The outlook for inflation has become a hot topic right now. Inflation is a key driver for markets and has caused substantial volatility recently. Will there be a shift to a new inflationary regime? If so, how will this affect different asset classes, businesses and equity valuations?
In this live webinar David Riley, Chief Investment Strategist at BlueBay Asset Management LLP, will provide an outlook for inflation and an overview of the recent developments in the bond market before moderating a discussion between Dominic Wallington, Head of European Equity, and Jeremy Richardson, Senior Portfolio Manager, Global Equity, RBC Global Asset Management (UK) Limited.
Watch time: 36 minutes 54 seconds
Hello. My name is David Riley. I am Global Investment Strategist at BlueBay. And BlueBay is a specialist fixed income manager within the RBC Global Asset Management family.
I’m very much looking forward to discussing the outlook for inflation and the implications for investors with two great RBC GAM colleagues who manage European and global equity portfolios.
Dominic Wallington is Head of European Equities and Jeremy Richardson is a Senior Portfolio Manager in the RBC Global Equity Team.
I’m going to kick off our event today by briefly setting the scene from a bond investor’s perspective in terms of the inflation debate, and then turn to Jeremy and Dominic to explore the implications for equity markets and investors.
Please do feel free to ask questions. You can do that by typing into the box in the panel on your screen, and your questions will be anonymous, so we will set aside a bit of time to take some of those questions. So let me just try to sort of set the scene for a few minutes before then turning to Jeremy and Dominic.
And as a fixed income manager, you won’t be surprised that I view the world through the lens of the bond market. And a dominant feature I think of global markets so far this year has been the rise in government bond yields. In fact, since middle of February, we’ve witnessed one of the most intense bond market sell-offs that we’ve had for several years. And yields are now sort of more or less back to the levels they were pre-pandemic.
Unlike some previous bond sell-offs, notably, the taper tantrum in May 2013 when higher yields reflected perceptions of a more hawkish, a fair more hawkish central banks, higher yields have largely been driven this time around by more bullish expectations around growth and inflation.
And that’s been very much part, therefore, of the sort of global recovery and reflation theme. It’s not prevented further rises in growth-sensitive risk assets, both equities and credit. Albeit we’ve had more volatility, and we’ve certainly had a lot going on under the bonnet in terms of sort of relative sector and factor performance.
But I do think that the more recent moves higher in bonds yields is reflecting increasingly sort of concerns around inflation risk, including a tail risk of potentially much higher inflation.
So if we look at inflation expectations implied by inflation-linked bonds for the U.S. is now at a five-year high. Even in the eurozone, those inflation expectations have moved up to sort of where they were in 2017, 2018, although still below the ECB’s close-to-2% inflation target.
Central banks do remain very dovish. They’re not even thinking about thinking about raising interest rates. But the bond market is not so sure. The market is now pricing the first interest rate hike by the U.S. Federal Reserve by the end of next year. It’s then pricing another three hikes during the course of 2023. And this is despite the fact that the Fed, at its most recent meeting, said, we’re not raising rates until 2024.
In the UK, at the start of the year, the market was thinking the Bank of England was going to take the base rate into negative territory. Now the market is expecting the Bank of England to follow the Fed and to raise rates in December 2022.
And I think what’s making the bond market a little bit nervous is, it’s going to be this release of potentially huge pent-up demand as vaccines allow a full reopening of economies, there’s massive spending by governments. There’s still $260 billion every month being put into the market by central banks, and so a huge number.
And I think the concern is that this is you kind of have too much of a good thing. This is all going to spill over into, not only strong growth, but maybe into meaningfully higher inflation, and that’s going to force the hand of central banks.
And beyond the sort of speculation, if you like, as to when central banks will start to drain the proverbial monetary punchbowl and potentially spoil the party, important though that is, I think there is also a bigger debate going on in my view as to whether we’re on the cusp of a inflation regime change.
So we’ve been in an era really since the global financial crisis of low growth, low inflation, lower-for-longer interest rates. And I think there’s a debate is whether the pandemic and the policy response to it kind of marks the end of that secular stagnation. So not a return to the chronic inflation of the ’70s, but inflation in the sort of 2% to 4% range, which was the kind of levels of inflation we had in the 1990s and the first half of the 2000s. And that doesn’t sound like such a big deal, but in the lowflation regime, even relatively modest slowdowns in global growth prompted deflation fears, justified QE infinity, the lower for longer.
So perhaps we’re at the cusp of a change in inflation and market regime. My not-very-helpful response to that is, actually, I don’t know. I think it’s kind of too soon to tell. I certainly think the global and certainly the U.S. economy is going to be booming by the end of the year. I think we will have inflation above 2%. I would not be surprised to see inflation closer to 3% than to 2% as we go into 2022.
Most economists, certainly central bankers, kind of think high inflation, [co-inflation] won’t be sustained. There’s still disinflationary forces, not least technology, weighing on inflation. And to have sustained inflation, you also need some pickup in wage inflation, and we still have a lot of underemployment. Obviously, economies are not fully reopened.
But if we are on the cusp of an inflation change, that potentially does have big implications for investors and for their portfolios. And to discuss this much further and in more depth, I’m going to now turn to my two panelists.
So, to kick off the discussion, I’d actually like to ask kind of a basic question really, which is, why is inflation a problem? Why should we kind of care about it? Or maybe we don’t.
I mean, Jeremy, is inflation something that worries you? Or you’re somewhat more sanguine?
So if it’s low inflation, I don’t think it bothers me too much at all. So low single digits, I think it would be perfectly comfortable for the market to accommodate. It’s when inflation gets to a level which is much more noticeable that I think it then begins to have some much broader repercussions.
But in terms of sort of conceptually what inflation is, I mean, how many of us could actually articulate and explain exactly our own personal levels of inflation. We’re all buying different baskets of goods and services. Those baskets of goods have been disrupted as a result of the pandemic. So trying to put your finger on what exactly inflation is at any one particular point in time is not trivial and it’s harder than it sounds.
And I’m very fond of reading the old cartoon books of Asterix and Obelix, and there’s a really good little vignette in I think it’s Mansion of the Gods, where the Romans, the naughty Romans, have chopped down the trees around the Gaulish village, and they’re not very happy about this, Asterix and Obelix. So they go to the druid, and the druid gives them some magic acorns that they can then use to replant the forest overnight. And as Asterix is planting these acorns, he remarks to Obelix and says that these trees are growing very quickly. And Obelix replies, I don’t know, I’ve never seen a tree grow.
And it’s a very simple take on the world in that, if we are—when we are conducting our business, when we are sort of living our lives, do we really get to see what inflation is. Because it’s really, the pricing decisions are really the function of lots of individual markets which are reaching a point of equilibrium. And to be able to aggregate it in one particular way actually passes most people by. So it’s only when you start seeing the trees growing really, really quickly, only when that inflation becomes very noticeable that I think that it would then begin to weigh upon investors, and for consumers, and for businesses.
So low single digits, it shouldn’t really matter. And I would agree with you that a small amount of inflation actually is probably a good thing in terms of greasing the wheels of commerce. It enables businesses to be able to accommodate the pressures that they see within their business on a day-to-day basis.
I think the big question we’re facing at the moment, though, is whether a inflation rate of say 3% to 4%, as we were just sort of—you were mentioning in your opening remarks there, David, actually creates some sort of credibility crisis for central banks. A lot of governors have been focusing on that 2% level.
And I agree with you. A lot of people are expecting that we might see inflation somewhere in the mid 3s before the end of this calendar year. And the question I think is, when we get to that mid 3s, is that a high point, a high watermark, so it’s a transient sort of restocking-type of effect after the pandemic, or is it the beginning of something, which might, as you say, represent a bit of a tail risk. And the risk is, I think for central bankers, is that breeching that 2% ceiling could bring all sorts of credibility issues into play.
Great. Thanks, Jeremy.
Dominic, I mean, how much do you sort of similarly care about inflation? I mean how does that kind of influence the way you’re thinking and investing?
Yeah. So, I mean, hopefully this is a companion piece to what Jeremy said there because that was great. That was very clear.
From my perspective, it’s interesting that I think some people think that inflation started in the 1970s when Richard Nixon essentially freed the dollar from gold and created proper fiat money, but it goes back much further than that.
And there were long periods of very steep inflation in the Middle Ages, again in the 16th century. And the 16th century, interestingly enough, was a period of climate change, really fundamental climate change that saw temperature falls, but also political instability through into the 17th century. And then there were other periods actually with great stability around the Renaissance, the Enlightenment, and also the Victorian era that levels of inflation were really very stable.
But if you asked yourself the question, what is it about inflation that should concern us in everyday life, then the point really is that, if we made everything that we consumed, then inflation would be irrelevant. And in that sense, inflation is essentially urban, and it’s also due to specialization.
And the bigger the percentage of goods and services that you buy in, the more that inflation can affect you. So in urban-based but simple economies—and what I mean by simple here is not many industries, not many services—inflation can have fantastic impacts, very substantial impacts. The Arab Spring was as a result of food pricing inflation.
But with your central case, I agree with Jeremy. Its impacts are very subtle. If you had £100 of cash and you left it in cash, then 5% inflation would more or less halve it in 15 years. But that wouldn’t be something that would be clear to you, I don’t believe.
At the moment, UK inflation is just below 1.8%. Instant access accounts give you about 0.5%. Tax on that, basic rate tax on that is 20%, but inflation is 3.5 times the level of the interest that you’re getting. If that was tax, if tax was 360%, it would be headlines. But because it’s inflation, it’s not really discussed.
But to close my answer to your question, if your central case is correct, then really, I think what inflation at that level would do is drive you towards productive assets, not necessarily make you concerned about them.
Well, can I just follow up on that then, Dominic. So I guess from my more simple perspective, it’s sort of, okay, if I’m worried about inflation, I want to have real assets. And so does that mean that if I was an equity investor, I should be skewing my portfolio towards sort of capital-intensive, asset-rich companies?
Yeah. No. It’s a great question. And funnily enough, I saw a note from a leading investment bank only earlier this week essentially suggesting that that’s what we should all be doing.
And I guess we can rehearse the reasons why that might be a good thing. The ratings for capital-intensive businesses tend to be lower, and if the discount rate goes up then they’ll benefit relative to higher-rated companies. And then maybe you could say that the assets within the business would be worth more in forestry or commodities or whatever.
I think there must be an element of truth to that. But I think the most compelling argument actually in all of this is actually against capital-intensive business.
And the reason I think that is because capital-intensive businesses have to spend a lot of money just to sustain themselves and also to grow.
So if I can give you an example to demonstrate the point. Let’s assume there are two companies, company A and company B, and they have turnover of $2 billion. The first company, company A, has asset turns of three times, so this implies that they have assets of $670 million. And company B has asset turns of only a half, 0.5 times, so this implies that their assets are worth $4 billion.
Now let’s say inflation rises to 10%. Both companies are going to need to get turnover to $2.2 billion just to stand still. In order to do this, company A needs to spend $67 million, but company B needs to spend $400 million. So it needs to spend six times as much just to get the same result.
And there are all sorts of problems that it might face as well. There might be a funding issue, banks might be in disarray, interest rates, the cost of funding might have gone up. They’ll have less cash because they’re spending so much of it building assets to grow the business, so they might be strategically stymied. And also, the inflation cost of the assets that they’re building might be higher than the rate at which they can put prices up.
So I think it’s really very compelling that one should favour asset-light businesses in an inflationary environment.
Great. Thank you. That’s really interesting. So I probably did read that note, which is kind of where I was coming from. So it’s good to be put right.
I mean, if I can turn back to you, Jeremy, and just thinking about this issue of sort of winners and losers in a higher-inflation world. I guess one of the debates at the moment, which I’m sure you’re very much aware of, is the higher inflation expectations driving up bond yields and inflation-adjusted or real yields, and this is going to weigh on the sort of outperformance of growth stocks.
So I guess to put it crudely, does that mean we should be dumping sort of tech stocks, which have been such fantastic performers over the last decade or more?
Yeah. Well, it’s an interesting question, and one that, I agree, very topical at the moment. We’re seeing a resurgence in the value investment style, and growth having sort of dominated for a long period of time is having a more difficult time.
I think this is really just a question of equity duration and the valuation effect that you get from a rising discount rate. In its essence, I think what we have at the moment is a tension going on between, on the one hand, sort of the numerator effects and that [inaudible] evaluation equation.
So if you think about a discounted cash flow, you’ve got all those wonderful profits and cash flows going out into the future. You need to bring those back into the net present value. So firstly, you forecast the future; that’s your numerator. And secondly, then you need to discount that back on the denominator to get to a net present value.
And the tension we’re seeing at the moment is because we’ve got hopes of an economic recovery driven by an end of pandemic lockdowns, which is probably going to be a really good environment for corporate profits. I mean, there’s a lot of consumption that has been postponed or deferred.
Maybe people will be looking forward to a holiday, maybe there’s significant birthdays, anniversaries, and so on that weren’t able to be marked in 2020 that people are looking forward to catching up on in 2021. So good prospects I think for recovery in terms of economic activity and profits.
However, the denominator effect of rising interest rates means that those profits are obviously going to be worth less. And if you’ve got a business where there is more cash flow in the future than what you’re expecting to get in the short to medium term, the impact in terms of the net present value from that rising discount rate is obviously going to be greater. So you’re seeing a headwind in terms of the relative valuation.
But before we sort of get too pessimistic about the impact of rising interest rates on our discounted cash flows, I think it’s worth remembering that more is always more. So if you’ve got two businesses and one of them is generating lots of cash in the future and one of them isn’t, even if you’re discounting that cash at a higher rate, you’re still going to end up with more.
So, it’s a really, really simple point, but I think one which is worth remembering. Because if you’re trying to rank your investment opportunities, the one which is generating the more cash flow will end up coming out on top.
And so we’re seeing at the moment a degree of rotation within the market, and this is I think causing a certain amount of excitement. But it’s not the only excitement that we’re seeing. There’s actually I think a few telltale signs of perhaps of some exuberance, to sort of put it that way.
So the thing about low interest rates is that it’s sort of very supportive of the risk appetite. And there are—although perhaps growth and the future is perhaps worth a little bit less today—there are certainly some pockets of the market that we’re seeing at the moment where people don’t seem overly concerned by this.
And so we can think about things like, for example, meme stocks, which seem to be dancing to their own peculiar tune; the fashion for special-purpose acquisition companies or SPACs for short; and even what we saw just this week with Archegos, which has been impacted by margin calls as a result of high leverage on some of its positions.
So all I think telltale signs maybe that perhaps risk appetite is changing as a result of perhaps changing interest rates. And that although growth stocks, more is still more, we need to be mindful of the fact that fashion can change.
Yeah. It’s good that you’ve raised that, I think, Jeremy, because it’s sort of, it’s a kind of cautionary tale as well for all of us as investors.
Dominic, I mean, a lot of the debate around inflation, kind of a lot of that’s focused on sort of the U.S. because you’re getting fiscal stimulus, et cetera. I mean, if we get an inflation scare in the U.S. and Treasury yields go higher, European equities, is that my safe haven? Sort of, am I going to be insulated from some of that sort of volatility?
And maybe some of the things that sort of Jeremy was alluding to as well in terms of sort of excessive exuberance maybe is a little bit more prevalent in the U.S. than it might be in European markets. Or am I fooling myself if I think that?
Well, I’d love to say, yes, you’re right, because I’ve spent a long time not saying necessarily particularly positive things about Europe in the context of other parts of the world from an equity perspective. But unfortunately, I think the cost of risk is determined by the U.S.
The leading companies within the European markets, they tend to be owned and calibrated on an international basis. So I think that, if inflation rates went up in the U.S. and the cost of risk went up in the U.S., then it would definitely impact Europe.
It might be that there’s a little bit of insulation because a number of these global number ones, they are at a small discount to their U.S. peers, but unfortunately, it’s just taking the edge off it. I think it would be a phenomenon that would bleed across.
Okay. Great. Thanks.
And I mean, maybe if we think a little bit more thematically about some of the sort of trends, secular trends that we’ve had in place and how they could change, and it’s related to the inflation story. And one of those being the rise of China as being globalization, as being a big powerful disinflationary for us.
And I know you, Jeremy, sustainable investing has been very much at the heart of your investment process for a long time. I mean, A, I guess, do you actually think that we’re kind of past the peak in globalization? Though actually the next decade’s going to be localization, onshore and shrinking supply chains, less dependence on international trade, which could be somewhat inflationary. And if that’s the case, what do you think are the sort of implications for global investors in equities?
Yeah. It’s a really interesting question. I think it’s probably worth—the summary is that the world, the global economy is dynamic, right? Things are always changing.
I remember when I was a sort of a junior investment analyst going off to the Midlands, I think it was Nottingham, to go and look at some textile factories. And it’s sort of all the cut, make, and trim, and sort of people stitching things together.
Ten years later, I did a very similar trip over to China, and the factories were exactly the same. The industry had moved from Nottingham to the Pearl River Delta, and the sort of garments they were making there were almost identical to the ones that I saw being made in Nottingham. The factories were almost identical. The people were different. Different geography. But the industry had shifted. And that is not going to stop.
So today we talk to companies and they’re sourcing from North Africa. They’re sourcing from Vietnam. They’re sourcing from Southeast Asia. And meanwhile, China is continuing to develop. So China is sort of moving up those wealth curves, expanding middle classes, investing more in terms of services and domestic consumption.
So these are sort of seasons in terms of economic developments. And as a global equity investor, we have the opportunity and the freedom to be able to invest wherever we find great businesses in attractive industries.
And I think China was—the entry of China into WTO in 2002 was a signature moment I think in terms of the history of inflation. It was very much a powerful deflationary force. But there have been other deflationary forces over time. You mentioned technology, for example, earlier. The growth of the internet and the semiconductor and microprocessors have changed the way in which we organize assets.
We don’t necessarily need more assets to do what we want, it’s just that we can organize them better. You don’t have to own the car; you can rent it to get you from A to B, so. And that is a deflationary force in the marketplace. We can think about Volcker’s war against inflation with the mantras after the 1980s.
And so this has been a long-running episode, which I don’t think it necessarily stops necessarily here. But the question, I think the really big question is whether what we’ve actually just been living through over the space of the last sort of 40 years or so is part of one particular sort of window of history, one episode driven by those pro-inflationary forces that Dominic alluded to in the 1970s, and then those being squeezed out of the system in the following few decades.
The question is now is, what’s normal? And is it the case that we return to a 19th century kind of a free market economy where you have those ebbs and flows of local markets, as Dominic was referring to earlier? Or are there new structures in place that mean that inflation is now just sort of was waiting latent within our economy, and all it takes now is 3.5% to break expectations and it’s a way we lit the touch paper?
I go back to thinking of conversations I used to have when I was an undergraduate with my grandfather who trained with Keynes in Cambridge in the 1920s. And back then, they used to say that 3% on money was so attractive it would bring money from the moon. Money from the moon because at 3%, there was no inflation to speak of.
So are we going to go back to a world where we’re sort of anchored on low inflation and low interest rates? Or is this actually the end of an episode and we’ve got something else to look forward to?
Thanks, Jeremy. Really interesting.
Maybe staying on the sort of thematic part. And, Dominic, you kind of alluded to this actually in some of your opening comments or response to the first question, which was sort of really about sort of politics and shifts that we’re seeing on the political landscape. And kind of Jeremy as well I think is alluding to that.
And part of this, the last 20 or 30 years, this globalization, there’s also been a sort of shift in favour of, if you like, or a greater share of national income going to capital versus labour. Do you think that can change? Maybe because of the pandemic or maybe there’s other sort of forces underway. I mean, how are you thinking about that?
Yes, well, I broadly agree with Jeremy. I think maybe there’ll be some mediation to global trade. And in that context, I think the Ever Given ship that was stuck in the Suez is a wonderful thimble of what might be happening. And the A380 Airbus, for exactly the same reasons. Because this isn’t just about supply chain fragility. I mean, I realize that supply chains work most of the time.
But we have just been through an era of naval gigantism, with ships 400 metres long, 60 metres wide. And that’s led to a remarkable expansion of cargo capability. The first megaships were built in Denmark in 2006, and it was followed by the industry on a global basis. It essentially was doubled down post the global financial crisis because it was expected that container growth would recover to 6% or 7%. But it stayed more or less half that. So it’s been a disaster. These incredibly big ships have been a disaster for the industry in the same way as the A380 was for airlines.
So I do think actually there’s been a mediation of the trend that started some time ago, but that COVID might be a slight accelerant. And I stress that it’s not different really from what Jeremy is saying, but I’m very conscious of the commentary in the press about place of manufacturer in the context of vaccines. I realize that the semiconductor supply chain has become something that’s of strategic consequence.
And I’m also aware of the political shift that you’re talking about here. I remember Theresa May’s government attempting to create a language that insinuated that political development would be about insulating people from the worst issues of globalization without necessarily retreating from globalization.
And then obviously, in the U.S., Trump tried to create globalization in one country. Now that might have changed with Biden, but I think there’s a continuum within the UK. And in that sense, populism is essentially a process of re-politicization of issues and agendas that the previous regimes thought was settled or had gone away. And then, in that sense, I think there is a form of balkanization and that could have inflationary prospects for labour.
But I also agree with Jeremy. We’re in the middle of this remarkable technological revolution and acceleration that is disinflationary. And I think it was probably technology that led to the disinflationary environment, the stability in the Victorian era that I mentioned earlier on, and digitization and AI are creating fundamental change on an enabling technology basis. A bit like electricity.
Electricity, with the electrification of factories in the 1870s, changed the way that production was undertaken and increased efficiency in a remarkable way, and then did it again with households in the early 20th century as a universal utility. So I think the costs and frictions between businesses will be falling because of technology, and perhaps we lose an average inflation rate as a consequence of that.
But if labour—forgive my digression, but to answer your question—if labour does get more of output, share of output, than we would respond by investing in the consumer sector because I think money in people’s pockets will be spent.
Can I just sort of follow up on that? Because I think it’s really an interesting point and I think perhaps touches on what may be different to us coming out of the pandemic. And clearly, there is perhaps a greater consciousness now about the roles of labour versus capital within society. And it’s a question whether we are at a sort of another 1945 moment where that social contract needs to be rewritten in the favour of labour.
But I was reading an interesting piece not so very long ago actually, which was also talking a little bit about the environment and whether the environment could be inflationary. Because there are lots of externalities that, if you look back over the past, that were taken for granted. So we’ve given ourselves the freedom to be able to emit carbon in order to fuel our economic growth. And as a consequence of that, we never really had to pay for the costs of that.
Now that is clearly not sustainable. And with COP26 coming up and a much broader discourse around this, will some of those externalities that we’ve taken for granted have to be internalized? And will that then lead to a high level of true costing, which therefore would mean high costs feeding through to the consumer? And could that be an inflationary force?
Great. Well, I mean, thank you both. It’s been really interesting the way you’ve developed those. I mean, the semiconductor one as well. I know it’s caused a crisis in my household because we’ve not been able to get hold of the latest PlayStation 5.
But maybe more just to conclude, and I’ll ask you both. I mean, if we are—and you’ve both sort of raised the question and we’ve sort of acknowledged the uncertainties—but if we are sort of on the cusp of a sort of secular increase in inflation, sort of a bigger government world, smaller world in some respects, would it challenge your investment process? The way that you do your investment and the way you look at businesses and make the selections, does that change? Or does that sort of stay true even through a somewhat higher inflation regime?
I don’t know who wants to respond first.
No. It doesn’t change. So more is more, and we find that businesses, great sustainable businesses with a competitive advantage who are making the right decisions for the future. And by honing that advantage, are able to establish pricing power, they will, we expect, be resilient in the future and therefore offer investors a wonderful opportunity to continue to add value to their portfolios.
Is that the same for you, Dominic? It’s about looking for good businesses and those opportunities?
Yes. I really believe that everyone talks about the Nifty Fifty as a risk, but it’s very interesting, and for two years, the Nifty Fifty underperformed dramatically. But Jeremy Siegel, the eminent market historian, he did a study from the peak of the Nifty Fifty in 1972, December 1972 through to 1998. The group actually performed in line with the S&P 500. And that’s from the peak, before the collapse, so at the highest levels. And constituents within that group actually outperformed dramatically after the initial fall, and therefore probably should’ve been on higher ratings in the first place.
Now I’m not suggesting that one should be looking for valuations on an agnostic basis, but it’s clear to me that they performed in the way that they did because they were better businesses. And I can’t remember exactly what Jeremy said before. It’s about the cash that the business creates. It’s all about that.
Great. Yeah. So sort of staying the course in terms of the sort of fundamental evaluation of businesses.
It’s been a real pleasure for me at least to have this discussion. I hope our audience have gained as much insights as I’ve done.
If our audience do have any feedback, please do provide it because we’re always looking to improve the quality of our events. But with that, it just leaves me to sort of wish everybody an enjoyable spring break. And of course, my thanks again to Dominic and Jeremy for being such great panelists and such great colleagues to have this discussion with. So thank you both very much indeed.
Thank you, David.