Francis Oh, APAC CEO of Qraft Technologies, discusses the market reaction after FOMC members signal they're in favor of more aggressive rate hikes and how geopolitical pressures may impact the Fed's inflation target.

Opening Bell

Markets Rebound, Following Fed Chair Powell Signals an Aggressive Central Bank

for this morning. Some early morning insight on trading. I am joined by Francis, oh asia pacific ceo at craft technologies. Just glad to have you on this morning. Obviously I noted there a moment ago, Fed chair jerome Powell and several other FOMC members over the last couple of days I've started to kind of take this tone that they recognize inflation as an economic headwinds and they are conveying that 0.5% interest rate hike is a potentially likely here. What's your take on the Fed's approach to rate hikes? Right first of all thanks for having me. Um um the factory type is the has been in the one of the the key consideration for the market participants and there was as you said there was a sailor yesterday. The Jay Powell is not closed out the possibility of the 50 basis points are very tight. I believe if the current level of inflation persists then even more aggressive measure probably can be introduced market as well. But the US inflation rate is right now. 7.9% India is a 6%. It sounds very old probably to most people if the Inflation of the April number is still around or above seven it will trigger the more concerned to the market participant because the last april um the baseline, the y oi year over year the inflation was 4.2% if you simply at all. Um We're seeing around 11% inflation in two years um in aggregate. So I think the right now the fact that the the concern about the current inflation is out pretty much the federal budget. I wonder obviously the geopolitical situation, what is happening in Ukraine is something that the Fed is having to kind of keep an eye on it is having kind of global impacts. Do you see this invasion, Russia's invasion into Ukraine, upending the Fed's inflation targets? And do you see kind of the Fed at some point providing perhaps a soft landing for the economy and the markets by the end of year? Yeah, it's very difficult or the very will be $1 million dollar question whether the soft landing was happening or not. The right now, the first of all, the the roaring Ukraine is a tragic tragedy to the humanity of all at the same time. It can be very strong driver to the inflation as well. Like you're causing um continuous disruption of the supply chain as well as the trigger to the further inflation upside possibility from the both energy and Agri product or price hike. I wish the current geopolitical tension is coming down central as soon as possible, but we'll see. Um Right now the inflation trajectory or the inflation, the figures around the world, not only for the US at the same time Eurozone as well or the other asian market as well. The heightened inflation is one of the key consideration factor for our am model. I'm curious your thoughts as the two in the tens kind of that yield curve flattens a bit, What's your forecast for for us equity markets should investors kind of be picking and choosing in this environment? Yeah, I want to um, just probably say we have to be be cautious for 2020 seconds like the the most concerning point for the most of ambassador right now is whether the current geopolitical tension around the world is going to be settled down or escalating. Um, not so sure for answer offering now, but I also want to highlight that when you look at look back the market over the lonely and then oftentimes overshadowed the fear in the market maybe bring a price discovery opportunity. And my opinion 20 22nd one beyond an easy market to write at all, it will be the moment for the investors need a balanced approach to their portfolio construction, both the investment opportunity um as well as a risk catching ideas like a letter positioning from the mainly version opportunities as well as a defensive play. The fixed income um, area will be needed. Um, in this type of the environment. Probably actively managed strategy can be add value to investors portfolio. Let's talk to oil markets obviously is having a big impact with the geopolitical situation between Russia and Ukraine analysts at this point, we understand looking at oil to stabilize perhaps around $150 a barrel. The energy market, we know that's a 2.8% in the last four weeks we have companies that have to decide right either absorbed kind of prices or pass them on to customers, which just further that inflation picture that we're talking about here. And at some point, the customers, I would imagine we can, we can only take so much, how much do you see the spike in energy or the spike in energy impacting stocks? Well, we have to see the fundamental side of it at the same time. The seasonality of it as well. Right now we are to pass out through the high the demand season. The winter is gone right now we're entering the screen and at the same time we are also expecting like the, the entire world is a problem. A problem coming out of the, The COVID-19 concerns. So we will see the more the travel is happening. Um, um, and our life will be going back to the normal as it was in 2.5 years ago. So, um, the old market, usually the supply and demand is very tight. So even very tiny bit of derail from the usual trajectory of the supply and demand, it can, causing a, the fairly high level of the price blank right now, the, the Russian oil, um, support, uh, Russian oil export. A lot of countries are enjoying the sanctions right now. And that will be coming into the, the, the, the, the big question around the old market players, whether it's going to be in the short term, the playing the game or it's going to be the Lone land, it really depends on how the current geopolitical tension around Ukrainians are going long lasting, you know, I'm sure you're familiar with the saying higher prices are the solution to higher prices because traditionally at some point, you know, consumers kind of pulled back, I think so many myself included would have thought the consumer would have pulled back by now just given how elevated inflation has been. But to the point of the Fed and others out there, the reality is the consumer, especially here in the US and even abroad to some extent, they're stronger wages are up higher. They've been able to kind of, you know, hold up with stimulus better throughout the last two years. I'm curious though, in terms of when, when you're looking at the consumer and household spending, how consistent do you think that's going to remain, especially again amid this picture where food prices and energy prices in particular, but overall prices are up higher. Right. Um the, this is a critical question for the market participants. And I think somehow, I mean the big part of that, um the concern is allegedly affecting into the, the, the fixed income market, we are seeing pretty much inverted the yield cover right now, which is a typical bad sign. And also the prediction of the uh potential recession is coming into 6 to 12 months of time and the we will see the continuous price discovery will be found in the market. But the one thing we have to cautiously looking for the right now to the problem next five days is the the many of the the consumer sentiment. Um the data will be out in the market and then if we are seeing a sum the deterioration of those consumer sentiment, it will become a the uh it will adding up the additional consent to the downside risk of the market for the short term and will give a the fat into the much more difficult position to decision making in the long run. Yeah, the Fed just has to get it right. I mean, this is a an exact kind of Goldilocks situation um that I don't envy the Feds challenge with. Alright, Francis, really appreciate your insight, franciso, asia pacific ceo at craft Technologies