Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Meryon Talks Money News round Up, where
Speaker 2: we talk about the biggest moves in the markets this
Speaker 2: week and what's driving them. I'm joined Stebic, senior editor
Speaker 2: at Bloomberg and author of the multi award winning Money
Speaker 2: This the newsletter, enjoining me as usual in Mern's absence
Speaker 2: as friend of the show, Marcus Ashworth. Marcus is a
Speaker 2: Bloomberg opinion columnist with a deep expertise. It says here
Speaker 2: in European markets, but I would spend that to bond
Speaker 2: markets and markets generally, and yes, as would be all
Speaker 2: always a regular contributor, so yeah, no, nice to have
Speaker 2: you back, Marcus.
Speaker 1: My pleasure that.
Speaker 2: It's siically been quite a hectic week this week already
Speaker 2: and it's only Thursday morning.
Speaker 1: Well, we do have obviously shot moves in things that
Speaker 1: you've been going anything, but app finally we realize that
Speaker 1: they can actually also stop going up and even go
Speaker 1: down a bit.
Speaker 2: I SA this was interesting because just before when they
Speaker 2: you're the Piso last week, basically seeing that they can
Speaker 2: the debate.
Speaker 1: In the trade I think was the exact words.
Speaker 2: Yeah, you said the abasement tree was basically made up? Story?
Speaker 2: Is that reasonable?
Speaker 1: Well, I mean there's obviously there's some foundation. Like anything,
Speaker 1: there's always some some semblance of truth in the fact
Speaker 1: that governments do need to learn how to cut spending
Speaker 1: or certainly reduce the increase in it. But to try
Speaker 1: and extrapolate that across that the dollar is over and
Speaker 1: that the only thing you can have is crypto and
Speaker 1: indeed gold I thought was just a little bit too
Speaker 1: much for me. This was a great trade, which is
Speaker 1: everyone since seem to think it was a momentum trade
Speaker 1: and would only ever continue going up. And we just
Speaker 1: found that limit of you know, it's still doing extremely
Speaker 1: well and that will continue to do very well, but
Speaker 1: just need a bit of a health correction.
Speaker 2: So yeah, I bet, yeah, breather at least. Yeah, it
Speaker 2: has been looking quite toppy.
Speaker 1: Right above, you know. So it's gone up so far
Speaker 1: so fast that it literally and there isn't any real reason,
Speaker 1: I think, for it to be quite so sustainable. But
Speaker 1: you know, there we go nice to see things like
Speaker 1: silver and palladium and platinum and mine all the mining
Speaker 1: stops finally catch up. But fine enough, that's when that happens.
Speaker 1: You know that, but I certainly think gold has got
Speaker 1: some validity. And the thing is people don't really sell gold,
Speaker 1: that really want the whole gold. They keep on holding it.
Speaker 1: Central banks and individuals alike. Having said that, there was
Speaker 1: clearly some far too much leverage and reto momentum going
Speaker 1: in it, and that just needed a bit of a
Speaker 1: health check. So I'm probably healthier for it.
Speaker 2: Yeah, And I'll be interesting to see how that continues,
Speaker 2: because well, the other thing that I don't know what
Speaker 2: I mean again, I'm sure you've noticed this, but maybe
Speaker 2: in the last month or so, there's been a real
Speaker 2: ton in the boind market. It's going to go on
Speaker 2: from being, you know whatever, higher yields to a sort
Speaker 2: of sense that maybe yields are high enough now that
Speaker 2: attractive plate inflation is coming down.
Speaker 1: You look at ten year gilts, they're fifty basic points
Speaker 1: off the highs. You look at two year gilts, they're
Speaker 1: ninety basis points off. But this is driven principally by J.
Speaker 1: Powell perhaps realizing that there is actually some reason to
Speaker 1: lean on the employment side of his mandate and can
Speaker 1: cut rates. I expect them on Wednesday to do two things,
Speaker 1: One which is lower again by twenty five base points
Speaker 1: and more importantly stop all forms of constituted tight This
Speaker 1: is the Federals just to be a part of me
Speaker 1: to make that clear, which and I think they will
Speaker 1: do the same again and cutting in December. There's a
Speaker 1: risk they might do fifty base points on these point.
Speaker 1: But let's say they're cut by fifty base points by
Speaker 1: the end of this year. That's going to put a
Speaker 1: lot of pressure on Andrew Bailey and co. Who are
Speaker 1: would be then fifty base points above the FED and
Speaker 1: SEED not just doing constantive tightning, but active and passive.
Speaker 1: So I think there will be some pressure on them
Speaker 1: to do something about that. And that's really reflected now
Speaker 1: and two or three bits of data, principally labor market
Speaker 1: data is showing that pay expectations and pay pay levels
Speaker 1: are off siteing to come down, and principally the private sector.
Speaker 1: They don't think it's keeping up ironically public sector bonuses,
Speaker 1: but let's not go into that for now. The point
Speaker 1: is is that what they need to see and they
Speaker 1: do want to see is private sector always levels down
Speaker 1: to around three three and a half yea, which is
Speaker 1: starting to happen and quite clearly so, and then we
Speaker 1: had CPI which was really look at three point eight percent.
Speaker 1: People I think, oh, what's a big fuss because it
Speaker 1: was three percent the previous month. But the key thing
Speaker 1: is we expect to go to four, possibly even higher,
Speaker 1: and that was going to be probably a peak. The
Speaker 1: fact that we've seen probably quite clear signs a little
Speaker 1: bit brave here that we've seen the top of inflation
Speaker 1: in the UK. That means in October we're going to
Speaker 1: see a bunch of stuff coming off, particularly on energy prices.
Speaker 1: That just the way the basis works, So we truly
Speaker 1: get zero point two off next month anyway, that's just
Speaker 1: the energy effect. It's quite possible in the budget of
Speaker 1: November twenty sixth that rage Relie finally learns a lesson
Speaker 1: that she needs to get out of the way of
Speaker 1: the Bank of England and stop doing stuff which pushes
Speaker 1: inflation up. Eg. Minimum wage rises, civil service pay arises,
Speaker 1: and of course national insurance on employers, which has really
Speaker 1: contributed to a lot of food inflation because it's the
Speaker 1: cost of delivery of food, not the underlying commodity stuff
Speaker 1: that's been driving it up. That's rippled throughout the economy.
Speaker 1: But the point is that she can get. Perhaps one
Speaker 1: of latest things maybe make mister millerband happy, is that
Speaker 1: they reduce the the AT level on energy five percent
Speaker 1: down a zero. It's a complete con and we're all
Speaker 1: just being tricked by it, but it will lower inflation
Speaker 1: quite noticeably, which means we should be down to below
Speaker 1: three percent into the two and a halfs by the
Speaker 1: early part of next year. Could mean the bank could
Speaker 1: cut as early as decemah one bank is calling for
Speaker 1: November bold but in order too now starting the call
Speaker 1: for December, and I think certainly by February they like
Speaker 1: doing on their quarterly things. I don't think they'll move
Speaker 1: in November their quarterly meeting, but they will certainly tea
Speaker 1: things possibly in December for a cut in February.
Speaker 2: I mean the tricky thing is, I mean, I think
Speaker 2: that's a really good point for Rachel Reeves and she's
Speaker 2: going to want to do what she can to avoid
Speaker 2: the annual April bumping inflation, which is basically yeah. I
Speaker 2: mean Simon for angel over at Pine has been making
Speaker 2: this point for a while. The UK, well, the UK
Speaker 2: standout the outlier status is basically all based on that
Speaker 2: indexation moment in every April where the kind of places
Speaker 2: go up and then that kind of represent for the
Speaker 2: days that the year.
Speaker 1: Really did this year, and that's that's going to take
Speaker 1: a while of filter through. But we do pay the
Speaker 1: banking and there's lots of them to work and see
Speaker 1: through these things. So yes, that they know everyone says,
Speaker 1: oh they can't, they can't cut because inflation is going
Speaker 1: well in the US, they can And I think the
Speaker 1: US leads, and I think banking will follow. I won't
Speaker 1: want to leave too much for gaps, so I expect
Speaker 1: and hope that some of the dats come through, which
Speaker 1: is actually quite worrying on the economy on that side.
Speaker 1: But certainly that inflation is probably we've seen the worst
Speaker 1: of it.
Speaker 2: Yeah, and maybe again, it'll be interesting to see what
Speaker 2: Rachel Reevesen does because presumably that will also rule out
Speaker 2: or rather focus on inflation, will rule out some of
Speaker 2: the things that have been talked about, like equalizing VAT
Speaker 2: up the way. She's not going to put VAT up
Speaker 2: on anything because that would push prices higher.
Speaker 1: Presumably Parrington's stare when you mentioned things like this, I
Speaker 1: certainly hope not.
Speaker 2: Yes, you don't give any ideas. Okay, let's let's partner
Speaker 2: that I mean, and the other big thing this week,
Speaker 2: which I feel this always goes slightly under reported because
Speaker 2: you know what I mean, Japan is the world's fatal
Speaker 2: argest economy still and kind of like the one of
Speaker 2: the most important developed markets. But it just got his
Speaker 2: new prime minister, who is so seen as an ear
Speaker 2: to chins well be yeah.
Speaker 1: I mean, I think that's slightly over said because she
Speaker 1: doesn't have anything like the freedom that he did the
Speaker 1: verse obviously twice he was Prime minister. But I mean,
Speaker 1: and the three arrows of the ABE reform were never
Speaker 1: really fired very well, certainly the last and in the
Speaker 1: sense of whole overall reform of but there are definitely
Speaker 1: in the Turkey stock exchange in particular, I've done some
Speaker 1: really rather rather impressive things, and that I think is
Speaker 1: it's still I mean, you know, I've long had Japanese
Speaker 1: stocks that have lived there, and you know, injying Japanese
Speaker 1: who's in convertible bonds for many years. I definitely, you know,
Speaker 1: still believe and I think there is a lot of
Speaker 1: reform to come through and that stock market will continue
Speaker 1: probably to rise better than most, so I don't I
Speaker 1: still believe in it. I just don't think necessarily we
Speaker 1: should expect too much. This is Japan, after all, and
Speaker 1: she's not going to be allowed to do too much.
Speaker 1: But certainly she's going to talk talk, and that's at
Speaker 1: least optimistic. And I think that the mank Japan will
Speaker 1: probably raise it in straights at some point, but they're
Speaker 1: not in a rush. Absolutely not the right because I
Speaker 1: still don't think they feel rightly so that the whole
Speaker 1: deflation real aspect of many decades has gone away from
Speaker 1: Japan and it can quite easily reassert So in that
Speaker 1: sense we will get slightly higher rates stadly going to
Speaker 1: get high on you is probably over time, but this
Speaker 1: is all normalization, ever so slowly taking ages, but it should,
Speaker 1: I hope, continue to see some economic strength and indeed
Speaker 1: have reflected in the stock market Japan.
Speaker 2: Yea thought it's on in because obviously the neck and
Speaker 2: the topics have both cartes. Be any thoughts from the
Speaker 2: yen because obviously we're tom primali uki in vestas here,
Speaker 2: so you're buying in poones. A lot of your kind
Speaker 2: of gains are being kind of dented at least by
Speaker 2: this week.
Speaker 1: You can't hand it obviously. But the point here is, yeah,
Speaker 1: then it's a tricky what record. It could go either
Speaker 1: way really quite very quickly, and everyone's aware of that.
Speaker 1: At the moment. It's sort of held quite sort of
Speaker 1: carefully versus the dollars. Certainly, I don't think sterning is
Speaker 1: going to be desper well the next two or three
Speaker 1: months because outline and well, yeah in straights and as
Speaker 1: to the economy is it's starting to turn it a
Speaker 1: little bit as well. But in the end terms, look
Speaker 1: as far as I as I see, I think, you know,
Speaker 1: the end could and should weaken. But you know, it
Speaker 1: really does have one of those things. When it trends,
Speaker 1: it trends very quickly, and the rest of the time
Speaker 1: that they do try to keep it boxed in. And
Speaker 1: I suspect the bank pan will be very careful to
Speaker 1: do as much as they can, and then the Minister
Speaker 1: find us as well to keep it that way.
Speaker 2: Oh yeah, I suppose that one phase three is a
Speaker 2: dollar that's quite I mean what I means, who much
Speaker 2: week I can it comfortably get before they start to
Speaker 2: what are you about it?
Speaker 1: Well, they're worried about all the time so it can
Speaker 1: you know, certainly can get down through on six and
Speaker 1: all that sort stuff. And I just don't know, It's
Speaker 1: honest answer, I really don't know it can way and
Speaker 1: anyone tells you they do.
Speaker 2: Know.
Speaker 1: Again, I think it's probably lots of bad things can happen,
Speaker 1: so hege half, Yeah, well that's not bad way of
Speaker 1: looking at actually exactly. I mean, I think you know,
Speaker 1: there's certainly there's there's some some optimistly And one thing
Speaker 1: I would note is that if you're thinking the US
Speaker 1: dot market is both topping, indeed that domestic US moneys
Speaker 1: will look at overseas, Japan is a very keen and
Speaker 1: obvious place for company European bank stocks, a lot of
Speaker 1: Japanese both tech and other sides that they're they're they're
Speaker 1: hedge funds, are very own funds that are very familiar
Speaker 1: with investing Japan over the years. It's a natural first
Speaker 1: place for them to go. And I think you're already
Speaker 1: seeing that a lot of money from me out of
Speaker 1: the States, where would it go, It would go to Japan,
Speaker 1: probably one of the top priorities.
Speaker 2: Great, Thanks very much, Marcus, seeing your time. As always,
Speaker 2: thank you for listening to this week's Medelm talks about
Speaker 2: any debrief. If you like a show, rate review, and
Speaker 2: subscribe whatever, you listen to podcasts and keep saying questions
Speaker 2: of comments to Men and Money at Bloomberg dot net
Speaker 2: and you can also follow me and Marcus or x
Speaker 2: I'm joined Underscore STEPIC and Marcus is at Marcus Ashworth.
Speaker 2: This episode was hosted by Me Joined STEPIC that was
Speaker 2: produced by Moses and and Summer Sadi