Sam Trethewey: Milford Asset Management Portfolio Manager on the positive response to CPI data

Today's CPI data report prompted positive responses from experts - as it signalled a decline in inflation.

CPI increased 3.3 percent in the year to June, down from 4 percent annually to March. 

Milford Asset Management's Sam Trethewey explained further.

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Episode Transcript

Speaker 1 (00:00):
It's time to catch up with Sam Trathuri, portfolio manager

(00:02):
at Milford Asset Management.

Speaker 2 (00:04):
Good evening, sir, Good evening, Jack.

Speaker 1 (00:06):
So what did we learn today about the outlook for inflation?

Speaker 2 (00:10):
I think numbers printers today were very positive and that
there was plenty of details across the release showing that
inflation pressures are reducing. So probably the three point three
percent headline and rate of inflation was what was what
everyone wanted to see. It was down on four percent
from last quarter, below what most economists and importantly the
rb AND said we're looking for or expecting. And I

(00:30):
think it also highlights that the demands in the economy's weakening,
pressures or tightness that were previously there, and the likes
of labor market well and truly back to more normal
or pre pandemic levels. And you could say, look that
everyone who has been involved in business or watching the
economy for some time now well of nine things were weak.

(00:51):
But this is really reassuring confirmation, particularly for the RB
and SAD that inflation, which has really been keeping in
straights high, is now under control.

Speaker 1 (01:00):
Yeah, so let's think about their position last week. They
softened this dance compared to six weeks earlier, so I
even caught it a bit of a flip flop. They
said they expected inflation could return back to that one
to three target band over the second half of this year.
How do you think today's data will affect that view?

Speaker 2 (01:19):
But I think the IBN z Adrian or He'll be
very relieved and I think we're shit reassured. And last
week they were talking for the first time of emerging
downside with economic activity after previously, as you said, being
much more concerned about how difficult it would be getting
to get so our inflation under control, and that was
as recently as May. So I think they'll be able

(01:41):
to comfortably now stand behind that message from last week
and say, look, we are heading back into that target band.
The inflation job is nearly there. The real question now
for them, and one that I think most economists will
be trying to answer, is when will be official cash
erty cuts and how quickly and how many cuts will
be made. Clearly, for most of us in the mortgage

(02:02):
that's very very important. So financial markets, we have seen
expectations for one, if not two cuts priced into markets
this year. That means that every meeting meeting of the
rb and Z for the rest of the year, of
which there are three, will be treated as a live
meeting where they could make that change.

Speaker 1 (02:20):
Yeah, and finally, Sam, we've seen a rally for the
inded X since that change in tone from the rbn Z.
How did the sheer market react today? Did did the
rally continue?

Speaker 2 (02:31):
The rally continues today, So the market was up again.
And look, there definitely has been that big turnaround of
performance since that Zen meeting last week. So up four percent,
well over four percent since then, which is a real
turnaround and performance of the Internet's more broadly over since
it's over the over this month compared to in recent times,
it has been a real stark underperformer versus other global markets.

(02:53):
So what we are seeing is some enthusiasm towards the
prospect of rate cuts, and some of the bigger performers
in the market, the likes of RYNM and healthcare and
fitted building rally quite hard on the news. So broadly,
the interet exit as a market with the high degree
of sensitivity turn just rates because of the high dividend
paying nature of our stocks. But the key, the key

(03:14):
risk to all this is that coming up in August
we do get earnings financial results from any of our companies,
and I wouldn't expect any fireworks there Jack the management teams.
The earnings are likely still be pretty tough. If interest
rate cuts do come, the transmission through to our economy
activity will take time, so well into twenty twenty five,
and that's when a big improvement in earnings could start

(03:37):
to come through, which is what you really need to
drive markets higher.

Speaker 1 (03:40):
Love you work, Thanks so much, Sam, sam Tratui from
Milford Asset Management. For more from Hither Duplessy Allen Drive,
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