WEBVTT - The Fed, Bank of England 0:00:00.760 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEO's, market pros and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.560 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.160 at Bloomberg dot com slash podcast. All right, so the story. Obviously, 0:00:22.400 --> 0:00:25.200 we've got a dueling stories here. What is the FED 0:00:25.239 --> 0:00:28.800 doing and what is the banking system doing? We need 0:00:28.840 --> 0:00:33.040 some informed analysis and judgment. That's why we're bringing Neil Grossman. 0:00:33.080 --> 0:00:35.400 He's a co founder and former CIO of t k 0:00:35.720 --> 0:00:37.880 n G Capital. So Neil, we kind of had a 0:00:37.920 --> 0:00:41.360 little bit of some dueling testimony yesterday with FED Chairman 0:00:41.400 --> 0:00:46.720 Pale Secretary Yellen. What's your takeaway from the Fed's balancing 0:00:46.720 --> 0:00:48.800 act of way, I got to fight inflation, but I've 0:00:48.840 --> 0:00:51.960 also got a shaky, maybe banking system out there. How 0:00:52.000 --> 0:00:54.200 do you think he did yesterday? I think he tried 0:00:54.200 --> 0:00:56.480 to flip thread the line as best as he could. 0:00:57.840 --> 0:01:01.160 I think the approach to saying, look, we still have 0:01:01.160 --> 0:01:03.600 an inflation problem and we're not going to give up 0:01:03.600 --> 0:01:07.760 on that's important. I think that's going to transmit confidence 0:01:07.760 --> 0:01:10.640 to the market over time. But he also is willing 0:01:10.680 --> 0:01:13.680 to say a few things. Obviously he's aware of the 0:01:13.760 --> 0:01:16.720 banking issues. I think he sort of threw SVB under 0:01:16.760 --> 0:01:21.040 the bus a little bit, but he was willing to 0:01:21.040 --> 0:01:23.479 say that some of the consequences not only of what 0:01:23.520 --> 0:01:29.360 they're doing directly with rates, but the consequences of the 0:01:29.400 --> 0:01:31.880 impact of credit tightening and other things that are now 0:01:32.040 --> 0:01:35.280 beginning to flow through the economy are going to have 0:01:35.360 --> 0:01:37.800 an impact as well. And I think ultimately what they're 0:01:37.800 --> 0:01:41.959 trying to do is slow the economy sufficiently to cut 0:01:42.040 --> 0:01:44.520 demand and that will take pressure off prices, and I 0:01:44.560 --> 0:01:46.360 think that's what he's hoping is going to happen. I'm 0:01:46.360 --> 0:01:51.000 gonna actually guess that if you've watched what's happened to 0:01:51.120 --> 0:01:54.960 commodity prices in the last few weeks, I mean, oils 0:01:55.040 --> 0:01:58.360 drop significantly, some of the others that you're likely on 0:01:58.480 --> 0:02:01.680 top of the po to you on your comparisons, that 0:02:01.720 --> 0:02:05.240 we're going to occur anywhere anyway that between now in 0:02:05.320 --> 0:02:09.440 the summertime, you're going to see some of the edge 0:02:09.480 --> 0:02:14.600 come off of prices. And the risk is that they 0:02:14.720 --> 0:02:17.400 take that as success too quickly, but I think they're 0:02:17.400 --> 0:02:20.359 going to find that there is a benefit that it's 0:02:20.360 --> 0:02:22.440 about to start to appear well, Neil. One of the 0:02:23.040 --> 0:02:27.200 major pieces of commentary from like Barclays, from Moodies, from 0:02:27.240 --> 0:02:29.079 a lot of people who are calling for a pause 0:02:29.200 --> 0:02:33.120 was that the Federal Reserve doesn't necessarily need to tighten 0:02:33.160 --> 0:02:37.519 credit conditions further because the lending practices that are coming 0:02:37.600 --> 0:02:39.360 in the next few months are going to do the 0:02:39.440 --> 0:02:42.120 job for it. To what extent is that true? What 0:02:42.160 --> 0:02:44.840 kind of timeline are we looking at there? I mean, 0:02:44.880 --> 0:02:46.760 I think it's going to happen somewhat quickly, but they're 0:02:46.800 --> 0:02:49.160 they're going to always be offsets. For example, last time 0:02:49.320 --> 0:02:52.600 we were talking about, Yeah, weren't you just here about 0:02:52.680 --> 0:02:57.520 the mortgage issue, right? Yeah, Interest rates have fallen rather 0:02:57.600 --> 0:03:02.400 significantly in the last three weeks. You're likely to start 0:03:02.400 --> 0:03:05.800 to see, for example, refinancings show up, and you're probably 0:03:05.840 --> 0:03:08.760 likely to see to the extent that borrowers can buy homes. 0:03:09.080 --> 0:03:13.800 The drop in rates is going to make homeownership more affordable. 0:03:14.560 --> 0:03:17.040 That's running through the credit system as well. But on 0:03:17.080 --> 0:03:20.799 the other side of the coin, smaller businesses like you're 0:03:20.840 --> 0:03:23.720 just talking about biotech. I've actually been paying a lot 0:03:23.760 --> 0:03:26.200 of attention to the biotech space from now a couple 0:03:26.200 --> 0:03:28.639 of years. You're watching that anti fungal stock. Well, yeah, 0:03:28.639 --> 0:03:30.920 I'm gonna I'm gonna have to go check that myself. 0:03:30.960 --> 0:03:35.680 But the maybe we should send it to Washington now. 0:03:35.760 --> 0:03:39.520 But the interesting thing is if listening in I listened 0:03:39.520 --> 0:03:42.560 to at least one or two biotech calls a week, 0:03:43.760 --> 0:03:46.920 and it's been apparent if you actually look at how 0:03:47.200 --> 0:03:52.120 our biotech industry funds itself, their currency of exchange is 0:03:52.160 --> 0:03:58.080 their equity. And companies have great ideas, they spend years 0:03:58.480 --> 0:04:02.320 trying to produce great drugs. Yeah, and along the way 0:04:02.360 --> 0:04:06.360 they have to keep issuing stock to fund themselves. Well, 0:04:06.640 --> 0:04:10.200 the ratepe process has made the value of that stock 0:04:10.480 --> 0:04:15.160 sixty eighty percent less valuable. And if you've looked, it's 0:04:15.200 --> 0:04:18.240 the market for fundraising in biotech in the last year 0:04:18.320 --> 0:04:22.880 is almost shut down. So it's actually a microcosm of 0:04:22.920 --> 0:04:25.360 what you started to see in the broader tech space. Yea, 0:04:25.480 --> 0:04:28.039 and yes, so for all these little companies that all 0:04:28.040 --> 0:04:30.400 the all the tech startups, they're the same, They're they're 0:04:30.440 --> 0:04:33.799 the same. MONI a fan of biotech stocks. I always 0:04:33.800 --> 0:04:36.279 say they're they're binary, right, Your drug either works or 0:04:36.279 --> 0:04:38.640 a dozen that extermines your future. And that's why the 0:04:38.880 --> 0:04:42.680 hedge funds love them. Uh Neil, How serious is this 0:04:42.760 --> 0:04:46.720 banking problem in this country? How concerned are you about it? Um? 0:04:46.800 --> 0:04:49.200 That's a hard that's a very hard question to answer 0:04:49.200 --> 0:04:53.760 at them. I think the problems with the smaller banks 0:04:53.760 --> 0:04:56.800 will have a very interesting economic impact. By the way, 0:04:56.880 --> 0:04:58.479 for whatever it's worth, I was on the board of 0:04:58.480 --> 0:05:02.200 a community bank, which was quite interest thing. I think 0:05:02.200 --> 0:05:03.840 if we go and look at this, though, again, this 0:05:04.040 --> 0:05:05.719 is going to all fall back on the FED. The 0:05:05.720 --> 0:05:07.760 bottom line is the central Bank in the United States 0:05:07.839 --> 0:05:10.840 taught people to ignore risk, to believe that that they 0:05:10.839 --> 0:05:13.320 were never going to do anything too much. The fact 0:05:13.360 --> 0:05:17.000 that we got interest of inflation to eight percent before 0:05:17.000 --> 0:05:20.919 anyone even bothered to dissent and then was told I 0:05:20.960 --> 0:05:24.520 think that when we started hiking last year in what 0:05:24.600 --> 0:05:27.159 was it marches, that they were going to that their 0:05:27.160 --> 0:05:30.000 projections called for rates to peak at two and a 0:05:30.040 --> 0:05:32.000 half or two and three quarter percent in the fall, 0:05:32.040 --> 0:05:33.560 and that was all that was going to be done. 0:05:35.360 --> 0:05:40.120 Nobody the SVB didn't react, and you know, you're gonna 0:05:40.160 --> 0:05:42.479 have to look at the balance sheets. Traditionally, banks we 0:05:42.560 --> 0:05:46.320 worry about credit risk. We don't under seem to understand 0:05:46.640 --> 0:05:51.560 that rate sensitivity irrespective of credit is a big deal. 0:05:51.920 --> 0:05:56.599 SVB was extraordinarily exposed to move into long rates with 0:05:56.760 --> 0:06:00.480 very well we would consider very high credit quality. Well, 0:06:00.520 --> 0:06:02.080 let me ask you about that really quickly, because you 0:06:02.120 --> 0:06:03.760 just said you were on a board of a community bank, 0:06:03.760 --> 0:06:06.120 and I've been dyne asked somebody this. When you are 0:06:06.160 --> 0:06:09.840 hedging duration risk from a market's perspective, it seems like 0:06:09.839 --> 0:06:12.640 a fairly simple trade. Right, You shorten your short the 0:06:12.680 --> 0:06:15.000 front end of the curve, and it feels pretty easy, 0:06:15.000 --> 0:06:17.960 and your perpect yields go higher. Why is that so 0:06:18.000 --> 0:06:20.679 hard if hedging costs aren't spiked. Well, well, two things. 0:06:20.920 --> 0:06:24.560 First of all, there's look, you can hedge every risk 0:06:24.600 --> 0:06:26.920 on a book. Yeah. Right, By the way, I also 0:06:27.000 --> 0:06:29.200 ran a very long long day and interest rate swap book. 0:06:29.520 --> 0:06:32.840 If you hedge, if you hedge anything everything, you end 0:06:32.880 --> 0:06:35.880 up with no profit that to begin with. Yeah, but 0:06:36.400 --> 0:06:38.960 you don't only hedge the short The short end is 0:06:39.000 --> 0:06:42.279 your funding source in general. Yeah. The long end, or 0:06:42.279 --> 0:06:45.640 the longer duration historically is where you're making your investments 0:06:46.080 --> 0:06:49.600 traditionally steep yelk curve, positively slowly you'l curve. Is why 0:06:49.680 --> 0:06:53.480 banks do it this way. They borrow short term and 0:06:53.520 --> 0:06:54.800 by the way you can have you can have a 0:06:54.880 --> 0:06:58.560 floating rate liability that that has a longer data maturity, 0:06:58.560 --> 0:07:00.520 which is something they probably should have been thinking about. 0:07:01.000 --> 0:07:04.720 You invest out the curve, you have positive carry, YadA, YadA, YadA, 0:07:05.640 --> 0:07:08.800 if you're going to ignore the hedging risk what you 0:07:08.880 --> 0:07:11.720 did out there and we were very cognizant, I mean 0:07:11.760 --> 0:07:14.920 every board meeting was talking about where you wanted to 0:07:14.360 --> 0:07:18.080 have your risk hedged and with these again, this is 0:07:18.120 --> 0:07:21.320 where I think some of the problems came. As short 0:07:21.400 --> 0:07:24.520 rates went up, the cost of their tradition, their major money. 0:07:24.520 --> 0:07:26.920 Remember they have ten billion twelve billion of capital. They 0:07:26.920 --> 0:07:30.280 had one hundred and eighty billion dollars of deposits. Deposits 0:07:30.360 --> 0:07:32.360 are almost alway and I don't know what their Federal 0:07:32.840 --> 0:07:37.520 Reserve fellow Homelown bank borrowings look like, but deposits are 0:07:37.560 --> 0:07:42.000 basically tied to short rates. Now, demand deposits have very 0:07:42.000 --> 0:07:47.880 low interest payments, but traditional deposits pay interest, and as 0:07:47.880 --> 0:07:50.800 interest rates go up, that means the value of the 0:07:51.360 --> 0:07:55.200 carry to your long investments keeps going down. Yeah, and 0:07:55.400 --> 0:07:59.160 they just got caught between the fact that they were misheaged, 0:07:59.320 --> 0:08:01.600 they were losing revenue stream and at the end of 0:08:01.640 --> 0:08:04.520 the day, the real problem with SKVB is they had 0:08:04.560 --> 0:08:08.880 four billion dollars or so of insured deposits. I'm going 0:08:08.920 --> 0:08:10.560 to just divert for one second. One of the things 0:08:10.600 --> 0:08:12.600 I've been listening to everyone talking about which has driven 0:08:12.600 --> 0:08:15.320 me crazy is this argument that people shouldn't have to 0:08:15.680 --> 0:08:19.840 have to A very popular man, Neil Grossman, is sorry 0:08:19.840 --> 0:08:23.440 about that, that that we shouldn't have to think about 0:08:23.720 --> 0:08:26.080 The average person shouldn't have to think about the risk 0:08:26.120 --> 0:08:28.760 they're taking with deposits. Well, you don't. Two hundred and 0:08:28.760 --> 0:08:32.439 fifty thousand and below no thought process. But this company 0:08:32.880 --> 0:08:37.240 had very concentrated, large sized deposits with sophisticated institutions who 0:08:37.280 --> 0:08:40.680 should have had known something about this, But it was 0:08:40.720 --> 0:08:42.640 easy for them to realize that they had a problem. 0:08:42.679 --> 0:08:46.000 The money moved very quickly, and when you lose let's 0:08:46.000 --> 0:08:49.680 say thirty percent of your deposit, that means that that 0:08:49.760 --> 0:08:53.160 amount of money that was supporting your investments is gone. 0:08:53.200 --> 0:08:55.760 You have to sell investments, and that's how you get 0:08:55.760 --> 0:08:58.199 a run on the bank and a massive drop and 0:08:59.080 --> 0:09:03.920 against Capito Sinish about thirty seconds left here. The FED 0:09:03.960 --> 0:09:06.360 fund futures market is pricing in rate cuts. Do you 0:09:06.440 --> 0:09:08.760 believe the Fed will cut rates in twenty twenty three 0:09:08.840 --> 0:09:12.000 in the absence of a stock crash? No? Okay, right, 0:09:12.120 --> 0:09:18.320 or some or some truly existential event that creates a 0:09:18.360 --> 0:09:20.439 situation they have no choice. Look, I don't think by 0:09:20.440 --> 0:09:22.680 the end of the year you'll have reached anywhere near 0:09:23.360 --> 0:09:26.120 his two percent target. And even if you do it, 0:09:26.360 --> 0:09:29.040 you need to have it reach and be shown that 0:09:29.080 --> 0:09:32.400 it's stable. So I think the answer is going to 0:09:32.480 --> 0:09:35.880 be and the markets will begin to accommodate and function. 0:09:35.920 --> 0:09:39.000 The question is is if something structurally wrong out there 0:09:39.080 --> 0:09:41.960 that we can't see that creates that type of thing, 0:09:42.040 --> 0:09:43.959 that we're going to start to see the economy slow. 0:09:44.120 --> 0:09:46.760 But that's not necessarily. I'm not refinancing my mortgage anytime, SHO. 0:09:47.320 --> 0:09:48.800 I got you, all right, Neil gross because I'm not 0:09:48.800 --> 0:09:49.840 going to do it. So I got a four in 0:09:49.840 --> 0:09:53.040 front of it. Neil Grossman, co founder and former CIO 0:09:53.360 --> 0:09:55.880 of t k NNG Capital, joining us here in our 0:09:55.840 --> 0:09:59.920 Bloomberg Interact, a broker studio. You're listening to the dam 0:10:00.320 --> 0:10:03.920 Ken's her Line program Bloomberg Markets weekdays at ten. AMI's 0:10:04.000 --> 0:10:06.880 Daring on Bloomberg dot Com, the I Heart Radio app 0:10:06.960 --> 0:10:09.880 and the Bloomberg Business App. We're listening on demand wherever 0:10:09.920 --> 0:10:14.320 you get your Podcastle's looking at this market here, just 0:10:14.400 --> 0:10:16.559 kind of moving up higher, get, you know, kind of 0:10:16.679 --> 0:10:19.360 retracing a little bit of some of those losses we 0:10:19.400 --> 0:10:21.959 saw yesterday. Where do we go from here? Let's check 0:10:21.960 --> 0:10:23.480 in with somebody who does this stuff for a living, 0:10:23.800 --> 0:10:27.120 Jackie Bowie. She's a managing partner ahead of em EA 0:10:27.200 --> 0:10:32.640 for Chatham Financial. She's located in London. So Jackie, thanks 0:10:32.640 --> 0:10:34.120 so much for joining us here. How do you put 0:10:34.120 --> 0:10:38.719 in context yesterday's trading versus what we've seen so far 0:10:38.840 --> 0:10:41.680 this morning? Kind of a kind of one eighty to return. 0:10:42.040 --> 0:10:46.080 How are you guys looking at it? Yeah, well, they 0:10:46.120 --> 0:10:49.360 think the markets have seen a lot of turmoil and 0:10:49.600 --> 0:10:52.440 fear in the last a few weeks with the banking 0:10:52.520 --> 0:10:58.480 situation globally and with the big central banks announcements We've had, 0:10:58.640 --> 0:11:01.200 you know, yesterday with the Fair and then today with 0:11:01.240 --> 0:11:05.920 the Bank of England and nothing particularly scary coming out 0:11:05.960 --> 0:11:08.360 of that. I think there's definitely a little bit of 0:11:08.400 --> 0:11:11.480 a relief in the markets, and we see across the 0:11:11.520 --> 0:11:14.520 intrast rate market too, which when the Fed made their 0:11:14.600 --> 0:11:18.199 statement yesterday and again Bank of England literally out in 0:11:18.440 --> 0:11:21.679 the last hour or so, the market reaction has been 0:11:21.720 --> 0:11:25.760 pretty muted. So it maybe just feels like a little 0:11:25.760 --> 0:11:27.880 bit of a sigh of relief that we may be 0:11:28.040 --> 0:11:31.640 through some of the difficult and turmoil and the risk 0:11:31.720 --> 0:11:35.719 of financial instability that we've had in the last few weeks. Well, 0:11:35.760 --> 0:11:38.840 speaking of that financial instability that we've seen in the 0:11:38.880 --> 0:11:41.120 last few weeks, how long is that going to continue? 0:11:41.120 --> 0:11:42.760 It feels like when you're looking at these markets, they're 0:11:42.760 --> 0:11:48.280 still moving pretty volatily. If the banking crisis is indeed, 0:11:48.840 --> 0:11:51.240 dare I say it over or without chinxing it, how 0:11:51.320 --> 0:11:55.240 much longer can we expect that this is going to happen? Well, 0:11:55.280 --> 0:11:57.760 if we believe what the central banks have been telling 0:11:57.880 --> 0:12:02.080 us in the last few days with their announcements, we 0:12:02.160 --> 0:12:06.040 should be fairly comfortable that we've we've seen the worst 0:12:06.120 --> 0:12:09.200 of it. With regard to you, it's not likely to 0:12:09.440 --> 0:12:13.320 have further contained a contagion and spread throughout throughout the 0:12:13.320 --> 0:12:17.719 rest of the financial industry and across other banks. If 0:12:17.760 --> 0:12:20.400 you read some of the announcements from the Bank of 0:12:20.440 --> 0:12:23.880 England today, they were very clear in trying to reinforce 0:12:24.040 --> 0:12:27.880 the message about the liquidity positions that are in place 0:12:28.320 --> 0:12:32.640 and overget the global central banks have continued to support 0:12:32.720 --> 0:12:36.080 the liquidity in the markets and through the global slop lines, 0:12:36.160 --> 0:12:38.880 which you know they've said they'll continue that through the 0:12:39.000 --> 0:12:43.440 end of April. So there's a definite coordinated attempts to 0:12:43.480 --> 0:12:47.040 try and allay fears in financial markets that there is 0:12:47.120 --> 0:12:50.280 more to come. And yeah, and I guess that they 0:12:50.320 --> 0:12:52.880 interest rate moves from the central bank. So the FED 0:12:53.000 --> 0:12:56.680 raising last night and the Bing of England raising today 0:12:56.920 --> 0:12:59.480 for National Bank also race today. So did there no 0:12:59.600 --> 0:13:03.800 region central bank. So the markets that are probably interpreting 0:13:03.840 --> 0:13:07.199 that to say, well, actually they don't seem overly concerned 0:13:07.240 --> 0:13:11.400 about the financial instability and continue to be focused on 0:13:11.480 --> 0:13:16.040 their inflation targets and using monetary policy to meet those 0:13:16.040 --> 0:13:20.280 inflation targets. Hey, Jackie, as the head of em EA 0:13:20.360 --> 0:13:22.600 at Chattam Financial, I'd love to get your opinion on 0:13:23.520 --> 0:13:26.360 credits with ubs. What's your take now that we have 0:13:26.400 --> 0:13:29.480 a couple of days of hindsight about that transaction and 0:13:29.559 --> 0:13:36.920 more importantly about the health of the banking sector across Europe. Sure, well, 0:13:36.960 --> 0:13:41.240 I think we're all still digesting the actual structure of 0:13:41.280 --> 0:13:46.679 that transaction, and clearly there's a lot of issues arising 0:13:46.720 --> 0:13:50.719 around how it was structured with regard to the situation 0:13:50.800 --> 0:13:55.720 with certain bondholders, certainly from the clients that chats and advise. 0:13:56.120 --> 0:13:59.840 What we're focused on is trying to understand how you 0:14:00.040 --> 0:14:04.320 bs will actually absorb credits waste. You know, it's not 0:14:04.360 --> 0:14:08.199 a small institution that it's a huge, you know, systemically important, 0:14:08.280 --> 0:14:11.040 which is why it was rescued the way the way 0:14:11.080 --> 0:14:14.079 that it was. So we're still just trying to understand 0:14:14.160 --> 0:14:17.840 what the exposures are for for UBS as they take 0:14:17.920 --> 0:14:21.480 that bank on. We've focused on the derivative markets, of course, 0:14:21.520 --> 0:14:24.920 so that's where our main focus will be. But I think, 0:14:25.200 --> 0:14:27.720 you know, even at a very basic level, you're taking 0:14:27.800 --> 0:14:31.440 out one huge lender in the market, So does that 0:14:31.520 --> 0:14:36.040 mean that in lending is going to be tighter? And 0:14:36.080 --> 0:14:40.040 we're already seeing in credit conditions tightening across the European 0:14:40.120 --> 0:14:43.280 banking sector as it stands at the moment. So I 0:14:43.320 --> 0:14:47.800 think there's some concern that it will reduce credit capacity 0:14:47.960 --> 0:14:51.680 in the market. But again there isn't any director read 0:14:51.720 --> 0:14:55.960 across to other European banks, Jackie. Let's go a little 0:14:55.960 --> 0:14:59.480 bit more international here and talk about the Bank of England. 0:15:00.000 --> 0:15:02.680 Some expectation here, This could be that their potential last 0:15:02.840 --> 0:15:05.440 right hig the ECB not really showing signs of slowing down. 0:15:06.160 --> 0:15:07.920 What is it or who I should say is the 0:15:08.040 --> 0:15:10.400 most hawkish central bank in the world right now, because 0:15:10.440 --> 0:15:15.960 I just can't tell, so probably we would say the ECB. 0:15:16.440 --> 0:15:20.160 So the European Central Bank, So they raised fifty basis 0:15:20.240 --> 0:15:24.760 points last week and continue in their statements to be 0:15:26.040 --> 0:15:30.040 pretty hawkish with regard to how much further in those 0:15:30.120 --> 0:15:33.680 right rises could be. And actually, if you move away 0:15:33.760 --> 0:15:37.120 from what the central banks are telling us in their 0:15:37.280 --> 0:15:41.040 statements and look at what the market is pricing, you 0:15:41.120 --> 0:15:45.440 would also come to that conclusion. There's an expectation from 0:15:45.480 --> 0:15:49.160 the market that they said would is going to start 0:15:49.160 --> 0:15:52.440 cutting weights they said, not saying that, in fact that 0:15:52.520 --> 0:15:55.520 they're saying the opposite, and the same with the Bank 0:15:55.560 --> 0:15:59.200 of England. But on the ECB side, for the European 0:15:59.600 --> 0:16:02.520 for the Rose Zone, there is no expectation that those 0:16:02.600 --> 0:16:05.240 rates are going to start coming back down the other side, 0:16:05.560 --> 0:16:09.200 so certainly most hawkishness still coming from and the European 0:16:09.240 --> 0:16:12.440 Central Bank. I would say, Jackie, what was your takeaway 0:16:12.480 --> 0:16:16.040 from a very active afternoon in US markets yesterday with 0:16:16.200 --> 0:16:19.840 a Secretary of the Treasure yelling speaking, and of course 0:16:20.160 --> 0:16:25.040 we had the conference press conference and statement by FED 0:16:25.120 --> 0:16:30.920 Chairman Jpal What was your takeaway from that collectively? Well, 0:16:30.960 --> 0:16:33.560 I would say that the language in the statement was 0:16:34.280 --> 0:16:38.960 definitely softer, and I think the market took that very positively, 0:16:40.200 --> 0:16:42.960 you know, signaling that they are coming to the end 0:16:43.040 --> 0:16:47.120 of the tightening cycle. And again you can get into 0:16:47.200 --> 0:16:50.560 the real granularity of the exact words that were used, 0:16:50.600 --> 0:16:53.920 and I think the exact quote was there. Maybe some 0:16:54.200 --> 0:17:00.280 additional firm may be appropriate, you know, just that slightly 0:17:00.360 --> 0:17:04.560 software language and certainly gates the markets and confidence that 0:17:05.520 --> 0:17:09.800 the central banks are not very focused well, that they're 0:17:09.840 --> 0:17:12.760 not using the financial instability as a reason to change 0:17:12.800 --> 0:17:16.960 the monetary policy direction. Well when it comes to monetary 0:17:17.000 --> 0:17:21.160 policy direction, though, it also feels like everyone is expecting 0:17:21.160 --> 0:17:23.119 this to be the end of the tightening cycle, but 0:17:23.520 --> 0:17:26.600 inflation still hasn't come down By the margin that I 0:17:26.640 --> 0:17:29.119 think a lot of central banks are looking for. Could 0:17:29.119 --> 0:17:31.919 we potentially see, instead of cuts in the back half, 0:17:31.960 --> 0:17:37.320 a reacceleration of that hawkish monetary policy. I think that's 0:17:37.359 --> 0:17:41.600 definitely a possibility. And in quite the UK have their 0:17:41.680 --> 0:17:45.760 inflation numbers yesterday morning and they surprise to the upside. 0:17:46.200 --> 0:17:49.680 And the concerning trend within that is that it was 0:17:49.720 --> 0:17:54.320 the code inflation, so food pricing. Everyone's been talking about that, 0:17:54.400 --> 0:17:57.840 the increased cost of salads in Europe and the shortages 0:17:57.880 --> 0:18:00.760 and some of the food items. So we started to 0:18:00.800 --> 0:18:03.960 see the improvement and inflation globally due to the fall 0:18:04.040 --> 0:18:08.960 and the energy prices, but that's been substituted by increases 0:18:09.000 --> 0:18:12.000 in core core inflation, which is more of a more 0:18:12.000 --> 0:18:14.600 of a concern, you know, And I guess in the 0:18:14.720 --> 0:18:17.800 US there's an expectation that, well, what's you know, the 0:18:17.880 --> 0:18:21.800 feder forecasting, of course, since the inflation to decrease back 0:18:21.840 --> 0:18:24.560 down to about three point six percent by the end 0:18:24.600 --> 0:18:27.159 of this year and then start to get back to 0:18:27.240 --> 0:18:30.160 that two percent target by the end of twenty twenty five. 0:18:31.320 --> 0:18:33.520 There's a lot of things that have to go in 0:18:33.560 --> 0:18:36.480 the right direction for that to be achieved. So yeah, 0:18:36.480 --> 0:18:39.560 I agree with you. I don't think it's completely outside 0:18:39.600 --> 0:18:44.040 the realms of possibility that that cup and interest rates, 0:18:44.040 --> 0:18:47.080 if it comes, might come a little bit too early 0:18:47.200 --> 0:18:51.160 before inflation is completely under control. All right, Jackie, thank 0:18:51.160 --> 0:18:53.280 you so much for joining us. We really appreciate getting 0:18:53.520 --> 0:18:55.439 some of your time and your perspective on these markets. 0:18:55.480 --> 0:18:59.159 Jackie Bowie. She is the managing partner ahead of EA 0:18:59.200 --> 0:19:03.480 at Chatham fan Chell, based in London. I appreciate getting 0:19:03.520 --> 0:19:06.120 some of her time. You're listening to the tape. Ken's 0:19:06.119 --> 0:19:09.680 are Live program Bloomberg Markets weekdays at ten am Eastern 0:19:09.920 --> 0:19:13.159 on Bloomberg Radio, tune in app, Bloomberg dot Com, and 0:19:13.240 --> 0:19:16.000 the Bloomberg Business App. You can also listen live on 0:19:16.080 --> 0:19:19.360 Amazon Alexa from our flagship New York station, Just say 0:19:19.440 --> 0:19:25.800 Alexa play Bloomberg eleven thirty. Let's piece together for these 0:19:25.840 --> 0:19:28.520 banks out there. Pretty you know, we had maybe listen 0:19:28.560 --> 0:19:32.880 to Chairman Pall yesterday and Secretary yelling. I'm not sure 0:19:32.880 --> 0:19:36.400 I heard the same kind of message in terms of 0:19:36.480 --> 0:19:38.880 the support for the banks out there. So I want 0:19:38.880 --> 0:19:41.000 to really get a sense of what the experts think. 0:19:41.000 --> 0:19:42.840 And Alison Williams is certainly one of those she's a 0:19:42.920 --> 0:19:47.640 senior banks analyst for Bloomberg Intelligence. So, Alison, what did 0:19:47.680 --> 0:19:51.160 you take away from again that dueling testimony yesterday from 0:19:51.200 --> 0:19:55.320 FED Chairman Powell and Secretary Yelling about how they view 0:19:55.440 --> 0:19:57.359 kind of what's going on in the US banking system. 0:19:58.320 --> 0:20:01.000 So I think the one thing that I'd be consistent 0:20:01.080 --> 0:20:04.280 is that they you know, they are sending trying to 0:20:04.280 --> 0:20:07.760 send a message of confidence in the system in terms 0:20:07.920 --> 0:20:12.000 of the FED focusing on um fighting inflation and its job. 0:20:13.119 --> 0:20:16.280 As as to Yellen's comments, I mean her comments that 0:20:16.280 --> 0:20:19.080 they're not looking at blanket insurance, I think does not 0:20:19.200 --> 0:20:24.800 roll out other types of actions, and I think, you 0:20:24.840 --> 0:20:28.560 know that maybe what's taking so long, if you will, 0:20:28.760 --> 0:20:34.120 We've seen a lot of different people speaking um, politicians, 0:20:34.119 --> 0:20:36.920 advisors to politicians about how they're looking about thinking about 0:20:36.960 --> 0:20:42.040 the issue a blanket Uh. You know, obviously a blanket 0:20:43.000 --> 0:20:45.879 insurance of all deposits would solve all of you know, 0:20:46.280 --> 0:20:49.919 would make people feel better, but that also causes international 0:20:50.000 --> 0:20:53.080 ramifications than to you know, all the other countries have 0:20:53.160 --> 0:20:56.760 to do that or risk deposit flight, and also be 0:20:56.840 --> 0:21:01.000 extremely expensive because the banks do pay for that insurance. 0:21:01.000 --> 0:21:05.080 And ultimately that would be passed on to customers. You know, 0:21:05.080 --> 0:21:09.119 there's also the tough part about, you know, the legality 0:21:09.160 --> 0:21:12.679 around implementing that, about being able to change that. And 0:21:12.760 --> 0:21:16.800 so what I think that UM regulators are more trying 0:21:16.840 --> 0:21:18.840 to think about, our politicians are trying to think about, 0:21:19.000 --> 0:21:21.880 is you know, is there a way to try to 0:21:21.880 --> 0:21:26.800 target the area where the concerns are. And so it's 0:21:26.840 --> 0:21:31.280 not at the biggest banks this time. They're they're benefiting 0:21:31.320 --> 0:21:34.320 from a flight to safety is the presumption and some 0:21:34.359 --> 0:21:36.560 of the reports that we see, and it's not the 0:21:36.640 --> 0:21:42.080 smallest community banks. It's really this sort of center regional banks. 0:21:42.119 --> 0:21:45.840 And a lot of the issue there is that you 0:21:45.960 --> 0:21:49.639 have these banks serve small and medium businesses and a 0:21:49.680 --> 0:21:52.919 lot of the uninsured deposits they have relate to these businesses. 0:21:52.920 --> 0:21:56.480 So it's not like your average consumer that can diversify 0:21:56.520 --> 0:21:59.280 and put some money here and there. It's generally, you know, 0:21:59.760 --> 0:22:02.240 the a company that works with their lender and has 0:22:02.280 --> 0:22:05.760 all their operating cash in one bank. And so I 0:22:05.800 --> 0:22:09.240 think that's that's the question. How can those relationships be 0:22:09.320 --> 0:22:12.880 preserved and yet at the same time give people comfort 0:22:12.920 --> 0:22:18.520 that those deposits u won't be flighty Alison do we 0:22:18.960 --> 0:22:22.480 or should we expect more consolidation in the sector. It 0:22:22.480 --> 0:22:25.439 feels like this idea of acquisitions from First Republic and 0:22:25.480 --> 0:22:28.399 extra financing, it really is a result of kind of 0:22:28.400 --> 0:22:31.080 the baky turmoil that we've seen. But moving forward, does 0:22:31.119 --> 0:22:36.600 this almost incentivize consolidation, I mean, it's consolid This is 0:22:37.000 --> 0:22:42.320 a problem that doesn't necessarily solve the issues, if you will, 0:22:42.400 --> 0:22:45.960 because that the main issue across all the banks, right 0:22:46.080 --> 0:22:51.399 is that you know, these health to maturity portfolios and 0:22:51.440 --> 0:22:54.679 the deposits supporting them, and so you know, if you 0:22:54.920 --> 0:22:58.720 if you are just adding balance sheets together, it doesn't 0:22:58.720 --> 0:23:00.920 make a difference until you you know, unless you get 0:23:00.960 --> 0:23:06.000 to that level of the big secure banks. So First 0:23:06.000 --> 0:23:10.440 Republic is obviously the one that everyone's watching, and at 0:23:10.440 --> 0:23:14.600 the biggest banks are not allowed to acquire beyond ten percent, 0:23:15.760 --> 0:23:18.760 So there could be a question about the next tier 0:23:18.760 --> 0:23:22.520 of banks that you know, are these I think regulators 0:23:22.600 --> 0:23:26.399 might want to see some uh, some of these maybe 0:23:26.440 --> 0:23:32.560