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Speaker 1: Good morning. It's Thursday, the seventeenth of August in London.

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Speaker 1: This is the Bloomberg Daybreak Europe podcast. I'm Stephen Carroll.

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Speaker 1: Coming up today. FED officials suggest inflationary risks may drive

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Speaker 1: further interest rate hikes in the US. Our reporting finds

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Speaker 1: that China's housing slump is much worse than the official

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Speaker 1: data would have you believe, and Location Location revaluation. London's

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Speaker 1: luxury home sellers are cutting asking prices to keep deals alive.

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Speaker 1: Let's start with a roundup of our top stories. Federal

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Speaker 1: Reserve officials believe further interest rate rises may be needed

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Speaker 1: to bring down inflation. The minutes from the Central Banks

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Speaker 1: July meeting reveal that policymakers see quote significant upside risks

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Speaker 1: to inflation, which could require further tightening. Former US Treasury

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Speaker 1: Secretary Larry Summers agrees.

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Speaker 2: I kind of would guess that these higher long term

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Speaker 2: rates are with us to stay, and if I head

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Speaker 2: to bet, I think i'd bet that they're more likely

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Speaker 2: to go higher than to go lower. And I think

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Speaker 2: in general, markets are going to have to adapt to

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Speaker 2: that reality.

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Speaker 1: While Larry Summers agrees with Fed officials, cracks in the

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Speaker 1: fomc's consensus view emerged at the July meeting that the

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Speaker 1: decision to hike was unanimous. Two policymakers said they favored

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Speaker 1: leaving rates unchanged or could have supported such a proposal.

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Speaker 1: The downturn in China's China's housing market maybe what much

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Speaker 1: worse than official statistics reveal. Figures from property agents and

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Speaker 1: private data show existing home prices falling at least fifteen

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Speaker 1: percent in prime neighborhoods. That's much higher than the six

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Speaker 1: percent drop scene in government data. But Bloomberg's China economist

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Speaker 1: David Shoes still thinks Bejing's growth target is achievable for

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Speaker 1: this year.

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Speaker 3: We still think China got achieved the five percent GDP

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Speaker 3: growth target, but it needs more policy to support if

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Speaker 3: we want to achieve it. That that problem. I think

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Speaker 3: that is one of the reasons why we have seen

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Speaker 3: the so many boundaries to a China's gross forecast.

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Speaker 1: As David Chu suggested, there not everyone agrees with his outlook.

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Speaker 1: Morgan Stanley has now downgraded its China growth forecast. The

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Speaker 1: Investment Bank now expects GDP to rise by four point

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Speaker 1: seven percent this year, down from an earlier projection of

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Speaker 1: five percent. Returning to further news from China next, as

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Speaker 1: we see China's mounting property woes coming as the financial

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Speaker 1: conglomerate jog Xi announced plans to restructure its debt. Bloomberg

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Speaker 1: has learned that the shadow bank, whose liquidity crisis has

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Speaker 1: faned fears of contagion, has also hired KPMG to conduct

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Speaker 1: an audit of its balance sheet under the Radar Group,

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Speaker 1: dub dubbed China's Blackstone by some local media, also says

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Speaker 1: it will sell assets to repay investors after a string

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Speaker 1: of missed payments. What's a breaking news this air and

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Speaker 1: BA Systems has agreed to buy Ball Corporation's aerospace division

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Speaker 1: in a five point six billion pound deal. The takeover

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Speaker 1: comes is the largest this year by a British firm.

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Speaker 1: The news comes as a global security threats spur a

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Speaker 1: deal making rush that's defying a broader drop off in

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Speaker 1: m and A. So that deal five point six billion

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Speaker 1: dollars from BAE Systems. Argentina's leading presidential candidate, Javier Milley,

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Speaker 1: says he plans to close the country's central bank and

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Speaker 1: dollarize the economy if he's elected. The radical libertarian candidate

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Speaker 1: has told Bloomberg he'll make every effort to avoid a

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Speaker 1: default by slashing public spending if he wins October's vote.

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Speaker 1: In an exclusive interview, Mille compared printing currency to theft.

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Speaker 4: Stealing is wrong, and senior ridge is nothing more or

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Speaker 4: less than a swindle by politicians against good people. Therefore,

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Speaker 4: let's say, if we consider that stealing is wrong, one

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Speaker 4: of the greatest thieves in the history of mankind is

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Speaker 4: the Central Bank.

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Speaker 1: Argentinian presidential candidate have Mille there, speaking through a translator.

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Speaker 1: He went on to say that if elected, he would

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Speaker 1: freeze relations with China and pull Argentina out of the

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Speaker 1: mercos Or trade Block. The former Labor leader Jeremy Corbin

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Speaker 1: says the party will probably win the next election, but

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Speaker 1: not because of ker Starmer's policies. Corbin told Bloomberg's UK

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Speaker 1: Politics podcast the party had become too timid. Here's what

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Speaker 1: the former Labor leader had to say when we asked

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Speaker 1: him if he thought Kier Starmer would make a good

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Speaker 1: prime minister.

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Speaker 5: What makes a good prime minister? I think somebody who

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Speaker 5: listens and unites the party is a good idea. I

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Speaker 5: think somebody that is committed to redistribution of power and

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Speaker 5: wealth would be a good idea and I would love

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Speaker 5: to hear Kit Stamus say something about those issues when.

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Speaker 1: You can hear that full interview with Jeremy Corbyn on

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Speaker 1: Today's UK Politics podcast. And London's wealthiest home sellers are

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Speaker 1: cutting prices to keep deals alive. Bloomberg James Wilcock has more.

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Speaker 6: Are you looking for a good discount? Well, if you

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Speaker 6: have more than five five million pounds on hand, London's

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Speaker 6: property market might be for you. Price productions on the

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Speaker 6: most expensive homes have nearly doubled this year. The data

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Speaker 6: from Lonrez shows borrowing costs and economic uncertainty are hitting

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Speaker 6: the market hard compared to twenty twenty two in London.

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Speaker 6: I'm James Wilcock Bloomberg Daybreak Europe.

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Speaker 1: Those are your top stories. Well, let's turn some of

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Speaker 1: the stories that caught aray this morning and Bloomberg has

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Speaker 1: It's my favorite time of the month when Bloomberg publishes

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Speaker 1: the Breakfast Index for the UK, which looks at the

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Speaker 1: various prices of the components of a full English breakfast,

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Speaker 1: and it's actually become cheaper for only the second time

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Speaker 1: since it started measuring the cost of these ingredients. That

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Speaker 1: adding to the inflation and story that we've heard so

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Speaker 1: much more about this week. That inflation print the core number.

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Speaker 1: Of course, it excludes food coming in harder than expected

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Speaker 1: for the month of July. But this index adds up

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Speaker 1: the price of the components of a fry. But if

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Speaker 1: you were feeding quite a lot of people, it's the

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Speaker 1: full packets of everything involved. So the overall cost fell

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Speaker 1: by twenty percent in July to thirty five pounds and

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Speaker 1: fifty eight pence. It's still well above where it was

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Speaker 1: a year ago, and the total price was also lower

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Speaker 1: in May, but it includes things like sausages, eggs, bacon, bread, coffee,

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Speaker 1: et cetera. And actually coffee and milk are the two

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Speaker 1: elements that saw the largest fall in price a month

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Speaker 1: on month as well. So that is the latest from

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Speaker 1: Bloomberg's Breakfast Index. Let's dig more into what we learned

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Speaker 1: from the Federal Reserve minutes. Next officials seeing the risk

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Speaker 1: that a persistent inflation may require further interest rate hikes.

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Speaker 1: Our chief rates correspondent Garfield ronalds is with us for more. Garfield,

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Speaker 1: how seriously should we be taking these signals from officials

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Speaker 1: about an upside risk to inflation and the possibility of

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Speaker 1: more interest rate hikes.

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Speaker 7: Well, I think we do need to take them, You're

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Speaker 7: pretty seriously. Even as inflation has markedly cooled down and

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Speaker 7: the Fed has expressed satisfaction at that, there's still also

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Speaker 7: been stressed that inflation remains too high and that they

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Speaker 7: see the biggest risk as being a revival in inflation

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Speaker 7: rather than a risk the economy will tip into recession.

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Speaker 7: Part of that's the data too. Even as inflation has

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Speaker 7: come down, jobs growth has stayed strong. We've had a

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Speaker 7: series of US economic indicators coming in robust in and

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Speaker 7: of themselves, and more robust than expected. So that expectation

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Speaker 7: that five percentage points on and plus of rate increases

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Speaker 7: over the last eight months would lead the US economy

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Speaker 7: to stall is not coming true. And the flip side

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Speaker 7: to that for the FAIR is that while if economic

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Speaker 7: activity is remaining strong, we have to be vigilant to

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Speaker 7: make sure that doesn't lead to inflation.

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Speaker 1: There was some signs that the consensus around the FMC

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Speaker 1: table was starting to fray, perhaps not in surprise and

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Speaker 1: giving the complexity of the economic situation, but should we

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Speaker 1: be listening out for more Perhaps signs of disagreement among

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Speaker 1: policymakers when they meet in Jacksonville next week.

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Speaker 7: Well possibly, I mean the key tension within the Fed

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Speaker 7: and also outside of the FED for markets, both bonds

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Speaker 7: and stocks, is is okay once they stop hiking rates,

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Speaker 7: and even the most hawkish members are saying, you know,

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Speaker 7: one or maybe at most two hikes and that'll be it.

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Speaker 7: They'll be done absent a really astonishing revival inflation. Then

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Speaker 7: the tension becomes, well, how long do they keep them restrictive?

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Speaker 7: They've said policy is restrictive, They said policy needs to

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Speaker 7: be restrictive for some time. Well what does some time mean?

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Speaker 7: And what could lead that time to be shorter or longer?

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Speaker 7: Obviously that's obviously where you're going to get a dubbish

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Speaker 7: versus four spectrum within the Fed. And you know, the

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Speaker 7: key thing is going to be where's Powell lie on

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Speaker 7: this spectrum? Where does Williams from the New York Fed

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Speaker 7: stand some of the other heavy hitters. How likely is

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Speaker 7: it that an extended period does really end up being

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Speaker 7: a very extended period for strengthed rates.

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Speaker 1: Looking at the market reaction to this, yields pushing even

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Speaker 1: higher again this morning, particularly interestingly at the long end

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Speaker 1: of the curve as well. What should we be taking

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Speaker 1: away from the market reaction to these minutes.

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Speaker 7: Well, I mean the market reaction is also in some

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Speaker 7: ways a bit nuanced, in some ways not. Yeah, the

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Speaker 7: most obvious trigger is that, you know, the FMC minutes

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Speaker 7: with the latest spur for traders to reduce their expectations

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Speaker 7: for imminent FED rate cuts. So that's a burden for

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Speaker 7: the whole market. Even beyond that, the Fed was also

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Speaker 7: signaling it's not particularly interested in calling a whole quantitative

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Speaker 7: tightening the reduction of its balance sheet. That's bad for

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Speaker 7: the long end. And there's also that underlying your message

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Speaker 7: from the Fed, the economy is going really well, so

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Speaker 7: well that they might have to raise rates further. Well,

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Speaker 7: that's a far cry from the economy crashing into recession

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Speaker 7: by the end of twenty twenty three. That's been the

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Speaker 7: base case for a lot of bond bills for a

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Speaker 7: very long time. So doubts about how soon you get

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Speaker 7: a recession feed into doubts about whether you really want

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Speaker 7: to buy treasuries now with ten year yield, say at

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Speaker 7: four point three percent, you thought four point three percent

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Speaker 7: was as high as they were going to go, well,

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Speaker 7: maybe they go high at four point five percent or

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Speaker 7: Larry Summers is saying four point seventy five percent on average.

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Speaker 7: So if they are going to go noticeably higher from here,

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Speaker 7: it's actually not a great buying opportunity. It's another opportunity

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Speaker 7: to end up with losses, which bond investors say. We

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Speaker 7: have had a lot of sort of opportunities over the

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Speaker 7: last couple of years.

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Speaker 1: Garfield, Briefly, if you wouldn't mind, I just wanted to

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Speaker 1: ask you about another event that we've had on markets

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Speaker 1: this morning in Asia and this government bond auction in Japan.

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Speaker 1: You and your colleagues are applying a lot of adjectives

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Speaker 1: to it on the market's live job, awful, miserable week.

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Speaker 1: How bad was this.

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Speaker 7: Well, it was pretty shocking. You know. The tail was

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Speaker 7: the longest since nine ninety seven's that's the gap between

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Speaker 7: the average price and the lowest price, So that's showing

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Speaker 7: that you're at the margins. This was a very, very

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Speaker 7: tough sell. It's a bit of a struggle to put

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Speaker 7: it away, and that is tribute, I think to you know,

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Speaker 7: the general concerns about bonds and about whether boj is

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Speaker 7: going to go and of course you're talking about at

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Speaker 7: the margins. You know, the JGBS the lowest yielding debt

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Speaker 7: out there. So we're in an environment with demand is

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Speaker 7: fragile for bonds. That should be one of the areas

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Speaker 7: that's cracking. And you know this is a sign that

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Speaker 7: it is and that you even still strong bojay purchases

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Speaker 7: can't prop up the Japanese bond wagon.

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Speaker 1: Garithiad Reinald's chief rates correspondent, thank you up next to

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Speaker 1: Sinak sticks with a triple lock, and Franz says, bonjour

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Speaker 1: to more millionaires.

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Speaker 6: Now the paper review on blue Bird Daybreak Europe the

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Speaker 6: news you need to know from today's papers and Bloem.

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Speaker 1: Brixley and Gerrins is with us in studio for more

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Speaker 1: lee and let's start in The Guardian. The headline there

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Speaker 1: Sinac pledges to keep pension triple lock despite signs of

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Speaker 1: extra ten billion pounds cost.

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Speaker 8: Yes, indeed, so Rishie Sunak is committed to raising the

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Speaker 8: UK state pension in line with the nation's triple lock,

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Speaker 8: despite it proving increasingly expensive. The Prime Minister was speaking

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Speaker 8: to I TV yesterday. Now The Guardian says the policy

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Speaker 8: means pensions rise each year in line with whichever is

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Speaker 8: the highest, so wage gains inflation or two point five percent. Now,

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Speaker 8: annual earnings growth has picked up and was running at

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Speaker 8: eight point two percent including bonuses in the three months

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Speaker 8: ending June twenty twenty three.

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Speaker 6: We've got that data.

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Speaker 8: Out on Tuesday and actually stood at seven point eight

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Speaker 8: percent excluding bonuses. So that looks like it's going to

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Speaker 8: be the highest economic key that they're going to have

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Speaker 8: to raise that pension to. And basically the annual uplift

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Speaker 8: is something that Rishie soon access. He's comfortable with. Its important,

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Speaker 8: it's going to be carried out. But Stephen, the state

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Speaker 8: pension costs a taxpayer one hundred and twenty four billion

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Speaker 8: pounds this year, and like I said, is on cause

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Speaker 8: to raise that further amount in April in line with

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Speaker 8: wage growth we got.

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Speaker 1: I mean, it's yet again something else pointing to the

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Speaker 1: importance of the next set of data that we get,

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Speaker 1: because it will be the next set of earnings data

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Speaker 1: and the next inflation print that will give us the

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Speaker 1: bay sine of which will be higher. And at this stage,

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Speaker 1: as you say, wage growth looks like it's going to

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Speaker 1: be higher, but we're we're ready for surprises, as we

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Speaker 1: always are with UK data. At the moment, I.

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Speaker 8: Think we're absolutely one hundred percent ready for surprises. Like

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Speaker 8: I said, it looks like that at the moment, but

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Speaker 8: we know before the Bank of England makes a decision

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Speaker 8: on the twenty first of September, we get more important

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Speaker 8: data out.

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Speaker 1: Yeah, let's go to the Telegraph. Next lean France overtakes

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Speaker 1: UK with the number of dollar millionaire residents.

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Speaker 8: Well, well, well, Britain has dropped from fourth place to

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Speaker 8: sixth in the Global Wealth Survey and France basically knocking

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Speaker 8: us out of the top five countries with the biggest

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Speaker 8: number of dollar millionaire residents. And they've taken the spot

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Speaker 8: behind America and China. So France really climbing the ladder there,

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Speaker 8: and it's leap frog Britain as well as Japan and Germany.

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Speaker 8: So there's two point eight million an adult sitting on

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Speaker 8: assets in France of more than one million dollars. So

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Speaker 8: some experts say that basically it's a luxury industry. We've

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Speaker 8: spoken so much about Alvier, mate, haven't we. Bernard, Oh no,

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Speaker 8: he's a chimmin and the CEO and they've got brands

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Speaker 8: like Louis Vauton, Christian Dior, Tiffany Javonci. They've been doing

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Speaker 8: a really well.

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