Transcription
Hello, hello. We meet again with the two of us. For today, it can be said that there is good news from the beginning of the week. This past weekend, there was an announcement that there would be an agreement between the United States and Iran. For more details, we will have to wait and see when it is officially signed. Currently, the timeline is set for this Friday. As soon as it is signed, >> the Strait of Hormuz will be opened immediately. >> Ah, but it may not be possible to return immediately. There may need to be clearing of mines, and so on. But it is considered that the market this morning has responded very well. >> Oil prices have also dropped significantly. Now, >> ah, >> before, what we were worried about, P'Natee, was the issue of interest rate hikes due to inflation. >> When this picture emerges, >> uh, >> the first slide, the first slide we opened was the ECB, because the ECB raised interest rates last week, right? >> Which, it can be said that the ECB will issue a free ride, right? >> Ah, it's possible, it's possible. We will analyze what are the reasons why the European Central Bank, or ECB, adjusted interest rates last week. And this week, >> it is another important week for central banks, which is that of the United States. >> The United States has two issues. The first issue is that people are already worried that the EC will raise interest rates. >> Uh, >> will the United States, or the Fed, copy the homework? Which is the issue that we will have a new chairman. >> Ah, >> ah, and it is also the first meeting of the new chairman. So there will be issues of policy and other things that we need to keep an eye on. Before we get to that, let's go back and look, as I mentioned earlier, that the ECB made its first interest rate adjustment. After keeping interest rates unchanged since September 2023. From this picture, you can see that the ECB has gradually adjusted interest rates upwards since the first quarter of 2022. It peaked around the third quarter of 2023. Then it lowered interest rates around 2024. And then kept interest rates unchanged for a while. It only recently raised them on June 11th. This time, it was a 25 basis point increase. This resulted in the deposit rate, or deposit interest rate, being around 2.25%. The main reason, the main reason that caused the ECB to adjust interest rates upwards this time, is to say that it is a concern about inflation. Because in this meeting, the ECB announced revised forecasts. Whether it's the Head CVI, or general inflation for 2026. >> It was revised up from 2.6% that was forecast in March. It was revised up to 3%, which is about 40 basis points. And the core CPI, or inflation excluding energy and food, was also slightly increased, from 2% to 2.3-2.5%. >> If so, can this be interpreted as: the reason they adjusted the headline is because they are looking at oil prices that may not have come down for a long time. So they are concerned. Meanwhile, the core CPI might not be able to fully reflect cost pressures. It's not yet, uh, fully realized. But what's important, and what I've prepared, is that >> the ECB is looking ahead and sees that the headline inflation they are monitoring, which is the ECB's inflation target of around 2%, >> for 2027, they still see it remaining high. >> Which is 2.3%, which is exceeding the target. And it will return to the 2% target in 2028, which is another 2 years. >> Ah, >> the point is, this is the first condition. Is inflation out of control? Because it exceeds the target in 2027. The second very important point is the core CPI, or underlying inflation. >> It was just announced for May on June 2nd, which was before the meeting. >> It unexpectedly increased more than expected. >> Ah, >> from the original forecast of only 2.4%. >> Yes. >> It jumped to 2.5%. And it increased from the previous month, April, from 2.2% to 2.3%. >> Yes. >> What is the reason for this? It indicates that inflation might be spreading to other categories. Because, as we discussed at the beginning, the core rate excludes energy and food. This means that the prices of goods unrelated to energy are increasing. >> Uh, >> these two issues are what caused the ECB to say, "We can't stand it." >> It is necessary to raise interest rates to >> manage inflation. >> This picture, we see it like this, we might not be able to imagine it. Let's look at the next picture. This one will be what we see as the core rate moving up. >> Ah, let's look. If the core rate is the blue line, >> then actually, the core rate moves in line with the headline rate, which is the white line. >> During 2021-2022, when the Russia-Ukraine war occurred, the headline rate increased rapidly. But the core rate also increased, ah, but at a slower rate. This was the reason for the interest rate hikes in the past. >> Ah, let's look at the latest. The headline rate, the white line, has already moved, as I said. And this time, it has also increased. >> Yes. Remember this picture. And we will compare it with the United States later. Even more so, let's look at the components of inflation in the Eurozone. This picture is from the European Central Bank, or ECB. It breaks down what components affect the general inflation rate. The ECB looks at about 4 main categories. We will focus on the blue and orange bars, which have the largest proportion. The vertical line here represents the present. The future is a forecast. Therefore, we can see that from 2024 onwards, the blue category, or services inflation, accounts for the largest proportion. >> And after the US-Iran war, the orange category, or energy, also has a larger proportion. >> This is clear, we have known this all along. Therefore, >> the basic assumption of the ECB regarding inflation is related to how much energy prices will be. Therefore, we can see that the important factor is services inflation. >> Yes. >> It remains high, mostly due to energy. Therefore, looking from 2024 to 2026 onwards, >> energy inflation, or the orange bar, is in negative territory. >> But services inflation has been persistently high. >> Ah, >> ah, therefore, this is another key factor that makes the European Central Bank cautious about this. This picture indicates that services inflation will remain at a high level for some time. For what reason? Observe this. We have two lines. The first line, the white line, in simple terms, is the year-on-year wage increase. >> During a tight labor market. >> Yes. >> It implies that wage rates must grow high. Why? Because of supply. If there are fewer workers, and a large number of people, wages must be offered higher. In the past, there was a direct correlation: wages increased, and services inflation, the blue line, increased. >> Yes. But in 2025, the white line, wages are not growing as well as before. Why is the blue line still stuck at around 3%? There is a reason. Think with me. Suppose the ECB views it like a manufacturing company. The average GDP growth in the Eurozone is about 1%. >> Uh, >> but wages today are still averaging around 3%. What does this mean? The cost of production is still high. Simply put, their GDP is only growing by 1%. >> Yes. >> But overall wages are growing by an average of 3%. >> Ah, >> ah, wages have not yet adjusted downwards to compensate for the relatively low GDP growth. >> Ah, >> ah, therefore, the average cost per unit in terms of labor is still high. This is the problem. And another advantage of Europe that we like very much is the service sector, related to tourism and services. >> Yes. >> Ah, this is still strong. Therefore, even though wages have been adjusted downwards, it is still not enough. Because, as we discussed, their GDP is not growing very well. This still keeps the unit cost high, and thus affects services inflation. Next, let's look at what happened to market assets after the ECB announced the interest rate hike. These are prices from June 11th, which is after the announcement. >> Uh, after the interest rate hike. >> Let's look at 4 main markets. The first market is bonds. In the Eurozone, yields have fallen. >> Uh, >> in the US, they fell even more sharply because of the clarity regarding the Iran-US war, as you mentioned at the beginning of the clip. Therefore, the ECB's decision to raise interest rates this time has almost no effect on the market. The market has already priced it in. Moreover, there is a new factor: the Iran war. >> Ah, >> second, oil prices have fallen sharply. We understand this. >> Ah, >> third, the Euro has weakened slightly. Surprising, isn't it? Because actually, when interest rates rise, the currency should strengthen. Therefore, this is something the market has already priced in. >> As for gold prices, they have risen sharply. After US bond yields fell sharply. >> So, as you mentioned earlier, if the Iran war ends and oil prices fall further, will the ECB reverse course immediately? >> Ah, >> uh, this is the main point. >> This was done before today, right? Yes, yes, yes. Because first, oil prices have fallen rapidly today. >> Which will be lower than the base case that the ECB had previously estimated. >> Ah, second, regarding headline inflation, which we discussed, that the ECB had previously thought that in the future, it might remain sticky for a while. Will it fall quickly? And the core inflation we discussed earlier, this is still sticky. Therefore, we conclude the ECB side. This week, we have the Fed. We will assess how the Fed will consider interest rate policy after the ECB raised interest rates. To see the picture, excuse me, to see the picture, let's compare the economies of the Eurozone and the United States on several factors. The data provided here is the latest data, which is from May. Headline inflation in the Eurozone is 3.2%, in the US it is 4.2%. It's higher. Keep that in mind. >> But if we compare the changes from January to May, in the Eurozone, the headline inflation started at 1.7% and peaked at 3.2%. >> Uh, >> but in the US, it also increased, from 2.4% to 4.2%. >> Uh, >> as for core inflation, this is important. In the Eurozone, it's 2.5%, which has just moved as mentioned. But in the US, it's 2.9%. >> Ah, the change is from 2.2% to 2.5%. In the US, it's 2.5% to 2.9%. But if we look at the energy inflation category, in the Eurozone, it increased by 10.9%. But in the US, it increased by up to 23.5%. >> Ah, due to different energy structures and different uses of alternative energy. >> This makes the US side surge more strongly. >> Yes. >> But services in the Eurozone have clear competition. So the figure is around 3.5%. In the US, there is no competition, but we imply that it is high, but stable. >> So, can this picture be interpreted as: many people understand that Europe is heavily affected by high energy prices. But in reality, it turns out that >> the Eurozone is less affected than many people thought. >> In terms of change. >> Ah, >> yes. >> Because of consumption and other factors, Europe has changed in terms of using more alternative energy, which has reduced dependence on oil. >> Yes, yes. Therefore, if we focus on energy prices, there is no difference between the two countries. Both are energy-driven, meaning energy prices affect inflation. But what's important is that in the Eurozone, core inflation is starting to increase. But in the US, the core, which is not related to energy and food, has not increased much. >> Yes. To see the picture, let's compare. This picture shows the US CPI, which is the white line. The core is the dark blue line. This is different from the previous time when the core for the ECB increased. This is one reason why >> we estimate that the Fed in this round, which is the first meeting of the new Fed chairman, will likely keep interest rates unchanged for now. >> Uh, >> whether it's due to fundamental factors returning, and the easing of the Strait of Hormuz. >> Ah, this should allow them to extend the time a bit longer before any additional data comes in. >> And actually, the blue line, I understand it's likely what the Fed uses to assess PCE as well. Yes. >> And the last point, when we talk about financial markets, they assess that the Fed >> wants to look ahead. >> Uh, >> there is a number. I will briefly mention it. We call it the 5-year forward 5-year. It looks at the average inflation rate for the next 5 years, but not now. It looks at 5 years from now, then assesses the next 5 years to see what it will be, to reduce, let's say, short-term volatility. >> So, for example, if we fast forward 5 years from now and then look at the next 5 years. We won't go into detail about how it's derived, but this is the concept. And the Fed has always used this number. >> So, looking at the light blue line in this graph, we can see that actually, the blue line is trying to stay within the range. Simply put, it may not fluctuate much. Because, as we know, >> each year, there are new factors, various factors that affect it. Some factors are resolved, some disappear, some may stay with us for a while. But everything will return to normal. Meanwhile, the green line >> is estimated from inflation derived from the bond market. But this looks at a 10-year average ahead. It is more volatile. And if we look at >> the movement of these two lines, it implies that during the period when >> these two lines moved up together, like in 2021-2022, that was the period when the Fed Funds Rate increased. But in contrast, in the period since then, there has not been such a direction. So I compare it in the graph below. Therefore, I think that the Fed in this round >> will likely have to keep interest rates unchanged for a while longer. This is the conclusion we have assessed. The Fed will have a meeting on the 16th-17th, which is this week, Tuesday and Wednesday. >> Yes. >> Whether it's due to factors like the energy crisis or inflation. So it can be concluded that the Fed in this round will likely keep interest rates unchanged at 3.5%. >> So, we can be quite relieved that on Wednesday, given the current oil prices, they will likely keep interest rates unchanged. Yes, yes. Therefore, for investors who invest in overseas mutual funds, their concerns will be alleviated. After worrying that if the EC raises interest rates, will the Fed also raise interest rates? Will raising interest rates cause bond yields in the market to increase significantly? This will be sold. >> Can it be said that this is a good time to re-enter global mutual funds? >> Because we can enter at such a high level or starting point, it allows us to receive relatively high interest income. >> Another question: hedge or not hedge? >> If currently, I still recommend hedging for now. >> Oh, as we have seen, as soon as the Strait of Hormuz is cleared, the market currency immediately strengthens. >> Yes. Ah, >> Okay, so for today, >> it's complete. >> Complete. And please like, share, and subscribe. For today, I will take my leave. See you next week. Goodbye. >> Goodbye.