Boeing, Beef and Beans

19.05.2026

In this episode of SB Talks, CEO Vincent O’Neill and CIO Nick Ryder unpack a complex global backdrop where geopolitical tensions and resilient markets are moving in tandem. Drawing on the latest developments in the Middle East and recent diplomatic activity between the US and China, they explore how prolonged uncertainty is reshaping energy prices and inflation expectations. The conversation delves into shifting central bank outlooks, including the growing likelihood that interest rates may remain higher for longer. The pair also provide insight into what’s driving market strength, from AI-fuelled earnings growth to broader economic resilience, and what risks investors should be watching closely.

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Transcript

Vincent: Welcome to SB Talks. Today is Monday the 18th of May. I am Vincent O’Neill, and I am joined by our Chief Investment Officer, Nick Ryder. Welcome, Nick.

Nick: Thank you Vinny.

Vincent: Now today, Nick and I will be discussing Trump’s visit to China, the latest developments on conflict in the Middle East, as well as the interest rate and investment market outlook given increased inflationary pressures. Welcome to all our listeners.

It’s been several weeks since we last recorded. Dare I say, the more things change, the more they stay the same. Conflict in the Middle East persists, but markets ride high.

Nick: I think the market’s sort of moved on a little bit from the conflict, given there’s a ceasefire that seems to have held. Even though there are reports of attacks on ships and drones heading from Iran to UAE and Saudi Arabia. But no material opening of the straits. Oh, that’s right, they still seem very far apart, the US and Iran, from what they want, and various proposals going backwards and forwards between Pakistan. Who’s acting as the mediator. But really there doesn’t seem to be any points of agreement.

Vincent: So, for now we remain in this limbo period, this stalemate, no peace, no war. How do you think about that? Because when we talked on prior podcasts, a lot of our discussion has been particularly around how long this situation persists, and therefore how deep or material the impacts might be on energy markets, fertilizer markets, and other things. Clearly, it’s drifting longer.

Nick: Well, it’s definitely gone on longer than what we had originally anticipated. So, I think when this first started, we were talking sort of weeks… our view there was there would be weeks rather than months.

Vincent: And the US administration I think originally called it a four-week objective as well.

Nick: That’s right. They set the expectations that it would be a fairly short, intense bombing campaign, and then they were done. And I think they hadn’t counted on the Straits of Hormuz being closed for an extended period. So, where do we sit today? I think we’re months, definitely months. And it’s hard to see how this ends. The futures curve for oil prices has repriced higher. So, at the start of the conflict, we had elevated prices for short-term deliveries, short-term contracts, but the forward part of the curve was suggesting that prices would come down pretty quickly. So, an assumed resolution to the conflict. And today we’ve got Brent at 110 and we’ve got the price at the end of the year in the 90s. So, a bit of a repricing and expectation that this will probably drag on longer.

Vincent: That’s not a material decline over towards the end of the year. And that’s very noteworthy because obviously as an input cost into so many other industries, the inflationary impact of this, the longer it drags on, the more potential for it to compound.

Nick: Well, that’s right. I mean, we’ve already seen sort of, you know, inflation effects appear in the US, so their produce, their producer prices, were 6% year on year. A big part of that’s the rise in energies and their April inflation reading was 3.8 for the year. So we’re already seeing energy prices sort of at the first round effects from higher energy prices. It’s really the second-round effects, because energy’s obviously used in a lot and, is feedstock for chemicals and fertilizers and all those sorts of other things that we’ve spoken about before. We’ve seen the pricing for the Fed go from about 50 basis points of cuts at the start of the year to now about a 50% chance of a rate hike.

Vincent: Let’s talk about that because that is a very material, I guess, change in the outlook. We’ve talked about Kevin Warsh, and he’s sort of formally appointed now to assume the role, but this is not about him. And I know theoretically, obviously, he’s coming in, if you believe the sock puppet accusations, to be Trump’s man to reduce rates, but if his mission was to reduce rates, he’s got a much tougher mission than he would have had two months ago.

Nick: Oh, absolutely. A lot of Fed officials have been speaking in recent weeks, and they’re quite concerned on the whole, I would say, about the inflation picture. Inflation too high, and I don’t think there’s any desire to be cutting rates anytime soon. Now, maybe the bar to hike is higher, but the US economy is actually pretty strong.

Vincent: Which is quite remarkable, given I guess we’ve talked about before, they are more energy independent, therefore so the immediate impact on this, apart from the bowser, is not necessarily as severe, but their markets and their economy show an incredible resilience despite the uncertainty.

Nick: Yeah, and a lot of Fed officials were worried about the employment picture because employment growth had been quite soft over the past year. But we’ve got the data for April, pretty strong, 115,000 jobs created unemployment’s still steady at 4.3%, so I think those fears about employment have gone away and definitely the focus has switched to the inflation side of the mandate.

Vincent: And so, rates likely at least on hold, and will be a high bar to probably raise in the US given the political environment but not cutting.

Nick: Yeah. Well, you couldn’t argue that rates are restrictive, at the moment definitely not. And therefore, there’s a need for lower rates.

Vincent: So, we talk about the US economy, and obviously a huge overlay on that into this year, as you’ve talked about many times, is AI, but also the huge capital expenditure required around some of this AI build-out. And, and obviously earnings have remained quite solid in the US as well, as we’re talking about the factors that are underpinning some of the, I guess, exuberance.

Nick: Yeah. So, we’ve just largely finished first quarter earnings season in the US, and it’s been really strong. Excluding the energy sector, obviously that’s been a big swing factor, earnings are up just under 30% year on year. What are the big sources of that rise? A lot of it was the big Magnificent Seven companies, they all reported very strong earnings growth and revenue growth. So top line revenue growth was just under 12, that’s pretty strong. So, you’ve had top line revenue growth of 12%, you’ve had some earnings margin expansion, and obviously the AI tailwinds have helped, not just the big Mag Seven, but there’s a second order effect. You’ve got construction companies, turbine companies, Caterpillar, companies like that, that are involved in the whole data centre construction piece, and the power delivery around that have also benefited.

Vincent: So not much sign of a slowdown on that front. And that’s underpinning a lot of, albeit creating something of a two-speed economy.

Nick: Well, no, I mean, I think it’s broader. It’s getting broader. It’s broadening, broadening out. Yeah. We used to talk about the Mag Seven and the everyone else, and now everyone else is doing okay as well.

Vincent: Well, they’re getting a piece of the action, if you will. In terms of the construction and the build-out. But for the people that aren’t directly associated with those industries, if you’re facing higher fuel costs and not declining borrowing costs, it’s still creating stretches, I would suggest, in the economy there. Last week, key headline was obviously Trump’s trip to China. Anything material you think coming out of that?

Nick: No, I mean, I don’t think expectations were that high going into it, given everything that was going on.

Vincent: Expected a few headline deals, which we somewhat got around, Boeing and a few others. I mean, people were saying it was Boeing’s beef and beans.

Nick: Yeah, we didn’t really get a lot of that. So, there were, I think there were orders for 200 Boeing planes, and people had been hoping for 500. So, Boeing share price actually fell on that news. There wasn’t any announcement on soybeans, beyond what they’d already agreed to previously. And beef, I don’t think there was much on beef. I did see a headline, subsequently say China has agreed to buy $17 billion worth of agricultural products. I think that includes chicken, and maybe some beef, and some of these other proteins. But nothing substantial. And it was quite unusual that the Chinese did talk about the Thucydides Trap, which is where a rising power takes on a sort of a declining power, and it can often end in conflict. And so, Trump, went out and said, “Oh,” the reference was that was under Biden where America was in decline. So, it was quite unusual, that whole dance around Taiwan. But I think from China’s perspective that there wasn’t really too much. I think they got some chips. They got some H200 chips being allowed to be sold. But yeah, it was really nothing of, symbolic and, I guess, diplomatic than anything material.

And, and to the extent there was any agreement for the Chinese to pressure Iran to reopen the straits, certainly nothing was announced. It’s possible that it might happen in the background, but they certainly didn’t publicly commit to help the US.

Vincent: Well, there was a commitment out of the problem that the straits should be open, but no commitment about how that would occur. I don’t know where that leaves us, but not very much different to where we started on that.

Nick: I think they’d be reasonably happy to the extent that they’re able to source fuel from other places. And there’s anecdotal evidence that the Iranians are sending it via Turkey and Pakistan by rail and road and then we know the Saudis have a pipeline and the UAE also has a pipeline. So, there is some oil getting out, and the Chinese did have, quite substantial inventories, strategic reserves. I think they’re probably happy to let this drag on longer, to make the US look bad.

Vincent: They’re gaining kind of from a soft power, a Global South perspective from all of this. Well, there’s definitely an argument there that the US is standing slash its relationship with many other parties, continues to get eroded over time, and China just happy to sit back and be potentially a soft power beneficiary of that as you discussed.

Put on your chief investment officer hat, we’ve talked about a variety of things that continue to unfold in the world, and most importantly, probably the prolonging of the energy constraints and the conflict, and we’re also seeing bond yields take a mark-up. How does that make you think about how portfolios are positioned more broadly?

Nick: We haven’t adjusted our positioning. We’re still of the view that, things are generally positive. The US is self-sufficient in energy, and they’re actually looking at exporting it, potentially some to China. But there’s a price effect, and there is an estimate that JP Morgan put out last week that suggests that come June, maybe early to mid-June, if the straits haven’t reopened, then a lot of these inventories that have got us through to this point will be depleted. And then we could get a spike in the oil price up to 150, potentially $200 a barrel, and then you’d see some demand destruction. And that would be negative for growth. So, I think that is still a, a material risk.

Vincent: 150 to 200 is, is a pretty scary number if we saw prices there.

Nick: I mean, people would have to stop using oil, stop traveling, because it’ll be too expensive. So, you’d get the energy market to come back into balance, through demand destruction, and that’s bad for growth. So that is a material risk that we worry about, and we’re starting to see some of that priced into the forward energy curves, as we mentioned, and also the bond market.

Vincent: So talk a little bit more about what we are seeing on the bond market.

Nick: So, we’ve seen a sell-off. Well, I mentioned the Fed pricing has shifted from rate cuts to rate hikes. We’ve had obviously three rate hikes in Australia, we’ve had one in Norway, so it’s starting to happen, rate hikes at, sort of at the front end of the curve. But also, the back end, longer-dated yields have risen quite a lot. The Japanese 30-year is now above 4%. That’s the highest it’s ever been since they first started issuing 30-year government bonds in 1999. We’ve seen the US 10-year is up around 460, so that’s quite a lot higher than where it was. Pushing towards five. Australia 5.1 for our 10-year.

Vincent: How does this make you think about your fixed income and bond allocation in portfolios?

Nick: Well, I mean, the relative attractiveness of them. Yes. So, so the portfolios we’re invested in probably have an average duration around five years, so we’re not at that 10 and 30-year part of the curve. There’s obviously a little bit there. And that probably hasn’t moved quite as much. It’s, there’s obviously been some sell-off. But we look at it on a go-forward basis as being relatively attractive. Those yields are probably the highest on a real basis that we’ve seen, since 2012. About 2.5% real yield in Australia if you believe the RBA will succeed in bringing inflation back down to its target. So yeah, bonds are back. I went to a conference last week, and they said, “Bonds are back, baby.”

Vincent: Was that a bond conference by any chance?

Nick: There might’ve been a few bond managers talking their book there. It wasn’t a bond conference. It was a broader asset discussion.

Vincent: But, to step back from all of this you’re, I guess, fairly comfortable to stay invested in equities, maintain your fixed income positioning. We’ve been here before. The risk of going particularly conservative through these periods are things can change very rapidly.

Nick: If you’d have de-risked a few weeks ago at the start of the conflict. Yeah, you would’ve lost a lot of money in the last six weeks. Things have bounced back strongly. As I said, people are focused on the earnings outlook, which is still pretty good. We’re happy to remain neutrally positioned, and let the asset allocation do some of the work to, so to the extent that inflation is higher and stickier, we’ve got, decent allocation to alternatives, to infrastructure, to property, and these should have sort of help buffer portfolios that have that traditional portfolios of bonds and equities that maybe would suffer.

Vincent: And a final word for Australia, in the last week, we’ve, you know, seen budget here. Many things announced, but none of them certain yet. And you touched on before as well is interest rate outlook, which we’ve had three rises now. Where to from here?

Nick: The market’s still pricing the possibility of another one to two rises in the back end of the year. I don’t think there was anything that came out of the budget that would push it to that. I think it’s just the broader inflation backdrop. There’s certainly the budget itself probably hasn’t changed that much. There’s been a bit of an uplift in revenue collected because of higher commodity prices higher gas and energy prices. Higher inflation means higher taxes. But broadly, the fiscal position hasn’t changed. There’s no fiscal stimulus or major contraction. So, it probably is neutral for the RBA. The big issue for them is how persistent this inflation push is, and events in the Middle East don’t help that cause.  I mean, they’ll look through the spike in energy prices, but they’re worried about the broader backdrop. Which was one of demand being higher than supply in a lot of areas. And we’ll get the employment data later this week, which will probably another, show another strong employment growth and low unemployment.

Vincent: So, it’s nothing for them. Nothing to concern them necessarily. But we’re, when I talk about markets riding high, the Australian market hasn’t been as strong certainly as the US market, and I guess, our inflation concerns, our interest rate outlook is no doubt a big part of that.

Nick: And we don’t have a lot of the AI things, stuff that has helped. I mean, there are some companies like Woodside that have done incredibly well in, out of the higher oil prices. But then we’ve seen a sell-off in CBA last week on the back of the budget

Vincent: We’ll watch this space and that one too soon to discuss it. Excellent summary as always, Nick. Thank you very much, and thank you to you, our listeners.

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