‘Spec-tech is getting wrecked’

This is an audio transcript of the FT News Briefing podcast episode: ‘Spec-tech is getting wrecked’

Marc Filippino
Good morning from the Financial Times. Today is Friday, January 7th, and this is your FT News Briefing.

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The Federal Reserve’s under new scrutiny over the trading activity of a top Fed official. And if you thought the market volatility of 2021 was over, well, think again.

Katie Martin
It’s going to be a rough ride, and you’re going to have to have strong nerves in 2022.

Marc Filippino
The FT’s Katie Martin will unwrap the first trading week of the year, and we’ll tell you what’s behind the violent protests in Kazakhstan. I’m Marc Filippino, and here’s the news you need to start your day.

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Fed vice-chair Richard Clarida has blamed inadvertent errors for not disclosing all of his trading activity at the start of the pandemic. Clarida, the Fed’s second-in-command, was already under fire for making trades just a day before the US central bank signalled its emergency monetary policy plans back in 2020. Last month, the Fed released disclosures that Clarida had amended. Now it’s come out that Clarida had been more active in the markets than he originally disclosed. This is the latest trading scandal at the Fed. Two regional Fed presidents resigned last year after it was found they were also active investors. There’s no sign that Clarida will be ousted though. His term ends later this month.

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Kazakhstan is in turmoil amid violent political protests. Dozens of people have been killed in the demonstrations, which were sparked by high fuel prices.

Nastassia Astrasheuskaya
Protests are the biggest in Kazakhstan’s modern history, and they have never been so violent.

Marc Filippino
The FT’s Moscow correspondent Nastassia Astrasheuskaya says anger among Kazakhs has been brewing, and if it wasn’t fuel prices, it would have been something else triggering the protests.

Nastassia Astrasheuskaya
Because they’ve been struggling for a while and the pandemic didn’t help, the inflation increased everywhere in all of central Asia. The prices went up, and that just added to people’s frustration and naturally, the wages weren’t going up.

Marc Filippino
But she adds that the frustration is mostly with Kazakhstan’s longtime autocratic leader, Nursultan Nazarbayev.

Nastassia Astrasheuskaya
He was president for 29 years. He was still in power for the past two and a half years, making all the important decisions. His family owns all the important businesses in the country — oil, gas, metals, everything. And people were just, just had enough.

Marc Filippino
The unrest has roiled global oil markets. Brent crude prices jumped to their highest level since November. The protests have also affected Kazakhstan’s financial markets.

Nastassia Astrasheuskaya
The stocks are losing double digits. And yes, the rates on the bonds are as weak as ever. The situation changes by the minute, and we don’t know what to expect of tomorrow. It could die down, but even if it dies down tomorrow, the harm is already done, and we are talking about a few months of uncertainty and lack of investment.

Marc Filippino
Russian troops are now on the ground there as so-called peacekeepers. They’re there at the request of Kazakhstan’s president. Nastassia explains Russia’s interest in the country.

Nastassia Astrasheuskaya
Russia looks at it as if it needs to protect the country, which is in its underbelly. It shares the longest border with Kazakhstan; it’s almost 8,000km. It has very deep economic ties with Kazakhstan in terms of everything from oil and gas and metals to uranium, and it has a number of military sites in Kazakhstan. So Russia is very much interested in keeping the country stable.

Marc Filippino
Nastassia Astrasheuskaya is the FT’s Moscow and central Asia reporter.

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It’s the first week of 2022, and markets are continuing their rollercoaster ride from 2021. Investors got the heebie-jeebies this time, and after the Federal Reserve released minutes from its December meeting, here to unpack what’s been going on is our markets editor Katie Martin.

Marc Filippino
Hey, Katie.

Katie Martin
Hey, how are you doing? Happy New Year!

Marc Filippino
Happy New Year! So Katie, this week the Fed released its minutes from its latest meeting. And they indicate the possibility of even more tightening or faster tightening. The same day, there’s a Big Tech sell-off and a sell-off in bonds too all week. Did the Fed cause the sell-off? You know, what’s the connection here?

Katie Martin
Yeah, there’s clearly a connection, and I have to say I thought I was the only person who have used the word heebie-jeebies so I’m delighted to have this spread.

Marc Filippino
It’s you, me and Robin Wigglesworth; we’re the club.

Katie Martin
Fine company (laughter). So yeah, we knew that the Fed had shifted to a more hawkish stance. We knew that at some point it was going to turn the taps off this year. It’s already sped up the pace of the withdrawal of its support to asset purchases. But we had the minutes this week from its latest meeting in December, and it made some very hawkish noises. It talked about the need to raise interest rates sooner or at a faster pace than officials there have previously anticipated and also talked about a strong commitment to address elevated inflation pressures. So this is not the same Fed that we saw this time last year, at all. And this has really upset quite a few parts of financial markets. Even though we knew that something like this was coming, clearly the scale of the wobbles that we’ve seen in stocks and in the fixed-income markets tells you that this is more aggressive than the market had been expecting.

Marc Filippino
Yeah, I was a little confused because I thought, based on how high inflation has gotten, that investors would have embraced a quickening and tightening to fight inflation.

Katie Martin
Sure. But higher interest rates are, all things being equal, not great for highly speculative assets. It’s not great for, rate rises are not great for crypto, for what it’s worth.

Marc Filippino
And tech stocks, so Google . . . yeah.

Katie Martin
And tech stocks, yeah. It’s also not great for unprofitable tech stocks. So comments of the week, in one of our stories about this I’ve seen this week is uh, “spec-tech getting wrecked”.

Marc Filippino
(Laughter) That’s lovely.

Katie Martin
That’s a comment from, yeah, a comment from a portfolio manager at PineBridge, and I think that sums it up very nicely.

Marc Filippino
And along with this tech stock sell-off, Katie, government bonds also took a hit. And this is after a really bad 2021 for government bonds. Globally, it was the worst year since 1999. What’s the connection between that and equities?

Katie Martin
Yes, sovereign bond markets had a bad year last year, worst as you say since 1999. But worth pointing out, nowhere near as bad as the bond bears had expected. This year it’s just been, so far, it’s been one-way traffic in treasuries and that’s been lower bond yields get, the more attractive they are as a place to put their money, that’s sort of discretionary money. And that does sort of suck the air out of some of the most speculative areas of the market. So look, the one thing people were certain about in markets for 2022 was this is going to be rough. One way or another, this is going to be volatile. The Fed is pulling back. It’s, you know, it’s pulling out the support that has kept markets so, so buoyant for so long. It seems unlikely that they can pull this support away without causing a bit of an upset, and this is the first sign of that sort of upset.

Marc Filippino
And just to show how rough a ride it’s going to be, I saw that shares of Rivian, the electric carmaker, plunged 15 per cent right at the start of trading on Thursday. Just yeesh, you know.

Katie Martin
Yeah, you really need nerves of steel if you’re going to stick with these sorts of names through the year because, you know, you can argue the growth case for these stocks as much as you like. But the fact is, without rock bottom bond yields, the maths just doesn’t add up for a lot of people, and they’re vulnerable.

Marc Filippino
Katie Martin is the FT’s markets editor. Thank you, Katie.

Katie Martin
No problem.

Marc Filippino
And before we go, if you missed the conversation I hosted yesterday on Twitter Spaces about the January 6th Capitol insurrection, you’re in luck. We have a link to the recorded conversation with my colleagues in the show notes. I hope you find it insightful.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

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The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We’d help this week from Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.