00:00 Speaker A
How concerned are people about the possibility of rate hikes? We could get not just one, but two this year.
00:07 Speaker B
Well, I’m a little worried, but I think it will be difficult to beat the price that is already there. So I would like to focus more on the idea that some of these increases come from price. HSBC does not expect a Fed rate hike this year. And ultimately, if these increases are reflected in prices, it could be a tailwind for risk assets. Well, yesterday’s inflation data is very welcome news. I would move away from the view that energy prices obviously fluctuate and are related to what’s going on in the Middle East and look at commodity inflation. If you look at the last four months, we’re in complete deflation and goods are inflated. Or super core inflation. Yesterday, we looked at monthly super core inflation and deflation as well. So I think there are certain pockets that we can focus on. If some of these trends persist, by the time we get to September, um, we could be looking at a very different picture with respect to the Fed, and these rate hikes could come at a price over the summer.
01:05 Speaker A
Duncan, I follow the work of the HSBC team very closely, and you guys are very good at coming up with investment themes. If you’re concerned about a round of rate hikes over the next 12 to 18 months, what themes can withstand that potential storm?
01:18 Speaker B
In the end, it’s AI. That’s how we have to look at things heading into the second half of the year. What’s happened in the last four or five months or so is that the AI trade has been very strong, especially with the semifinals that we’ve already talked about, and at the same time American exceptionalism has come to the fore again. Now, in the second half of the year, perhaps once expectations catch up with reality, American exceptionalism has become much more of a consensus over the past month or so, and we might see a little bit of disappointment from the United States in terms of that macro story. But then we need to distinguish between American exceptionalism and potential AI exceptionalism. Given that a lot of expectations have been placed on the adoption of AI and technology in the S&P 500 index, there is probably a scenario where the U.S. economy disappoints ever so slightly, but the market-cap weighted S&P is actually still doing pretty well.
