WEBVTT - Fed Divisions & £5m Homes On Discount

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

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<v Speaker 1>This is the Bloomberg Daybreak Europe podcast. I'm Stephen Carroll.

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<v Speaker 1>Coming up today. FED officials suggest inflationary risks may drive

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<v Speaker 1>further interest rate hikes in the US. Our reporting finds

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<v Speaker 1>that China's housing slump is much worse than the official

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<v Speaker 1>data would have you believe, and Location Location revaluation. London's

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<v Speaker 1>luxury home sellers are cutting asking prices to keep deals alive.

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<v Speaker 1>Let's start with a roundup of our top stories. Federal

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<v Speaker 1>Reserve officials believe further interest rate rises may be needed

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<v Speaker 1>to bring down inflation. The minutes from the Central Banks

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<v Speaker 1>July meeting reveal that policymakers see quote significant upside risks

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<v Speaker 1>to inflation, which could require further tightening. Former US Treasury

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<v Speaker 1>Secretary Larry Summers agrees.

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<v Speaker 2>I kind of would guess that these higher long term

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<v Speaker 2>rates are with us to stay, and if I head

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<v Speaker 2>to bet, I think i'd bet that they're more likely

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<v Speaker 2>to go higher than to go lower. And I think

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<v Speaker 2>in general, markets are going to have to adapt to

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<v Speaker 2>that reality.

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<v Speaker 1>While Larry Summers agrees with Fed officials, cracks in the

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<v Speaker 1>fomc's consensus view emerged at the July meeting that the

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<v Speaker 1>decision to hike was unanimous. Two policymakers said they favored

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<v Speaker 1>leaving rates unchanged or could have supported such a proposal.

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<v Speaker 1>The downturn in China's China's housing market maybe what much

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<v Speaker 1>worse than official statistics reveal. Figures from property agents and

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<v Speaker 1>private data show existing home prices falling at least fifteen

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<v Speaker 1>percent in prime neighborhoods. That's much higher than the six

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<v Speaker 1>percent drop scene in government data. But Bloomberg's China economist

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<v Speaker 1>David Shoes still thinks Bejing's growth target is achievable for

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<v Speaker 1>this year.

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<v Speaker 3>We still think China got achieved the five percent GDP

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<v Speaker 3>growth target, but it needs more policy to support if

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<v Speaker 3>we want to achieve it. That that problem. I think

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<v Speaker 3>that is one of the reasons why we have seen

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<v Speaker 3>the so many boundaries to a China's gross forecast.

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<v Speaker 1>As David Chu suggested, there not everyone agrees with his outlook.

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<v Speaker 1>Morgan Stanley has now downgraded its China growth forecast. The

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<v Speaker 1>Investment Bank now expects GDP to rise by four point

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<v Speaker 1>seven percent this year, down from an earlier projection of

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<v Speaker 1>five percent. Returning to further news from China next, as

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<v Speaker 1>we see China's mounting property woes coming as the financial

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<v Speaker 1>conglomerate jog Xi announced plans to restructure its debt. Bloomberg

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<v Speaker 1>has learned that the shadow bank, whose liquidity crisis has

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<v Speaker 1>faned fears of contagion, has also hired KPMG to conduct

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<v Speaker 1>an audit of its balance sheet under the Radar Group,

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<v Speaker 1>dub dubbed China's Blackstone by some local media, also says

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<v Speaker 1>it will sell assets to repay investors after a string

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<v Speaker 1>of missed payments. What's a breaking news this air and

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<v Speaker 1>BA Systems has agreed to buy Ball Corporation's aerospace division

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<v Speaker 1>in a five point six billion pound deal. The takeover

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<v Speaker 1>comes is the largest this year by a British firm.

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<v Speaker 1>The news comes as a global security threats spur a

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<v Speaker 1>deal making rush that's defying a broader drop off in

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<v Speaker 1>m and A. So that deal five point six billion

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

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<v Speaker 1>says he plans to close the country's central bank and

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<v Speaker 1>dollarize the economy if he's elected. The radical libertarian candidate

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<v Speaker 1>has told Bloomberg he'll make every effort to avoid a

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<v Speaker 1>default by slashing public spending if he wins October's vote.

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<v Speaker 1>In an exclusive interview, Mille compared printing currency to theft.

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<v Speaker 4>Stealing is wrong, and senior ridge is nothing more or

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<v Speaker 4>less than a swindle by politicians against good people. Therefore,

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<v Speaker 4>let's say, if we consider that stealing is wrong, one

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<v Speaker 4>of the greatest thieves in the history of mankind is

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<v Speaker 4>the Central Bank.

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<v Speaker 1>Argentinian presidential candidate have Mille there, speaking through a translator.

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<v Speaker 1>He went on to say that if elected, he would

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<v Speaker 1>freeze relations with China and pull Argentina out of the

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<v Speaker 1>mercos Or trade Block. The former Labor leader Jeremy Corbin

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<v Speaker 1>says the party will probably win the next election, but

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<v Speaker 1>not because of ker Starmer's policies. Corbin told Bloomberg's UK

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<v Speaker 1>Politics podcast the party had become too timid. Here's what

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<v Speaker 1>the former Labor leader had to say when we asked

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<v Speaker 1>him if he thought Kier Starmer would make a good

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<v Speaker 1>prime minister.

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<v Speaker 5>What makes a good prime minister? I think somebody who

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<v Speaker 5>listens and unites the party is a good idea. I

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<v Speaker 5>think somebody that is committed to redistribution of power and

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<v Speaker 5>wealth would be a good idea and I would love

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<v Speaker 5>to hear Kit Stamus say something about those issues when.

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<v Speaker 1>You can hear that full interview with Jeremy Corbyn on

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<v Speaker 1>Today's UK Politics podcast. And London's wealthiest home sellers are

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<v Speaker 1>cutting prices to keep deals alive. Bloomberg James Wilcock has more.

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<v Speaker 6>Are you looking for a good discount? Well, if you

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<v Speaker 6>have more than five five million pounds on hand, London's

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<v Speaker 6>property market might be for you. Price productions on the

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<v Speaker 6>most expensive homes have nearly doubled this year. The data

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<v Speaker 6>from Lonrez shows borrowing costs and economic uncertainty are hitting

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<v Speaker 6>the market hard compared to twenty twenty two in London.

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<v Speaker 6>I'm James Wilcock Bloomberg Daybreak Europe.

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

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<v Speaker 1>the stories that caught aray this morning and Bloomberg has

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<v Speaker 1>It's my favorite time of the month when Bloomberg publishes

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<v Speaker 1>the Breakfast Index for the UK, which looks at the

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<v Speaker 1>various prices of the components of a full English breakfast,

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<v Speaker 1>and it's actually become cheaper for only the second time

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<v Speaker 1>since it started measuring the cost of these ingredients. That

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<v Speaker 1>adding to the inflation and story that we've heard so

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<v Speaker 1>much more about this week. That inflation print the core number.

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<v Speaker 1>Of course, it excludes food coming in harder than expected

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<v Speaker 1>for the month of July. But this index adds up

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<v Speaker 1>the price of the components of a fry. But if

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<v Speaker 1>you were feeding quite a lot of people, it's the

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<v Speaker 1>full packets of everything involved. So the overall cost fell

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<v Speaker 1>by twenty percent in July to thirty five pounds and

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<v Speaker 1>fifty eight pence. It's still well above where it was

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<v Speaker 1>a year ago, and the total price was also lower

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<v Speaker 1>in May, but it includes things like sausages, eggs, bacon, bread, coffee,

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<v Speaker 1>et cetera. And actually coffee and milk are the two

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<v Speaker 1>elements that saw the largest fall in price a month

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<v Speaker 1>on month as well. So that is the latest from

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<v Speaker 1>Bloomberg's Breakfast Index. Let's dig more into what we learned

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<v Speaker 1>from the Federal Reserve minutes. Next officials seeing the risk

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<v Speaker 1>that a persistent inflation may require further interest rate hikes.

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<v Speaker 1>Our chief rates correspondent Garfield ronalds is with us for more. Garfield,

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<v Speaker 1>how seriously should we be taking these signals from officials

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<v Speaker 1>about an upside risk to inflation and the possibility of

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<v Speaker 1>more interest rate hikes.

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<v Speaker 7>Well, I think we do need to take them, You're

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<v Speaker 7>pretty seriously. Even as inflation has markedly cooled down and

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<v Speaker 7>the Fed has expressed satisfaction at that, there's still also

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<v Speaker 7>been stressed that inflation remains too high and that they

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<v Speaker 7>see the biggest risk as being a revival in inflation

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<v Speaker 7>rather than a risk the economy will tip into recession.

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<v Speaker 7>Part of that's the data too. Even as inflation has

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

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<v Speaker 7>series of US economic indicators coming in robust in and

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<v Speaker 7>of themselves, and more robust than expected. So that expectation

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<v Speaker 7>that five percentage points on and plus of rate increases

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<v Speaker 7>over the last eight months would lead the US economy

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<v Speaker 7>to stall is not coming true. And the flip side

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<v Speaker 7>to that for the FAIR is that while if economic

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<v Speaker 7>activity is remaining strong, we have to be vigilant to

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<v Speaker 7>make sure that doesn't lead to inflation.

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<v Speaker 1>There was some signs that the consensus around the FMC

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<v Speaker 1>table was starting to fray, perhaps not in surprise and

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<v Speaker 1>giving the complexity of the economic situation, but should we

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<v Speaker 1>be listening out for more Perhaps signs of disagreement among

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<v Speaker 1>policymakers when they meet in Jacksonville next week.

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<v Speaker 7>Well possibly, I mean the key tension within the Fed

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<v Speaker 7>and also outside of the FED for markets, both bonds

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<v Speaker 7>and stocks, is is okay once they stop hiking rates,

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<v Speaker 7>and even the most hawkish members are saying, you know,

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

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<v Speaker 7>They'll be done absent a really astonishing revival inflation. Then

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<v Speaker 7>the tension becomes, well, how long do they keep them restrictive?

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<v Speaker 7>They've said policy is restrictive, They said policy needs to

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<v Speaker 7>be restrictive for some time. Well what does some time mean?

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<v Speaker 7>And what could lead that time to be shorter or longer?

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<v Speaker 7>Obviously that's obviously where you're going to get a dubbish

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<v Speaker 7>versus four spectrum within the Fed. And you know, the

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<v Speaker 7>key thing is going to be where's Powell lie on

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<v Speaker 7>this spectrum? Where does Williams from the New York Fed

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<v Speaker 7>stand some of the other heavy hitters. How likely is

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<v Speaker 7>it that an extended period does really end up being

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<v Speaker 7>a very extended period for strengthed rates.

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<v Speaker 1>Looking at the market reaction to this, yields pushing even

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<v Speaker 1>higher again this morning, particularly interestingly at the long end

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<v Speaker 1>of the curve as well. What should we be taking

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<v Speaker 1>away from the market reaction to these minutes.

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<v Speaker 7>Well, I mean the market reaction is also in some

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<v Speaker 7>ways a bit nuanced, in some ways not. Yeah, the

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<v Speaker 7>most obvious trigger is that, you know, the FMC minutes

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<v Speaker 7>with the latest spur for traders to reduce their expectations

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<v Speaker 7>for imminent FED rate cuts. So that's a burden for

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<v Speaker 7>the whole market. Even beyond that, the Fed was also

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<v Speaker 7>signaling it's not particularly interested in calling a whole quantitative

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<v Speaker 7>tightening the reduction of its balance sheet. That's bad for

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<v Speaker 7>the long end. And there's also that underlying your message

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<v Speaker 7>from the Fed, the economy is going really well, so

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<v Speaker 7>well that they might have to raise rates further. Well,

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<v Speaker 7>that's a far cry from the economy crashing into recession

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<v Speaker 7>by the end of twenty twenty three. That's been the

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<v Speaker 7>base case for a lot of bond bills for a

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<v Speaker 7>very long time. So doubts about how soon you get

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<v Speaker 7>a recession feed into doubts about whether you really want

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<v Speaker 7>to buy treasuries now with ten year yield, say at

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<v Speaker 7>four point three percent, you thought four point three percent

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<v Speaker 7>was as high as they were going to go, well,

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<v Speaker 7>maybe they go high at four point five percent or

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<v Speaker 7>Larry Summers is saying four point seventy five percent on average.

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<v Speaker 7>So if they are going to go noticeably higher from here,

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<v Speaker 7>it's actually not a great buying opportunity. It's another opportunity

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<v Speaker 7>to end up with losses, which bond investors say. We

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<v Speaker 7>have had a lot of sort of opportunities over the

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<v Speaker 7>last couple of years.

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<v Speaker 1>Garfield, Briefly, if you wouldn't mind, I just wanted to

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<v Speaker 1>ask you about another event that we've had on markets

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<v Speaker 1>this morning in Asia and this government bond auction in Japan.

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<v Speaker 1>You and your colleagues are applying a lot of adjectives

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

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<v Speaker 1>How bad was this.

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<v Speaker 7>Well, it was pretty shocking. You know. The tail was

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<v Speaker 7>the longest since nine ninety seven's that's the gap between

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<v Speaker 7>the average price and the lowest price, So that's showing

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<v Speaker 7>that you're at the margins. This was a very, very

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<v Speaker 7>tough sell. It's a bit of a struggle to put

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<v Speaker 7>it away, and that is tribute, I think to you know,

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<v Speaker 7>the general concerns about bonds and about whether boj is

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<v Speaker 7>going to go and of course you're talking about at

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<v Speaker 7>the margins. You know, the JGBS the lowest yielding debt

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<v Speaker 7>out there. So we're in an environment with demand is

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<v Speaker 7>fragile for bonds. That should be one of the areas

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<v Speaker 7>that's cracking. And you know this is a sign that

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<v Speaker 7>it is and that you even still strong bojay purchases

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<v Speaker 7>can't prop up the Japanese bond wagon.

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<v Speaker 1>Garithiad Reinald's chief rates correspondent, thank you up next to

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<v Speaker 1>Sinak sticks with a triple lock, and Franz says, bonjour

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<v Speaker 1>to more millionaires.

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<v Speaker 6>Now the paper review on blue Bird Daybreak Europe the

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<v Speaker 6>news you need to know from today's papers and Bloem.

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<v Speaker 1>Brixley and Gerrins is with us in studio for more

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<v Speaker 1>lee and let's start in The Guardian. The headline there

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<v Speaker 1>Sinac pledges to keep pension triple lock despite signs of

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<v Speaker 1>extra ten billion pounds cost.

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<v Speaker 8>Yes, indeed, so Rishie Sunak is committed to raising the

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<v Speaker 8>UK state pension in line with the nation's triple lock,

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<v Speaker 8>despite it proving increasingly expensive. The Prime Minister was speaking

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<v Speaker 8>to I TV yesterday. Now The Guardian says the policy

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<v Speaker 8>means pensions rise each year in line with whichever is

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

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<v Speaker 8>annual earnings growth has picked up and was running at

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<v Speaker 8>eight point two percent including bonuses in the three months

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<v Speaker 8>ending June twenty twenty three.

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<v Speaker 6>We've got that data.

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<v Speaker 8>Out on Tuesday and actually stood at seven point eight

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<v Speaker 8>percent excluding bonuses. So that looks like it's going to

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<v Speaker 8>be the highest economic key that they're going to have

0:13:36.240 --> 0:13:41.719
<v Speaker 8>to raise that pension to. And basically the annual uplift

0:13:41.840 --> 0:13:45.960
<v Speaker 8>is something that Rishie soon access. He's comfortable with. Its important,

0:13:46.040 --> 0:13:48.920
<v Speaker 8>it's going to be carried out. But Stephen, the state

0:13:49.000 --> 0:13:52.640
<v Speaker 8>pension costs a taxpayer one hundred and twenty four billion

0:13:52.800 --> 0:13:55.880
<v Speaker 8>pounds this year, and like I said, is on cause

0:13:56.240 --> 0:13:59.080
<v Speaker 8>to raise that further amount in April in line with

0:13:59.240 --> 0:13:59.960
<v Speaker 8>wage growth we got.

0:14:00.480 --> 0:14:02.839
<v Speaker 1>I mean, it's yet again something else pointing to the

0:14:02.880 --> 0:14:04.839
<v Speaker 1>importance of the next set of data that we get,

0:14:04.880 --> 0:14:06.760
<v Speaker 1>because it will be the next set of earnings data

0:14:06.800 --> 0:14:08.959
<v Speaker 1>and the next inflation print that will give us the

0:14:09.200 --> 0:14:11.440
<v Speaker 1>bay sine of which will be higher. And at this stage,

0:14:11.480 --> 0:14:13.200
<v Speaker 1>as you say, wage growth looks like it's going to

0:14:13.200 --> 0:14:16.080
<v Speaker 1>be higher, but we're we're ready for surprises, as we

0:14:16.120 --> 0:14:18.360
<v Speaker 1>always are with UK data. At the moment, I.

0:14:18.280 --> 0:14:21.280
<v Speaker 8>Think we're absolutely one hundred percent ready for surprises. Like

0:14:21.320 --> 0:14:23.080
<v Speaker 8>I said, it looks like that at the moment, but

0:14:23.200 --> 0:14:25.760
<v Speaker 8>we know before the Bank of England makes a decision

0:14:25.800 --> 0:14:28.760
<v Speaker 8>on the twenty first of September, we get more important

0:14:28.880 --> 0:14:29.480
<v Speaker 8>data out.

0:14:29.840 --> 0:14:32.520
<v Speaker 1>Yeah, let's go to the Telegraph. Next lean France overtakes

0:14:32.640 --> 0:14:35.480
<v Speaker 1>UK with the number of dollar millionaire residents.

0:14:35.600 --> 0:14:38.760
<v Speaker 8>Well, well, well, Britain has dropped from fourth place to

0:14:39.000 --> 0:14:43.440
<v Speaker 8>sixth in the Global Wealth Survey and France basically knocking

0:14:43.560 --> 0:14:46.640
<v Speaker 8>us out of the top five countries with the biggest

0:14:46.720 --> 0:14:50.840
<v Speaker 8>number of dollar millionaire residents. And they've taken the spot

0:14:50.960 --> 0:14:55.000
<v Speaker 8>behind America and China. So France really climbing the ladder there,

0:14:55.480 --> 0:14:58.520
<v Speaker 8>and it's leap frog Britain as well as Japan and Germany.

0:14:58.600 --> 0:15:01.360
<v Speaker 8>So there's two point eight million an adult sitting on

0:15:01.440 --> 0:15:05.760
<v Speaker 8>assets in France of more than one million dollars. So

0:15:05.800 --> 0:15:10.400
<v Speaker 8>some experts say that basically it's a luxury industry. We've

0:15:10.440 --> 0:15:14.480
<v Speaker 8>spoken so much about Alvier, mate, haven't we. Bernard, Oh no,

0:15:14.720 --> 0:15:17.760
<v Speaker 8>he's a chimmin and the CEO and they've got brands

0:15:17.840 --> 0:15:23.000
<v Speaker 8>like Louis Vauton, Christian Dior, Tiffany Javonci. They've been doing

0:15:23.080 --> 0:15:25.200
<v Speaker 8>a really well.

0:15:25.240 --> 0:15:27.760
<v Speaker 1>This is Bloomberg day Break Europe, your morning brief on

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