HSBC Stock – The risk to investors is that the ‘decline in inflation could be delayed’: HSBC Wealth CIO
Willem Sels, HSBC Private Banking and Wealth Management Chief Investment Officer joins the Yahoo Finance Live panel to discuss the latest on the market.
AKIKO FUJITA: Let’s bring in our first guest for the hour. We’ve got Willem Sels, HSBC Private Banking and Wealth Management Chief Investment Officer. Willem, I feel like every time we talk to you it is about the inflation rate. But when you look at where the bond yields have been trading, it feels like that’s sort of receded to the back, at least for now.
How are you looking at that in the context of the CPI data we’re going to expect to get out on Thursday?
WILLEM SELS: Yeah. So we were happy that the Treasury is back down just below the 1.5 number. We think anything above 1.5 for the 10-year is overshooting. Everything is about, obviously, the inflation number. Clearly, it will be much watched tomorrow. We think we’re in line with consensus data for a 4.7. However, we point to the fact that, obviously, a lot of the inflation is due to base effects of [INAUDIBLE] to oil and then some wages as well in the retail entertainment.
It may be that some of the workers are not yet confident enough to come back to those jobs. So we think that that is going to be temporary, the base effects are going to be temporary, and then the supply will catch up with the demand. And clearly, inventories are very low at this point in time. And obviously, supply needs to come back to fill that demand.
So the risk to us is not so much that we get a wage inflation spiral that makes inflation drift higher, but rather that the decline in inflation will be delayed, could be delayed. And that may mean that the markets are getting too nervous for a while. But I’m happy that the Treasury is starting to stabilize a bit.
AKIKO FUJITA: Yeah, on the issue of wage inflation, I mean, how much– what kind of timeline are we looking at right now? Because if we’re talking about sort of the inflation risk sort of being delayed, I think is how you described it– I mean, we just had a business on earlier who said that they just can’t find people to fill some of those positions. And ultimately, if they have to pay higher wages, that’s going to have to pass– that’s going to have to be passed down to customers.
WILLEM SELS: Yeah, so it’s about finding child care. It’s about having the confidence to go back to work. It’s about the speed of vaccination. It’s all of those things. It’s also about the support, obviously, that the support schemes from the government that are going to be fading over the next few months, and that, therefore, then, incentivize more people to go back to work.
All of that is going to lead people to come back to work and therefore fill that gap between supply and demand– not just on the good side, but also on the wages side. And therefore, we think that CPI basically will probably come back to sort of the 3% level by March next year, and then maybe even further to the 2% level by the end of next year.
So we think it’s temporary, like the Fed does as well. That’s really key. Is the Fed going to stick to that view? And we think they– we think they will. The market seems to be a bit more confident about this as well. You’ve seen rate hike expectations come down, and you’ve seen long-term inflation expectations come down as well. So whilst it is a very important data point tomorrow, it will probably still be a temporary phenomenon.
AKIKO FUJITA: And, Willem, on the policy front, you’ve got the G7 Leaders Summit coming up. Of course, last weekend, we got those headlines from the finance ministers meeting in agreeing to at least have a floor on global corporate taxes. What are you expecting in terms of the Leader’s Summit and any headlines that you think could potentially move the market?
WILLEM SELS: Yeah, so the market has not reacted too much to the G7 sort of agreement around that 15%, probably because it was something, of course, a topic that we knew they were going to talk about. Secondly, they still need to negotiate quite a lot with the G20 and then the OECD countries– the devil is in the detail. And then I do think that it will have an effect on individual companies.
So sometimes the work of an analyst is potentially even more important than that of a strategist or a CIO. The other thing to watch is what is happening to sort of the general tone of global collaboration between the US and other countries around the world– and in particular, around the topic of sustainability.
Lots of countries have promised a lot. Is there going to be more promises cemented into real action? So that will be something to watch as well.
AKIKO FUJITA: Willem Sels, HSBC Private Banking and Wealth Management Chief Investment Officer.