inflation for some of those discretionary purchases.

If you're thinking about a dry bar, for example, that's actually really expensive product.

When I think about their dry shampoo, I'm getting that at TJ Maxx and Nordstrom rack so I can get a little bit of a discount because it's expensive but it's a good product.

Uh and perhaps other consumers are doing the same.

Yeah, and they are because beauty and wellness sales, they were off just over 15% home and outdoor sales decreasing 8.6%.

We do want to bring up maybe the silver lining a bright spot within this report.

The company did say that cost of goods sold actually fell more than revenue down 17.5% there.

But again, some pressure across the board, that weakness of the consumer that you were citing, clearly weighing on this name and expected to weigh now for the current quarter as well.

Absolutely.

It'll be interesting to see how it all shakes out with consumer names.

This earnings cycle, we're gonna have all your markets action ahead.

Right.

Now.

You're looking at a mixed picture across your major indices with the S and P and the NASDAQ up the dow still move to the downside here.

You're watching, Catalysts.

Bond investors are shifting their strategy, selling emerging market bonds from high yielding companies and countries where governments have loosened fiscal policies to those undertaking fiscal reforms like Argentina, Egypt and Turkey.

Joining us now with more on this and what to expect in the EM space we want to bring in Timothy.

Uh She is a senior Sovereign strategist at R BC Blue Bay Asset Management, Tim, it's great to talk to you here.

So, so when we take a step back on some of the pattern, some of the trends that you have been noticing regarding investor appetite and exactly what that looks like for bonds within the EM market.

What are you specifically uh uh uh focusing on and what does that signal then to us about some of that out performance, what we have seen and whether or not it's going to continue?

Well as your chart suggested earlier, uh some of those big ems have had pretty good performance and we've now seen bottom up turnaround stories the last five years or maybe more.

We just haven't had kind of good individual em, country stories just highlighting some of those, obviously Argentina new President, Milo, you know, very reform minded South Africa.

We had elections.

We've had a new coalition, a dream coalition between the A NC and D A.

And the assumption is that we'll push on with structural reform.

Egypt has been one of the beneficiaries from uh events in Gaza.

They've seen a big bailout from the Gulf States and Turkey, we've seen AAA massive turnaround or a 180 I should say in terms of monetary policy.

Uh after last year's parliamentary elections, we had Memet shy Shek re appointed as Finance Minister Central Bank going back to orthodoxy in terms of policy and investors have rewarded Turkey and they're actually reform rewarding countries that are doing the right thing in terms of policy.

I could go on the list is pretty long, Pakistan going to the IMF we've seen some of the debt distress stories actually beginning to get resolution in terms of debt restructurings, the Sri Lanka, the Ghana, the Zambia, you know, it's, it's there's been some really good stories and that's encouraging, I want to talk about how that applies to Asia and specifically China, obviously, the government pushing forward several policies in an effort to get some stimulus going, particularly in the housing sector.

What should investors know about what to look at to determine whether or not we've hit a bottom in China in terms of the deceleration of growth.

Well, I'm not sure we really have.

I mean, I think uh if you go back five years or more, I mean, I think the assumption was China would inevitably become the economic hegemonic would overtake the US through globalization by not getting involved in wars.

They had a big balance sheet, lots of FX reserves, they were kind of central planned almost in terms of joined up thinking in terms of economic policy.

They didn't make mistakes.

What we know now, I mean, since the onset of trade wars and increased protectionism is China actually does make mistakes and there's over concentration of power around g let's checks and balances.

The real estate sector has been a disaster.

Uh And actually probably one of the conclusions the Chinese may well have drawn from the war in Ukraine is that if there's this long term battle with the US, you know, it balance sheet is important and building up the defenses.

I mean Russia had this for Russia policy after annexation of Crimea, it red it deleveraged and it built up reserves because it was going into some kind of war with, with uh the West ultimately and it it kind of did.

Uh and the Chinese I think are are looking at that and saying, well, you know, we face a difficult uh challenge with the US going forward build up our reserves, uh um um uh deleverage and that means them very cautious.

I mean, in terms of stimulus, if you think back again, in the last 20 years, every global crisis, the Chinese have pumped the global economy or pumped the Chinese economy to kind of pull the global economy around.

We're not seeing that we're not seeing stimulus in scale.

And I think it goes back to this idea, it's a very cautious monetary economic policy, I would say because of this concern about the longer term trajectory in terms of relations with the US.

So China, I don't think is a particularly positive constructive story.

I think they're not gonna bail out the global economy with stimulus, they're gonna be very defensive.

And with this over concentration of power and g the risks are that he continues to make policy errors.

And the gov obviously China is systemic for the global economy.

So I think China is still ultimately a risk.

So in our final minute here, to what extent does that play into the likelihood or unlikelihood of China doing anything to increase tensions with Taiwan, which for our audience of retail investors listening, that would be a huge headwind potentially for TS MC and of course, a lot of the chip names.

So it's something very critical to watch for investors.

Well, short term, I think the conclusion for the war in Ukraine is that uh that if you're going to get involved in a war, you need a win.

Uh And I think China uses a lot of the military technology derived from Russian technology.

And Russia's performed terribly in the war in Ukraine.

I think the Chinese will be really nervous about their ability to win a war in Taiwan in the short term.

I think it's less likely over the longer term.

Depends on the decisions taken on the economy by Xi if he fails to turn around the Chinese economy and it continues to misfire the risk of Xi, I guess going to gunboat diplomacy and trying to, you know, use nationalism and Taiwan et cetera to pl to, to improve or to, to improve his situation at home by playing that narrative will probably increase so short term, less risk.

I think of a war in over Taiwan longer term.

It depends on the economic trajectory of the Chinese economy, which is not particularly hopeful, Timothy.

Thank you so much for joining us.

We really appreciate your insights.

That was Timothy as he is the senior sovereign strategist at R BC Blue Bay Asset Management.

We're gonna have all your market action ahead right here.

So stay tuned.

You're watching catalysts looking at a mixed picture across the major indices with the dow move of the downside.

But you've got the S and P and the NASDAQ pushing in the upside following fed chair, Jay Powell's congressional testimony kicking off.

We're also currently getting the start of Secretary Yellen's commentary as well this morning and all this coming ahead of key inflation data and the start of second quarter earnings despite all the potential risk to come, our next guest does say that investors are going to quote, keep climbing the wall of worry as the bull market continues joining us to discuss that and more.

We've got Ben later, Brad Esco BB I Head of Equity Strategy.

Ben, thanks so much for being here.

So you talk about a midsummer melt up.

What do you think is the single biggest driver of that melt up?

And how much staying power does it have?

Uh, I think there's two, I, I think there are two drivers of this new bull market that I think we're in the early innings of one is these upcoming interest rate cuts from the fed and the second is this accelerating, uh, earnings cycle?

Uh, I think both are in play, but we're gonna get big news on both of those actually later this week.

So Bennett, the trend then is still to the upside.

What do you think the gains look like between now and your end?

Uh, probably cooler than what we've seen.

I mean, just to put this in perspective, the first half gains are annually at the best year for the S and P 500 since 1995.

That's 30 years ago.

And what did we hit our 30th all time high of the year yesterday?

That's also putting us on track of with the 77 we saw in 1995 which was the greatest in, in sort of recent record.

So things are good.

Um, but I, I would expect this to slow a little bit.

We've absolutely priced some of these rate cuts and some of this earnings, uh, recovery in.

Um, but there's also a lot of cash on the sidelines.

So, you know, we're overdue a bit of a pull back at some point.

But if, and when it comes, I think some of this money will just come off the sidelines and, and, and buy it.

And what, what do you think is gonna trigger that?

Because we have, and, and, and I'll just preface that.

We've had a number of conversations just about the concentration in the market, the weak breath, the momentum that we're starting to see a bit stretched, maybe at this point are, are those the factors that you think are going to cause maybe a bit of a slowdown even though it might only be brief, it sounds like.

So your typical year in the S and P 500 has, you know, three pull backs.

We've had one and has a intra year draw down of 14%.

We've had nothing close to that.

So maybe just statistics.

Uh 12, we've got a big inflation report coming up on Thursday this week.

You know, it's the most important number in markets.

It drives everything from the fed cycle to recession risks and everything else.

It's been sticky.

You know, more stickiness could, especially after the gains we've had, could give us a little bit of indigestion and we're coming into earnings season.

And, you know, this earnings story has been a one legged sort of tech driven stool so far.

I hope we see begin to see some broadening out, but, you know, we're still vulnerable to a, to a tech earnings, uh, stumble.

Yeah, a certain bear on the street, uh, saying that the third quarter is going to be choppy and that we are due for a quote 10% correction.

That's quite a bearish call.

Uh, but then like you say, uh, adding that this would be a buying opportunity.

And I'm just curious if every single dip in this market is viable because people want to get in on nvidia when it's cheaper because the fundamentals are so good.

Then do we ever really get a correction?

Do we ever really get a drop as much as 10%?

That's a great point.

And I think that's exactly why we've barely seen one pull back so far this year because people are, you know, pulling those triggers early.

Nobody wants to miss out and there's, you know, record levels of money sitting on the, sitting on the sidelines of this, of this bull market.

So yes, we may just continue to grind higher.

You know, this is why momentum is the strongest factor uh in uh in, in markets.

So, you know, I think you need to be fully invested if the pullback comes, you know, fantastic.

You got to buy some more.

How should investors be positioning themselves ahead of the election?

And I guess how much volatility do you expect that to potentially trigger?

Given uh the uncertainty surrounding the outcome?

Iis.

Well, I, I do think it's a volatility event, not a fundamental event.

I think that's what we've sort of learned in the rest of the world where we've had surprises from India to Mexico to, to, to France, you know, when you're sitting on gains and volatilities at record low levels, which is where, you know, it has been globally.

You've, you've, you've definitely had some, some volatility and investors reacted to that, you know, but I think, you know, on the one hand, the US election is the granddaddy of them all and it started early US equity, 65% of global market cap, you know, nowhere to hide.

Uh, you know, it's not France, um let alone, you know, anywhere else.

But, you know, these are the two best known candidates that we've ever seen.

They've both been um uh presidents before.

And I think one of the interesting things in the reaction to the Biden debate, you know, last week, uh the firming up of these market, you know, expectations that Trump's gonna win the election markets just sort of sailed through that bond yields went up a little bit, there was a little bit of volatility, but basically, I think, you know, markets have made their peace with a, um uh with a Trump presidency.

And I think it's as simple as looking back to the first term and saying, you know, I did.

Ok, then.

All right, we'll see how this all plays out.

Ben Lee.

They're great to talk to you again.

And Brand Dusko is BB I head of Equity strategy.

Thanks so much.

Thank you.

Well, the FTC Federal Trade Commission issuing a report today saying the pharmacy benefit managers PB MS exercise vast control over the health care industry here in the US, here with more on the latest on that report we wanna bring in Angeli Klan and the blame seems to be placed on these PD MSP B MS really driving up prices.

Yes.

And this is an interim report from the FTC.

They've been working on taking a look at the PB MS and trying to figure out where the cost in the system comes from.

We know that there have been complaints over the years and what this report largely did was validate some of those claims, looking at what independent pharmacies have pointed out to, which is sort of a uh if you consider it sort of a uh viewing of the uh prescriptions to their specialty pharmacies.

So what the report found, for example, was that the top three PB MS which includes CV S United Health Optum Rx, as well as Cigna's Express scripts account for 80% of the 6.6 billion prescriptions uh in the US every year.

And so that is one shocking statistic, the other being that uh we've seen the spend of PB MS really increase over the years as a part of national health spend.

So for example, in 2016 14% of the national spend was $456 billion.

And that's what the PB MS uh contributed.

Meanwhile, in 2023 they contributed more than a trillion dollars and that was thir 33% of the national spend.

So looking at the vast change uh that has happened over the past few years and even in the last two decades, uh decreasing from a market of 30 different PB MS to just these top three tells you all you need to know really about this.

Now, we did get a couple of responses from the PB MS looking at uh Cigna in particular saying that they are worried about the sort of bias conclusions that came out in today's interim report and they are looking forward to addressing them uh with the uh with the FTC.

Uh All of them have said that they have over the last two years, really given millions of documents to the FTC.

In order to help frame this report, we also note there was one dissent uh opinion from one of the commissioners.

So all of us to say that the story is not actually done.

What we do know is that some of the complaints and concerns about the opaqueness and the driving higher of prices have been validated by this report.

But we're waiting to see a little bit further what the F DC has to say and what they can show in terms of numbers about those increased costs.

Angeli, thank you so much.

I really appreciate your reporting on this important news.

Thank you.

We're gonna have all of your markets action ahead.

So stay tuned for more.

You're watching Catalysts.

Let's take a quick look at the market's action right now.

Just about 90 minutes into the trading day.

You're looking at the dow still under pressure off just about 91 points.

S and P and NASDAQ adding to those record setting gains that we saw yesterday, record setting close.

I should say the S and P up nearly 2/10 of a percent.

You've got the NASDAQ leading the way the market reacting just a bit, although not too much of an impact here from Powell's testimony down on Capitol Hill in front of the Senate committee here today, Powell saying that easing too soon, too much could harm inflation progress.

He also went on to say the easing too little and late could unduly weaken the economy.

He mentioned some progress here on inflation and inflation has eased notably, but more good data would boost confidence on inflation going forward.

So, get a mixed picture here, 90 minutes into the trading day.

All right.

Well, coming up here, we're gonna have wealth dedicated to all of your personal finance needs.

Our very own Brad Smith is gonna have you right here for the next hour.

So stay tuned.