The Transcript 01.20.20

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Succinct Summary:  2020 begins with a surge of optimism.  The consumer continues to be a bright spot for the economy and business sentiment seems to be turning a corner.  Fundamentals are strong and the cherry on top is that interest rates remain low.  Capital markets love this environment.

Macro Outlook:

Business sentiment is improving

“We see some resolution to those issues and that combined with continued consumer strides, leads us to expect to see businesses continue their solid activity and we’re hearing more optimism.” – Bank of America (BAC) CEO Brian Moynihan

“There’s no question in the fourth quarter the environment improved. Based on the data or information we can see across activity and dialogue with clients, I would say that it’s improved in the fourth quarter and the trends that we’re seeing early into 2020 are a little bit more positive.” – Goldman Sachs (GS) CEO David Solomon

” the fourth quarter definitely, I would say, stabilized. Things trade certainly stabilized. Things, broadly speaking, stopped getting worse and so, we saw sentiment improve a bit” – JPMorgan Chase (JPM) CFO Jennifer A. Piepszak

Manufacturing seems to be turning a corner

“last year we did see a little bit of weakness in manufacturing, but we’re starting to lap that and we’re starting to see some positive momentum coming out of that sector. So generally, we’re seeing some very good signs from our corporate.” – Delta Air Lines (DAL) President Glen Hauenstein

” For most of calendar year 2019, the weakness in global manufacturing was exacerbated by the inevitable inventory destocking that companies undertook in response to the weak demand conditions…As we enter 2020 however, we are seeing signs of an improvement.” – Schnitzer Steel Industries (SCHN) CEO Tamara Lundgren

The fundamentals of the US economy are good

” the fundamentals for the U.S. economy are good.” – Chicago Fed President Charles Evans

“Obviously labor market is very strong and the Fed and the ECB on hold, and then capital spending is still a bit soft, but sentiment is at least, certainly better than it was six months ago. So we have a, broadly speaking, constructive outlook headed” – JPMorgan Chase (JPM) CFO Jennifer A. Piepszak

“we see that our customers are coming off a strong finish in 2019 in their spending activity. In addition, there is good loan demand. This results from good employment levels and growing wages.” – Bank of America (BAC) CEO Brian Moynihan

Significantly, the US consumer is doing fine

“our results continue to reflect the strength of the U.S. consumer in the biggest economy in the world…We also continue to see healthy consumer trends in spending and asset quality. ” – Bank of America (BAC) CEO Brian Moynihan

“Our outlook heading into 2020 is constructive, underpinned by the strength of the U.S. Consumer.” – JPMorgan Chase (JPM) CFO Jennifer A. Piepszak

and the Federal Reserve remains supportive

“Conditions remain supported by the Federal Reserve’s three mid-cycle rate cuts in 2019.” – Goldman Sachs (GS) CEO David Solomon

International:

China headwinds are moderating

“In Europe, growth continues to remain relatively low given manufacturing weakness. However in China trade headwinds appear to have moderated with both monetary and fiscal stimulus supporting growth estimates of nearly 6%” – Goldman Sachs (GS) CEO David Solomon

Middle East tensions have reduced activity in that region

“our activity in Iraq has been visibly reduced due to security risk, similar to our reduced activity in EMEA. Also, Argentine activity remains muted due to the difficult investment climate.” – Schlumberger (SLB) CEO Olivier Le Peuch

Financials:

Interest rates have been puttering around

“equity markets are up. Volatility still, though, on – and trading is still pretty light. We’ve not seen that big January uptick that I think we used to see four or five years ago. Interest rates have been, call it, puttering around.” – State Street (STT) CFO Eric Aboaf

Companies are taking advantage by issuing debt

” Debt underwriting fees were up 11% year-on-year due to higher bond issuance activity as clients accelerated their funding to take advantage of attractive pricing conditions to strengthen their balance sheets.” – JPMorgan Chase (JPM) CFO Jennifer A. Piepszak

Conditions for M&A activity remain solid

“Looking forward conditions for continued M&A activity remains solid. Client dialogues are healthy, financing markets are open, and we’re seeing active interest across a variety of sectors.” – Goldman Sachs (GS) CFO Stephen Scherr

Blackrock is making a major move into ESG

“we will be making sustainability of the standard core investing including making sustainable investing more accessible to more of our investors. We intend to double our ESG offerings to 150 funds over the next two years, including sustainable versions of our flagship iShares product so that clients have more choice for how they invest their money.” – BlackRock (BLK) CEO Laurence Douglas Fink

Consumer:

More leisure travellers are choosing premium options

“what we’re seeing in leisure really is an interesting separation of people who are looking for quality and willing to pay higher fares or upsell into better products and services at the highest quality airline in the U.S. So, we see an increase in yields on high leisure [Phonetic], which is very good for the industry.” – Delta Air Lines (DAL) President Glen Hauenstein

Technology:

Adoption of 5G is a major mega-trend

“We expect the ramp of 5G-related and HPC applications to drive strong demand for our advanced technologies in the next several years….We continue to see strong deployment of 5G network and smartphones in several major markets around the world…the significant performance [Indecipherable] improvement of 5G network will drive AI application and unlock new usage cases” – Taiwan Semiconductor Manufacturing Company (TSM) CFO Wendell Huang

Industrials:

China stockpiling Bauxite in event of supply chain disruptions

” China is also strategically stockpiling Bauxite, due to concerns about supply chain risks.” – Alcoa (AA) CEO Roy Harvey

A low carbon economy is more metal intensive

” The structural tailwinds for recycled metals are positive as global trends continue to support the growth of lower carbon-based industries and activities. A low carbon economy is widely acknowledged as more metal-intensive. With the rising use of wind, solar and batteries for power generation, demand for dozens of metals is expected to increase across a wide spectrum of industries.” – Schnitzer Steel Industries (SCHN) CEO Tamara Lundgren

Aerospace has been a strong industrial market, but Boeing’s troubles have created some choppiness

“Aerospace is one of the few end markets that remains relatively strong, although the recent Boeing updates have created some choppiness there as well. ” – MSC Industrial Direct (MSM) CEO Erik Gershwind

Energy:

US oil production growth is expected to drop.  Deepwater exploration should benefit.

“the recent easing of the U.S.-China trade conflict has reduced uncertainty on the economic outlook and the latest [indiscernible] forecast for oil demand indicates growth of 1.2 million Bpd in 2020, slightly higher than in 2019. U.S. production growth, however, should slow significantly in 2020 and fall well short of last year’s growth, due to heightened capital discipline and a resulting drop in activity. Over time, this will create a pull on the OPEC-plus and international non-OPEC production base. These macro conditions will continue to support the international growth cycle, thus they will increasingly stimulate the investment to renew activity in north shore and deepwater exploration development as the year progresses.” – Schlumberger (SLB) CEO Olivier Le Peuch

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