Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to the Merton Talks Money Market rap, where we
Speaker 2: talk about the biggest moves in markets this week and
Speaker 2: wat's driving them. I'm joined Steppick, senior report and author
Speaker 2: of the Money Distilled newsletter. Merin is still off on holiday.
Speaker 2: I mean, I don't know where she gets all these
Speaker 2: days from. So as always we've invited Marcus Ashworth, Bloomberg
Speaker 2: opinion columnist Marcus Guru, very good friend of the show.
Speaker 2: Always pleasure, Marcus, nice to have you here again.
Speaker 1: Well my pleasure. I mean it's a pleasure.
Speaker 2: There's been quite a lot of stuff for August thinking
Speaker 2: about it because usually this is like you know, the
Speaker 2: kind of the dead zone, the and of opinion columnists.
Speaker 1: And it's been more interesting than no normal because the
Speaker 1: markets aren't moving necessarily. But there's a lot of other
Speaker 1: stuff going on, obviously tariffs, bit of politics, yeah, and
Speaker 1: a few other sort of stuff which is I think
Speaker 1: making it more of a not quite so many silly stuff.
Speaker 2: It's usually daft things in August then is not to do.
Speaker 2: This week it's been the Swiss and the Fighting Lane.
Speaker 1: Yeah, very funny cartoon in one of the Swiss press
Speaker 1: basically saying, basically, we come to the conclusion that your
Speaker 1: American F thirty fives aren't expensive enough. I we know
Speaker 1: we're going to have to pay up and look big.
Speaker 1: I mean the famous story of that was always in Japan,
Speaker 1: when somehow one of the trading houses Whi's got the
Speaker 1: contract to supply the Japanese Air Force or naval air Force,
Speaker 1: managed to at the end they work, that's thirty five
Speaker 1: times the list price that Lockie put on this F
Speaker 1: sixteen or whatever it was. So yeah, there is there
Speaker 1: is a history of overcharging, should we say, for supply
Speaker 1: contracts and all the rest other things. So I wonder
Speaker 1: how the Swiss going to get around this one. But yeah,
Speaker 1: I mean they're going mob handed to see Trump and
Speaker 1: shower him with gifts, just as the EU are saying
Speaker 1: that actual fact, maybe we won't quite deliver on the
Speaker 1: six hundred billion of whatever the things we've been thrown,
Speaker 1: or seven to fifty of the energy. I lose track
Speaker 1: which ones which which? I think The comments coming back
Speaker 1: from the States are, ah, how was about fifteen thirty
Speaker 1: five percent?
Speaker 2: Well that's because the Swiss swift good. What is it
Speaker 2: tootly five was a thoroughly name, isn't it so random number?
Speaker 2: Why has he pecked on the Swiss?
Speaker 1: And that's because well, the charity one a non charitable version.
Speaker 1: The non charitable version he does not realize that all
Speaker 1: the shenanigans being on in gold which require a lot
Speaker 1: of gold to be melted down ships across the States
Speaker 1: and put into sizes. It's the comex future delivery will
Speaker 1: accept because there's a squeeze on the contract there. It's
Speaker 1: going nothing to do with the Swiss per se. It's
Speaker 1: just the way that you know, shifting of gold across
Speaker 1: from the States to the States, from Switzerland and various
Speaker 1: other places. Yeah, but that's the untracted version of the charitable version,
Speaker 1: is that he's just looked at this and gone, look,
Speaker 1: very very rich country. You've got roach nev artists, you know,
Speaker 1: nesle making lots and lots of money out of the
Speaker 1: American consumer. Why aren't you making the espresso capsules and
Speaker 1: indeed all the pharmaceuticals in the US. And that's the
Speaker 1: big pushrus is behind this is that is that he's
Speaker 1: also threatening on pharmaceuticals, which will affect the Swiss. Double
Speaker 1: Lisa not just thirty nine percent everything, but also the
Speaker 1: fact that it could be up to one hundred and
Speaker 1: fifty and even two hundred and fifty percent pharmaceutical tariff,
Speaker 1: which of course both the Irish and Swiss economies are
Speaker 1: going to find extremely painful. In the German to be
Speaker 1: fair as well. So you know there are French huh
Speaker 1: oh in the UK anyway, So what is this one's
Speaker 1: coming down the pipe? It's been longcoming that what he's
Speaker 1: going to do on pharmaceuticals. But the Swiss have got
Speaker 1: thirty nine steps bumbum to try and make come more
Speaker 1: offers of the stuff they will buy, which will clearly
Speaker 1: be maybe some energy, but certainly I would think defense spending.
Speaker 2: That's kind of track you for our neutral, famously neutral country.
Speaker 1: Yeah, well, neutrality is of meaningness to I mean, the
Speaker 1: EU are slightly smirking behind the they're veil on this
Speaker 1: one because I think they feel that the Swiss has
Speaker 1: ever it's been accused of playing from both sides, and
Speaker 1: I think neutrality is not relevant here as far as
Speaker 1: Trump is concerned. So we'll see a play out, but
Speaker 1: I think there is. I think the Swiss are pretty
Speaker 1: confident they will be able to get some form of
Speaker 1: sensible answer to this one.
Speaker 2: So let's jump a little man to the farmer say
Speaker 2: the things, because I think it's interesting to talk about
Speaker 2: what Trump is actually trying to achieve with tards, because
Speaker 2: I mean, I guess there's two elements to this. There's
Speaker 2: what he wants to achieve, and then there's what it
Speaker 2: actually achieves. And they're kind of miss stand to focus
Speaker 2: on I will actually it means it's attacks on the
Speaker 2: US consume. Oh blah blah blah.
Speaker 1: Well, they don't know, and they've been pro proven that
Speaker 1: the actual synopsis is not playing out, and they don't
Speaker 1: know when they'll play out. But the simple rule is
Speaker 1: I think people would understand is that all things been equal,
Speaker 1: a tariff imposed by your country will make your goods
Speaker 1: into your own consumers more expensive. Now that will be
Speaker 1: ameliorated by margin pressure, which is clearly coming through. It's
Speaker 1: been a lot of greedflation in the last year or
Speaker 1: two post COVID, and there is plenty of margin room
Speaker 1: to say soften the blow for the consumer. But you know,
Speaker 1: we're seeing some signs, particularly on Ponferral report and various
Speaker 1: other different things, IM and other manufacturing purchasing sort of
Speaker 1: and servicing surveys that we are seeing, you know, a
Speaker 1: potential uptic in inflation. Yeah, clearly the Fed's focused on that.
Speaker 1: But the other thing, which is also pretty much undeniable,
Speaker 1: that even if the inflation doesn't come through anywhere as
Speaker 1: much as it could come through on the consumers say
Speaker 1: from the United States, that the exporting countries will suffer
Speaker 1: a deflationary pressure. And then I think some of the
Speaker 1: is what the European Central Bank and other central banks
Speaker 1: particularly are blindly ignoring. But you know there is this
Speaker 1: is going to cause pressure on exporting companies and that
Speaker 1: will affect both the inflation and the economy of those countries.
Speaker 1: And that that I think is which Trump doesn't care
Speaker 1: about because he's trying to change the cus I mentioned before,
Speaker 1: the corporate US tax code, and the best way he
Speaker 1: thinks of doing so he won't be able to get
Speaker 1: the Congress, is to do it via inflicted on the
Speaker 1: rest of the world. Along with a long long held
Speaker 1: view that ever since the two thousand and one introduction
Speaker 1: of China back into the well into the World Trade Organization,
Speaker 1: that this has been exploited not just by China but
Speaker 1: by peripheral countries Vietnams, Indonesias, et cetera, but equally by
Speaker 1: the European Union and the Swiss. So you know they get.
Speaker 2: Because I suppose there's the there's the difference here between
Speaker 2: sticking a tada for see fifteen percent or whatever on
Speaker 2: blanket goods from the EU. So to imamained, you're not changing.
Speaker 2: We are the manufacturer on this dine. You're just increasing.
Speaker 1: The government is hidden in a genera.
Speaker 2: Yeah, but I'm just thinking like that. But if you're
Speaker 2: putting two hundred and fifty percent tariffs on pharma, then
Speaker 2: that does feel like, actually, no, I expect the factory
Speaker 2: that is currently in Switzerland to be moved to wherever.
Speaker 1: Little Switzerland, Pennsylvania.
Speaker 2: Yeah, exactly, Yeah, you know it is that feels like
Speaker 2: I suppose it's that thing where like, on the one hand,
Speaker 2: it's okay, well, we're still going to buy your stuff
Speaker 2: because in the world have just put the price up,
Speaker 2: it's still cheaper and less hassle than actually manufacturing in
Speaker 2: the US. Whereas if you're putting a two hundred and
Speaker 2: fift percent tariff on something, that feels like that's a
Speaker 2: very explicit instruction. No, you need to build this stuff here. Yeah,
Speaker 2: I don't think does that make any sense. I don't know.
Speaker 1: What it does for the United States perhaps, but that
Speaker 1: were to take place, it would course push the cost
Speaker 1: drugs within the US sky high, and these initially and
Speaker 1: take quite some while before that was a mini Actually
Speaker 1: he's we've seen that with the cot for tariffs, which
Speaker 1: he's had to correct already. So I mean, but the
Speaker 1: whole point is it's chop change chaos for a reason.
Speaker 1: You know. Ultimately, the tariff revenues, which he's clearly starting
Speaker 1: to get to see some uptick in, are going to
Speaker 1: be redispersed in theory to lower the tax taxes on
Speaker 1: on on, you know, up to one hundred thousand and
Speaker 1: five thousand whatever it may be earning regular Americans, which
Speaker 1: of course, along with lots of lovely new manufacturing jobs
Speaker 1: which probably won't shut up. Let's just imagine they are
Speaker 1: means that you don't very democrat you know in the
Speaker 1: red you know, sorry, the sort of blue collar areas
Speaker 1: which you know, the states, because they always fight over
Speaker 1: you know, for your Michigan Wisconsins, in your Pennsylvanias, etcetera.
Speaker 1: That that that that'll will swing it JB events as
Speaker 1: way or whatever it is in the next elections.
Speaker 2: And so so when I guess things, we're talking about
Speaker 2: deficits and tax takes and allistic because obviously we are
Speaker 2: going John, Yeah, there's the definitely something in the US
Speaker 2: is want of the B but is something that we.
Speaker 1: Had enough thing to worry about here. It's nothing that's
Speaker 1: perfully fine, nothing at all.
Speaker 2: So there's this new report coming from one of the
Speaker 2: more the better an knowing think tanks, and I yes
Speaker 2: this morning as we're recording this on Wednesday, and it's
Speaker 2: said that basically Rachel is going to have to find
Speaker 2: fifty one billion because the black hole has somehow grown
Speaker 2: from twenty two billion to forty one billion, and if
Speaker 2: she wants to keep ten billion fiscal Hendron, which is
Speaker 2: still a tiny, tiny child, she's going to have to
Speaker 2: do something.
Speaker 1: So the National Step for Economic and Social Research used
Speaker 1: to be viewed, obviously is used to be perceived as
Speaker 1: as sort of one of the left leaning and someone
Speaker 1: was quite left leaning. However, recently it seems to be
Speaker 1: not that way leaning at all. I will politely say
Speaker 1: these numbers are clickbait for the summer silly season, which
Speaker 1: I said, there wasn't too bad this year, but I
Speaker 1: think this one is just big NUMBERUS. It's getting lots
Speaker 1: of free publicity. Our economists, for what it's worth, view
Speaker 1: a twenty billion hole plus the ten A round they
Speaker 1: and that's sort of their worst case scenario. So I
Speaker 1: would say fifty is Look, the scenario isn't great at
Speaker 1: the moment, but you know, she's high bound by these
Speaker 1: ridiculous fiscal rules. You know, the Office for Budget Responsibility
Speaker 1: is doing a job it wasn't really ever meant to do,
Speaker 1: and it's given an importance and a credence which I
Speaker 1: don't think are irrelevant really in a modern society. It's
Speaker 1: it's it's hairshirt stuff. It's ridiculous. She's worse, she's she's
Speaker 1: just she's now completely beholden to them. I think she
Speaker 1: does have some wiggle room in the context of obviously
Speaker 1: we talked before fiscal drag winding out those income tax
Speaker 1: sort of frozen at fifty thousand, whether tax kicks in
Speaker 1: for ever more, and definitely on pensions, I think, you know,
Speaker 1: cutting the percentage relief and the allowances annually and things
Speaker 1: like that, that there are ways and means of doing
Speaker 1: things which will fulfill some of those back holes. But
Speaker 1: she's going to have to raise tax elsewhere as well.
Speaker 1: I don't think personally she's going to go at capital
Speaker 1: gains tax for two reasons. One it would be stupid too.
Speaker 1: She said that she won't do anymore. She should have
Speaker 1: sorted that already, so that would be you know, really
Speaker 1: going back recent.
Speaker 2: Changes cut it. So I mean, you certainly can't cut
Speaker 2: the allans much farther because don't need three key.
Speaker 1: No, well, I forget that, you'll touch I was talking
Speaker 1: about more the sort of the rates in twenty four
Speaker 1: percent and eighteen the for lower tax band. But you know, look,
Speaker 1: all things are possible, I'm sure, but I think people
Speaker 1: are getting a little bit silly on this, and I
Speaker 1: think there are ways and means of doing other stuff.
Speaker 1: But you know, look, she will come after the individual
Speaker 1: taxpayer for sureless time round, as opposed to having gone
Speaker 1: off the employer last time round, principally. And so a
Speaker 1: lot of stuff that we wrote, you know last year, rinse,
Speaker 1: repeat and dust it down and change the data and
Speaker 1: it comes again.
Speaker 2: The thing adventure. So this this trail emma that they
Speaker 2: talk about, which is we are that she's she feels
Speaker 2: she can't break us firstcool rules. She can't break the
Speaker 2: manifest or promise not to. Is in a employee in
Speaker 2: a B A T the big taxes And well, she
Speaker 2: can't cut spending because the back benches of all already
Speaker 2: made it very explicit that they won't counting them say
Speaker 2: any spending.
Speaker 1: Can and she will cut spending. But the question is
Speaker 1: whether we believe the previous government. They say there's all
Speaker 1: sorts of forward tax spending cuts a part of me
Speaker 1: which never never manifests. So I think she will have
Speaker 1: to cut spending, and she'll she'll she'll have to show
Speaker 1: that she's cutting spending just on nothing, which perhaps back
Speaker 1: bench is quite so much. But I also think at
Speaker 1: some point they're going to have to launce that boil
Speaker 1: because they cannot last the rest of this term of
Speaker 1: parliament without addressing it, and I don't think the ABI
Speaker 1: will allow them. I that and the OBI has made
Speaker 1: some fairly unsubtle signals, as as Bank of England as
Speaker 1: indeed has the insue fiscal studies and clearly Anaesia SR
Speaker 1: as well that you know what, her current scenario doesn't float,
Speaker 1: and I think she's going to have to be more
Speaker 1: aggressive with approaching what's happening with government spending.
Speaker 2: When last question Plasente Droid's do you think are the
Speaker 2: chances of her lasted until the end of this year?
Speaker 1: Yeah, definitely, and I don't. I think she's got more
Speaker 1: We've got room than perhaps people are prepared to think
Speaker 1: that she has. And I think the alternative for Starma,
Speaker 1: particularly after the quasi quarteng trust, sort of doesn't work well.
Speaker 1: And also I think she, you know, is a human shield,
Speaker 1: so in that sense for Starmer himself, and if he
Speaker 1: were to change her, it would come with a wholesale
Speaker 1: approach change and I think that would mean dropping the
Speaker 1: fiscal rules, and it would have to bring someone in
Speaker 1: of credibility and a whole different approach, and I think
Speaker 1: that would be a seismic shock, which I don't think
Speaker 1: he's got that type of political chops for or once,
Speaker 1: so personally I think he will, you know, muscle out.
Speaker 1: That's his style.
Speaker 2: Fascinating. Thanks very much, Marcus. That's all for this show,
Speaker 2: So thanks for listening to this week's Merlton Talks Money Debrief.
Speaker 2: If you like the show, rate review and subscribe wherever
Speaker 2: you get your podcasts. This episode was produced by Moses
Speaker 2: and Dam and Summer Sadi Special thanks to Marcut sash Wath.
Speaker 2: Questions and comments on the show and all the shows
Speaker 2: are always welcome. The show email is medon money at
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