Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Merton Talks Money news round up, where
Speaker 2: we talk about the biggest move in markets this week
Speaker 2: and what's been driving them. I'm joined Steppeck, Senior report
Speaker 2: of Bloomberd, author of the award winning Money to Still newsletter,
Speaker 2: and joining me in the studio today while Merrion is
Speaker 2: away again, is Marcus Ashwell. Marcus is by now a
Speaker 2: fun favorite and a regular.
Speaker 1: On the Groundhog Day.
Speaker 2: Yes, yes, Punks of Tony. Phil is with us today.
Speaker 2: Expert on born Marcus and European equities and everything else
Speaker 2: and a regular contributor. Great to tell you with us again, Marcus,
Speaker 2: what's a pleasure this week? This week? This week we've
Speaker 2: just had the Bank of England's running hold quite exciting.
Speaker 1: Actually yeah, we're expecting Snoresville, but no, I think we're
Speaker 1: seeing that the Bank of England are expecting growth for
Speaker 1: this year to be below one percent. That's down from
Speaker 1: one point twenty five from what they thought in November.
Speaker 1: That's a cut of quarter of growth my word. But
Speaker 1: more importantly I guess is that they from November to
Speaker 1: this February, they have changed their forward expectations of inflation
Speaker 1: by a full one percent or one hundred basis points
Speaker 1: lower than they thought it would be. That's quite noticeable.
Speaker 1: So half of that was from the budget. The other
Speaker 1: half is just inflation is coming out of the system.
Speaker 1: So why if we've got sub one percent growth and
Speaker 1: now therefore sub two percent inflation, do we have interest
Speaker 1: rates at three point seventy five. We shouldn't, And I
Speaker 1: think even they're realizing that they need to cut so importantly.
Speaker 1: One of the internal deputy governors, Sarah Breeden, moved across
Speaker 1: into the cut camps. Are four people voted for cut,
Speaker 1: five stayed on hold, but two of those five are
Speaker 1: namely the Governor Andrew Bailey and outside member Catherine Mann.
Speaker 1: Made very clear that they would expect to cut probably
Speaker 1: next time or something by April, so it's either March
Speaker 1: or April they will cut. I think we'll vote for
Speaker 1: a cut, so the market's not fully priced in yet,
Speaker 1: but it's getting that way. I think we've got two
Speaker 1: more unemployment data releases and one inflation before the March meeting,
Speaker 1: so it could be as soon as March, though, I
Speaker 1: think we should just put our hopes on they'll they
Speaker 1: will cut in April, and more important, they will cut
Speaker 1: again this year at least once, which they're starting the
Speaker 1: price and they realizing then no so called neutral raid
Speaker 1: is more like three and a quarter than three and
Speaker 1: a half. Still got three people sort of in denial,
Speaker 1: but they're even their sort of argument's getting a little
Speaker 1: bit weaker. They just think everything's sticky and nothing's ever
Speaker 1: going to change. But there are evidence signs and the
Speaker 1: key factor is unemployment. That's what they're really well, I.
Speaker 2: Know the deve Bfrey governor specifically said very a weird
Speaker 2: unemployment is now about five percent. I thought that was
Speaker 2: quite strange.
Speaker 1: Yeah, it was important to what exactly got that spot on,
Speaker 1: I think, and Dan Ramsen is pointing out and he's
Speaker 1: one obviously hes already would look to cut, is that
Speaker 1: this is going to cut spending. It's cutting the come
Speaker 1: into the economy, and really, not to put fun about
Speaker 1: what rach Ruths has done is really impacting unemployment. It's
Speaker 1: people aren't hiring. It's not like they're letting people redundant
Speaker 1: in Swedes thankfully yet, but they're clearly not hiring and
Speaker 1: that is starting to impact and it's starting to impact
Speaker 1: on spending, so for the back of anything to expect
Speaker 1: growth to be blow on person, I think that's quite important.
Speaker 1: And clearly they're seeing inflation is just coming straight down
Speaker 1: and they're not as worried anywhere near as concerns the
Speaker 1: well that it would remain sticky. So another two possibly,
Speaker 1: I think three great cuts this year. I think it's
Speaker 1: quite possible if the numbers continue on this trend, and
Speaker 1: that trend in week definitely uh not doesn't look good
Speaker 1: for the UK economy, which is a's but I think
Speaker 1: they've under club growth to be quite frank. And one
Speaker 1: thing it's quite interesting is that they did it emphasize
Speaker 1: that the state sector will continue to grow very nicely
Speaker 1: because it's been fueled by all our tax hikes. Well
Speaker 1: those taxes are taken from us, John, they are feeling
Speaker 1: it into the state sector, Isn't that lovely? But for
Speaker 1: private sector not so good.
Speaker 2: But that is interesting because the point is that the
Speaker 2: bank has turned around, you know, they must think the
Speaker 2: private sector is doing actually really quite a lot wasp
Speaker 2: than we had thought. And I mean I can see
Speaker 2: that maybe part of this is because obviously the figures
Speaker 2: were quite disrupted by the pre budget fear again. And
Speaker 2: then after the budget there are a couple of signs
Speaker 2: that maybe everyone's a bit more relieved, but that's not
Speaker 2: at all clear. And also the last employment figures, it
Speaker 2: was very striking that the public sector pay and obviously.
Speaker 1: Seven point nine what's the private sector it was.
Speaker 2: It wasn't two and a half.
Speaker 1: Somewhere I think actually actually look at the running numbers
Speaker 1: two point nine or whatever, but a big difference.
Speaker 2: Yeah, And I mean I know that those.
Speaker 1: They're talking with effects Yeah, yeah.
Speaker 2: Okay, well okay, but we've got to expect them follow
Speaker 2: does that mean that we.
Speaker 1: Should see Well, we had this in Germany as well.
Speaker 1: I mean, to be fair, the way it works is
Speaker 1: why inflation is so bad for the UK. We have
Speaker 1: everything is ratched in an index and the government sets
Speaker 1: all these things. A lot of these things are set
Speaker 1: in April, which is why we know inflation will fall
Speaker 1: by zero point five And alone was the budget effects
Speaker 1: because she's got out of her own way this year,
Speaker 1: which he made inflation much worse than there for the
Speaker 1: Bank of English job much harder previous year, but this
Speaker 1: last budget she's worked that one out at.
Speaker 2: Least one thing. That also means that she's compartitives are
Speaker 2: much easier as well well.
Speaker 1: Of course, So yeah, the base effects again exactly. So
Speaker 1: the point here is that we have, you know, quite
Speaker 1: noticeable changes that the government has made mistakes on, but
Speaker 1: one or two of them they are starting to get
Speaker 1: and their own way. But the base online case of
Speaker 1: the economy is moneies are being pushed into the state
Speaker 1: sector and will continue to That will hold the norminal
Speaker 1: of GDP up, not the capital but the normal overall
Speaker 1: level of gross domestic products. But the shift is happening
Speaker 1: beneath that is that the state sectors can take a
Speaker 1: far greater percentage. You've got you know, these these public
Speaker 1: sector pay rises are a legacy from the inflation posting
Speaker 1: in Ukraine, and that's that's still working through the system.
Speaker 1: But it's very very hard to get the state sector
Speaker 1: to except lower wages as we see this gone strike.
Speaker 2: And some of them wanted to bring up on productivity
Speaker 2: because I've noticed people starting to talk about productivity picking
Speaker 2: up in the UK. How much of that is specifically
Speaker 2: a function of this that can end to labor hoarding
Speaker 2: if you like. So as you say, because the minimum
Speaker 2: we just shut up and you know, and employee National
Speaker 2: insurance is going on private sector employers I thinking that
Speaker 2: too expensive to hire people. So basically there was an
Speaker 2: argument that they had perhaps hoarded people after COVID and
Speaker 2: is it the end of that.
Speaker 1: That's definitely a part. I mean I could just try
Speaker 1: it out and say AI, but some of that well,
Speaker 1: I think there is some of it, particularly graduate equipment.
Speaker 1: But you know, yeah, I think that is precisely that
Speaker 1: is that is that particularly hostility retail constructions like that
Speaker 1: that where people were holding on to staff thinking they
Speaker 1: would have struggled to hire them. Now it's the other
Speaker 1: way around. So that's that's still got to work through.
Speaker 1: But so productivity I think is a very misunderstood concept
Speaker 1: and I think that people put too much emphasis on
Speaker 1: being able to measure it. We can't work out how
Speaker 1: many people are in this country. How can we work
Speaker 1: out what product use. We can't work out what labor
Speaker 1: stats are. I mean, you know, really this.
Speaker 2: Is a very good point. Yeah, there's another reason to
Speaker 2: take productivity beyond my so pincher salt. Okay, so shall
Speaker 2: we move from the Bank of England, But.
Speaker 1: We can say quite nicely into into what's going on
Speaker 1: in the sas often which.
Speaker 2: Which been sick. We don't want to do that. I
Speaker 2: want to do a jarring transition.
Speaker 1: Well, the software as a surface sector had a rather
Speaker 1: unpleasant week, which may be because of AI and the
Speaker 1: productivity from leading less people to even to code. Even
Speaker 1: coders are at risk now, let alone financial journalists. So
Speaker 1: you know, the reality is what we've seen is a
Speaker 1: very big shift underneath the surface in stock markets, where
Speaker 1: you've had companies which have been doing very well the
Speaker 1: last few years selling software. A London Stock Exchange group
Speaker 1: surprisingly hit hard, Sage Experience, Relex Walter's clerk. There's lots
Speaker 1: of names which have been doing sort of riding the
Speaker 1: tech boom, and then they realized they are getting seriously
Speaker 1: differentiated now. So AI spend is going in certain place
Speaker 1: and it will kill the existing software sector really very quickly.
Speaker 1: We saw some very such savage stock market falls, but
Speaker 1: at the same time also credit spreads widening out in
Speaker 1: some of these even investment grade companies.
Speaker 2: Because a lot of this is also because the private
Speaker 2: sector is getting hit, isn't it, Yeah, very.
Speaker 1: Much as well. Yeah, the private equity private credits sector particularly, Yeah,
Speaker 1: because a lot of these leverage loans and sort of
Speaker 1: hard to visualize, and they're there, it's very difficult to
Speaker 1: get a proper read on. So then we can look
Speaker 1: at is investment gray bond corporate bond spreads and they
Speaker 1: have widened somewhere some seen fifteen and twenty basis points,
Speaker 1: which in it in itself is the end of the world,
Speaker 1: but it is a definite rerating of the sector. And
Speaker 1: certain companies which are viewed as being there are old
Speaker 1: economy in the new economy are getting hit hard. But
Speaker 1: what's also happening is if you actually look at the
Speaker 1: levels of the stock market, not just the foot see
Speaker 1: one hand, particularly the S and P, and this mirror
Speaker 1: is out across you know, its like Career Japan, which
Speaker 1: are very tech sensitive. There's a massive rotation going on.
Speaker 1: The factors of which you know, inequity has been rated
Speaker 1: on are shifting and now we're seeing value stocks, dividend
Speaker 1: higher dividend paying more old economy stocks. I mean, some
Speaker 1: of the best performing stocks in the S and P
Speaker 1: were railroads and uh, you know, and even ob oil companies,
Speaker 1: which have kept the stock market up. But a lot
Speaker 1: of money is shifting very quickly out of out of
Speaker 1: favor software sort of technology which isn't quite keeping up
Speaker 1: with the pace with the new world, and back into
Speaker 1: things which are much more viable than solid which is
Speaker 1: you know, I stop Picker's delight.
Speaker 2: So sale, digital bay, physical, Oh thank you, thank you
Speaker 2: to be a journalist, I'll say, I'll say, but I mean,
Speaker 2: do you think so? I mean, because one of the
Speaker 2: things that I know the liceners will be thinking, they'll
Speaker 2: see this year place I start like relics, which is
Speaker 2: going down by single day. They love the look at
Speaker 2: that chart, because what retail investor doesn't love catching the
Speaker 2: fallen nave.
Speaker 1: Why do you think, well, I mean, there's definite you know,
Speaker 1: if you actually anthropic a bit bemused themselves that the
Speaker 1: so called sort of cash list that was was this
Speaker 1: this legal services sort of new new tool which could
Speaker 1: cut out a lot of things. They don't actually think
Speaker 1: I think it's that great themselves. So this is these
Speaker 1: are the gays could Yeah, there's plenty of other you know,
Speaker 1: I'm not saying that in the sector. There's now a
Speaker 1: lot more and will be substantially more products. I mean,
Speaker 1: I think and topic of itself launched thirty in January
Speaker 1: alone of across lots of different sectors doing different things,
Speaker 1: and there's lots of competition in there, and they're probably
Speaker 1: more worried about their own jobs. Ironically, you know, creating
Speaker 1: new new things with the AI itself will self create.
Speaker 1: So in that sense, I think there's there's a lot
Speaker 1: of interesting factors to the way, but probably this is
Speaker 1: overdone for I mean, certain companies are just rehashing software
Speaker 1: and they are very vulnerable. Other products are still very
Speaker 1: valid and and and will we have reasonable shelf lives. However,
Speaker 1: if you look out two three years, then that that
Speaker 1: is the wires and that's why the sectory rate. It
Speaker 1: also suddenly because everyone suddenly realized that this is starting
Speaker 1: to happen. It's starting to happen immediately. And the legal
Speaker 1: service is obviously the huge vast amounts we will pay
Speaker 1: to our lovely lawyers. We wish we could pay them more.
Speaker 1: But you know, why why are we paying or why
Speaker 1: are companies paying management consultants vast amounts of money? Or
Speaker 1: they you know, they get a well trained graduate whacket
Speaker 1: into chat GBT and and why do you have to
Speaker 1: pay someone, you know, ex hundreds of thousand pounds an
Speaker 1: hour to do something which you could do yourself.
Speaker 2: And well, and we are seeing that. I mean, none
Speaker 2: of the manageming consultancies are lessed as far as I
Speaker 2: can remember, but you're not. Realities and stories every day
Speaker 2: about the consultancies kind of haven't it caught back or.
Speaker 1: Deploy accountants since lawyers consultants are all going to find
Speaker 1: things harder, aren't stay well.
Speaker 2: I suppose it's interesting because we as journalists have been
Speaker 2: through this with the Internet destroyed the publishing industry.
Speaker 1: As it was the interweb.
Speaker 2: Yeah, yeah, that thing that was only going to have
Speaker 2: the same economic impact is the fax machine, Upton book publishing,
Speaker 2: Upton music. All that is. So I guess this is
Speaker 2: just a new fees for the definite set of weight
Speaker 2: call at work.
Speaker 1: There's an awful lot of money behind it, you know,
Speaker 1: from salesforce onwards, which are growing the vast vast companies
Speaker 1: you know, providing things which you know, it's a rough
Speaker 1: cral world because the turnover products and the ability to
Speaker 1: self perpetuate and learn is going exponentially so that it's
Speaker 1: very hard to price. And it all got priced in
Speaker 1: one day. But as I said, some of this I
Speaker 1: think is permanent, but still some of these companies may
Speaker 1: be very careful and do your own research, you may
Speaker 1: find they've been a little bit, you know, chucked out
Speaker 1: with the Barold.
Speaker 2: I think when that note you can go and do
Speaker 2: your own research. You might even want to ask one
Speaker 2: of these new fangal day eyes. I'm not having anything
Speaker 2: to do with them, not training the competition.
Speaker 1: Exactly.
Speaker 2: Thanks for listening to this week's Merton Talks Money debrief.
Speaker 2: If you like our show, rate review, and subscriber whatever
Speaker 2: you listen to podcasts. He keep saying questions or comments
Speaker 2: to Merring Money at bloombard dot net. You can also
Speaker 2: follow me and Marcus on x I'm at Joint Underscore
Speaker 2: Steppeck and Marcus is at Marcus Ashworth. This episode is
Speaker 2: hosted by me Join Stepeck and it was produced by
Speaker 2: Moses and Am and Summer Sadi