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Speaker 1: This is Bloomberg Daybreak Europe for this Thursday, the eleventh

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Speaker 1: of May in London. Coming up today.

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Speaker 2: Nothing is off the table. Bundesbank resident Jokim Nagel tells

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Speaker 2: Bloomberg a September hike may be needed a catastrophe.

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Speaker 1: The US Treasury Secretary warns the whole world is in

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Speaker 1: trouble if America defaults.

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Speaker 2: A double digit problem. Surging inflation set to force the

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Speaker 2: Bank of England into a twelfth straight rate rise.

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Speaker 1: Plus Disney minus the entertainment Giant sees a drop in

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Speaker 1: streaming subscriptions.

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Speaker 3: That's all straight ahead on Bloomberg Daybreak Europe. The business

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Speaker 3: news you need to start your day in just one

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Speaker 3: fifteen minute podcast on Apple, Spotify, the Bloomberg Business app

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Speaker 3: and everywhere you get your podcasts.

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Speaker 1: Good morning from London. I'm Stephen Carroll and I'm Managered.

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Speaker 2: Was you're listening to Daybreak Europe. Let's get two on

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Speaker 2: top stories and we start with that interview that you mentioned.

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Speaker 2: The head of Germany's Bundesbank says nothing is off the

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Speaker 2: table for the ECB's September meeting, as the bank tries

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Speaker 2: to bring inflation under control. Yokim Nagle has been speaking

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Speaker 2: exclusively to Bloomberg, saying a meeting by meeting approach is

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Speaker 2: right for the ECB.

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Speaker 4: I guess there's nothing off the table, so I'm not

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Speaker 4: speculating here. I think what I realized is that, first

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Speaker 4: of all, and this is good news, that the headline

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Speaker 4: inflation is coming down. Core is still very sticky, but

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Speaker 4: this is also not a surprise. Food inflation is still

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Speaker 4: very high. So what I see is that we are

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Speaker 4: coming closer to the restrictive territory, but we are not there.

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Speaker 2: Yokim Nagel was speaking to Bloomberg Stephen Engel after EASB

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Speaker 2: officials told us they're starting to accept that interest rate

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Speaker 2: hikes might need to continue in September. That could mean

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Speaker 2: three more possible moves, bringing the deposit rate to four.

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Speaker 1: Percent, the back of England. Meanwhile, they're set to raise

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Speaker 1: rates by a quarter point today. The move will take

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Speaker 1: would take the bank's base rate to four point five percent,

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Speaker 1: the highest thin two thousand and eight. Speaking to us

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Speaker 1: here on Bloomberg Radio, former Monetary Policy Committee member sis

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Speaker 1: Shiel Wadwani says there is a strong argument for not

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Speaker 1: going much higher.

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Speaker 5: I think the risks of a US recession have gone up,

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Speaker 5: which I then think possibly make it unwise for US

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Speaker 5: to take rates in the UK two five percent or

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Speaker 5: above what one is.

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Speaker 1: You feeds into a debate about whether the Central Bank

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Speaker 1: will again leave the door open to more rate hikes.

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Speaker 1: The decision due at midday London time, with a press

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Speaker 1: conference half an hour later, and Governor Andrew Bailey is

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Speaker 1: speaking to Bloomberg at four pm.

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Speaker 2: In the past, at twenty four hours, both President Biden

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Speaker 2: and his Treasury Secretary Janet Yellen have both warned that

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Speaker 2: a default would have a devastating impact on the global economy.

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Speaker 2: Speaking this morning, Yellen did not hold back in her

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Speaker 2: assessments of what will happen if the US hits the

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Speaker 2: debt ceiling.

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Speaker 6: In my assessment, in that of economists across the board,

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Speaker 6: a default on US obligations would produce an economic and

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Speaker 6: financial catastrophe. A default would threaten the gains that we've

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Speaker 6: worked so hard to make over the past few years

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Speaker 6: in our pandemic recovery, and it would spark a global

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Speaker 6: downturn that would short of spec much further.

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Speaker 2: Yellen's comments at a meeting of G seven finance leaders

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Speaker 2: come a day after President Biden held talks with congressional leaders.

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Speaker 2: Those conversations made little headway towards an agreement, saying.

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Speaker 1: With the United States, inflation there has dropped below five

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Speaker 1: percent for the first time in two years. The data

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Speaker 1: signals that price pressures are beginning to ease, with services

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Speaker 1: inflation slowing noticeably. Bloomberg opinion columnist and former New York

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Speaker 1: Fed President Bill Dudley says there's more work to do.

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Speaker 7: The Feds making some progress on the inflation front, but

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Speaker 7: they haven't made much progress yet on the labor market

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Speaker 7: and on the wage trend, So it's hard to see

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Speaker 7: inflation going all the way back to two percent. Where

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Speaker 7: the labor market this day and reaches as high. They're

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Speaker 7: going to keep rates at this level or maybe a

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Speaker 7: little even a little bit higher until they see as

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Speaker 7: that their confident and inflation has been to get back

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Speaker 7: to two percent.

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Speaker 1: Speaking to Bloomberg, Dudley also considered that the Fed's monetary

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Speaker 1: policy has contributed to problems in the banking sector. USCPI

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Speaker 1: came in at four point nine percent a year on year.

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Speaker 1: Investors greeted the figures as assigned. The central Bank is

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Speaker 1: unlikely to keep tightening. The FED raised its benchmark great

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Speaker 1: last week above five percent for the first time since

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Speaker 1: two thousand and seven.

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Speaker 2: Disney shares fell in after hours trading on Wall Street

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Speaker 2: after the company reported a drop in streaming subscribers. The

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Speaker 2: firm says losses at the division will rise by one

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Speaker 2: hundred million dollars this quarter, but David Traynor, CEO of

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Speaker 2: New Constructs, who specialize in investment research, says it's not

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Speaker 2: bad news.

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Speaker 8: Streaming was never really meant to be a profitable business.

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Speaker 8: It's a loss leader for other profitable businesses, and Disney

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Speaker 8: is by far the best position media and content company

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Speaker 8: to monetize content.

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Speaker 2: David Trainor says the key news for Disney shareholders is

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Speaker 2: still the recent return of CEO Bob Iger. Total revenue

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Speaker 2: at the world's largest entertainment firm rose thirteen percent to

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Speaker 2: twenty one point eight billion dollars in the period, driven

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Speaker 2: by strong performance of the company's theme parks.

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Speaker 1: Those are top stories on the program this morning. Anna,

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Speaker 1: have you been shopping with a very large credit card recently?

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Speaker 2: No, No, I feel like we're going to get trouble here.

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Speaker 2: Not that they were call the.

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Speaker 1: Latest figures for the real estate agency Night Frank, showing

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Speaker 1: that it was the best year for sales of super

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Speaker 1: prime property in London last year since before twenty sixteen

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Speaker 1: week Brexit vote. So you weren't spending over ten million

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Speaker 1: pounds on a house then?

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Speaker 2: Not casually a weekend, not casual.

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Speaker 1: The weekends no, So one hundred and sixty one of

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Speaker 1: these super prime properties were sold at a total of

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Speaker 1: three point one billion pounds. That's the best year since

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Speaker 1: twenty fifteen. Twenty sixteen as well, the highest number of

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Speaker 1: super prime deals took place in Whitchborough for ten points.

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Speaker 2: Oh, Kensington and Shells correct.

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Speaker 1: Oh still wasn't may That, followed by Bulgravia I Mayfair

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Speaker 1: as well. This is a great piece from our colleagues.

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Speaker 1: Sarah Rappaport from Bloomberg Pursuits looking at the super prime

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Speaker 1: property market since bragsit interesting given the contrasting signals coming

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Speaker 1: from other parts of the property market, some people are

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Speaker 1: still able to buy. Had what really.

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Speaker 2: Hours turned into something of a hop quiz for me

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Speaker 2: yesterday James Wilcott was asking me impossible questions about politicians

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Speaker 2: and their travel plans in Asia. But anyway, that's an

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Speaker 2: interesting story would bring you. I'm glad we got to

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Speaker 2: focus on the property market for a moment. Now let's

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Speaker 2: get to our top story, shall we, Steven a really

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Speaker 2: important interview for global markets. As you heard a moment

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Speaker 2: ago in our top stories, the European Central Bank Governing

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Speaker 2: Council member Yoakim Nagal has refused to rule out post

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Speaker 2: summer rate hikes in September and beyond. The big conversation

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Speaker 2: at the moment is whether the ECB or for how

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Speaker 2: long the ECB can keep hiking if and when the

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Speaker 2: Fed pauses, and many people that think the Fed has paused.

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Speaker 2: Now let's bring you some of that conversation. Stephen Engel

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Speaker 2: for Bloomberg TV has been speaking exclusively with the Bundesbank

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Speaker 2: president on the sidelines of the G seven finance ministers

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Speaker 2: meeting in Japan. He says, the ECB is on the

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Speaker 2: right track.

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Speaker 4: I think, first of all, it was important that we

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Speaker 4: high grate last week. I think it confirmed our commitment

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Speaker 4: that our wanted her policy pass is not over to

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Speaker 4: fight against inflation. Inflation is still very sticky. It is

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Speaker 4: very stubborn phenomenon, and as I said several times, you

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Speaker 4: have to be even more stubborn. That means for me

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Speaker 4: that that story about hiking rates is not over. We

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Speaker 4: have to do more. So there are two more meetings

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Speaker 4: before the summer break, and let's go.

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Speaker 9: So you said though it was likely in the home stretch,

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Speaker 9: whereas Christine the Guard has talked about, there's still more

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Speaker 9: ground to cover and inflation has been stubborn, and core

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Speaker 9: inflation has been stubborn in Europe, and it's seen picking

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Speaker 9: up in places like Italy. So two more possible hikes

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Speaker 9: by July. What about September? Is that off the table

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Speaker 9: or definitely a possibility?

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Speaker 4: I guess there's nothing of the table, so I'm not

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Speaker 4: speculating here. I think what I realized is that, first

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Speaker 4: of all, and this is good news that the headline

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Speaker 4: inflation is coming down. Core is still very sticky, but

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Speaker 4: this is also not a surprise. Food inflation is still

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Speaker 4: very high. So what I see is that we are

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Speaker 4: coming closer to the restrictive territory, but we are not there.

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Speaker 9: How long would a if they pause in July, how

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Speaker 9: long a pause would you anticipate? And the longest time

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Speaker 9: that they would stay at that peak has been seven

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Speaker 9: seven months or so, would you see that as a

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Speaker 9: good benchmark.

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Speaker 4: So again I do not know where we have to stop.

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Speaker 4: But when there's the point coming that we could more

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Speaker 4: or less stop the rate hikes, then I have to

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Speaker 4: believe we have to stay there for a while to

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Speaker 4: wait what is the impact what we did from the past,

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Speaker 4: to see are we really successful or not? And this

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Speaker 4: is very important.

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Speaker 9: Well, how long of a sustained drop if you will,

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Speaker 9: in course EPI would be enough.

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Speaker 4: I think what I see in the numbers is that

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Speaker 4: it will take at least one and a half year

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Speaker 4: until we see numbers that are close to our target.

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Speaker 4: So we have to be patient here.

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Speaker 9: I know Barclays was predicting a pause and not to

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Speaker 9: a pause until the second half of twenty twenty four

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Speaker 9: and then hikes. Is that something that would be feasible

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Speaker 9: or is that too far to predict what the data

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Speaker 9: might think?

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Speaker 4: So maybe would be also speculation. So what I see

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Speaker 4: is that we have to wait for the incoming data

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Speaker 4: and then we will decide. So this meeting to meeting approach,

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Speaker 4: this is the right way to do monetary policy in

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Speaker 4: these days.

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Speaker 9: Now the Italians are typically fairly doversh on this sense,

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Speaker 9: but they are also voice and concern that inflation is

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Speaker 9: staying a little bit too high. Would you go along

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Speaker 9: with that, thinking that even the Italians are saying maybe

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Speaker 9: inflation is too high.

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Speaker 4: So important to me is what the Governing Council is doing.

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Speaker 4: I'm part of this governing council, so we are twenty

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Speaker 4: governors and together with the ECP Board, we take the decisions,

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Speaker 4: and we did a lot since July last year. This

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Speaker 4: was our seventh's rate tag. This is a lot. If

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Speaker 4: you take the history of the ECP, I think it

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Speaker 4: is exceptional. So it is really successful policy. And this

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Speaker 4: is for me the important part.

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Speaker 9: Do you feel that the banking issues that have obviously

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Speaker 9: we've seen in the United States as well as in

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Speaker 9: Europe with credit suites and the like, this could cause

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Speaker 9: an earlier pause than expected.

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Speaker 4: I think we experienced some turbulence over the last couple

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Speaker 4: of weeks. I think it started in the United States

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Speaker 4: with Silicon Valley Bank. But all what I saw is

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Speaker 4: more or less attributed to intosyncratic risk. So these are

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Speaker 4: not This is not a systemic crisis. This is not

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Speaker 4: a banking crisis. What I can say for the German banks,

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Speaker 4: what I can say for the European banks. The banking

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Speaker 4: sector is solid, well capitalized, good liquidity situation, so we

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Speaker 4: have to be alerted. I think this is something we

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Speaker 4: should not take too easy.

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Speaker 9: Can it happen again?

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Speaker 5: Though?

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Speaker 9: I mean I think that's almost a rhetorical question. But

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Speaker 9: can it happen again? Or the guardrails being put in place?

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Speaker 4: I think taking my point when I say alerted, what

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Speaker 4: I would like to say with that is that we

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Speaker 4: shouldn't be too complex, isn't We should to take this

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Speaker 4: as a lesson learned? So what could be done to

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Speaker 4: get better in the future. I think this is one

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Speaker 4: of the things we discuss here to really find the

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Speaker 4: right So let me say answers for future?

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Speaker 9: Where where do you see the biggest vulnerabilities that need

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Speaker 9: to be shorter?

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Speaker 4: Yeah, maybe there are still some blind spots. I think

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Speaker 4: we have to know better. What does maybe does it

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Speaker 4: mean when social networks are trying to get into that

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Speaker 4: game and influence in pushing things? Also the withdrawal of

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Speaker 4: the deposits. I think this is something the how fast

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Speaker 4: the things could go in in in in maybe DDAs

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Speaker 4: So we really have to learn a little bit more.

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Speaker 4: What is the impact out of that, and then what

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Speaker 4: we have to do on the regulatory side. Maybe on

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Speaker 4: the CDs market single name cds's, are there maybe blind spots,

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Speaker 4: So there are a lot of things we should cass

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Speaker 4: Here in Japan.

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Speaker 1: That was the Bondusbank president Jokim Nagel. They're speaking to

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Speaker 1: Bloomberg Stephen Engel at the G seven in Japan.

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Speaker 2: Let's move on to another story around for global markets,

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Speaker 2: and the Bank of England looms large on the agenda.

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Speaker 2: Could it be set for its twelfth straight interest rate

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Speaker 2: rise today even though the end of the tightening the

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Speaker 2: lightning quick hiking cycle is coming into view. For a preview,

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Speaker 2: let's speak to our senior UK economist Dan Hansen, who's

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Speaker 2: with US. Dan at good Morning. So a lot of

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Speaker 2: people do expect that we will get another a twelfth

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Speaker 2: straight hike from the Bank of England. What are you expecting?

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Speaker 10: Yeah, So, I think following the days we had last

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Speaker 10: months at the CPI data and the wages data, they

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Speaker 10: were big surprises, both of them to the upside. So

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Speaker 10: I think it's very likely we get a twenty five

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Speaker 10: basis point height today. I think if you look at

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Speaker 10: market pricing, it's one hundred percent priced in. The thing

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Speaker 10: to watch is really about what the bank says about

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Speaker 10: the future. So it's guidance, and so far it's been

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Speaker 10: linking further rate to data surprises, and we've had quite

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Speaker 10: a few of those in recent months as we know.

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Speaker 10: So it's whether they soften that guidance or maintain that guidance.

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Speaker 10: Our best guess is that the guidance will be maintained

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Speaker 10: simply because, as I've said, the scale of the surprises

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Speaker 10: that we've had make it very difficult to signal something

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Speaker 10: firmer around a pause. I think they want to keep

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Speaker 10: their options open going forward.

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Speaker 1: In terms of language, what will be sort of the

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Speaker 1: interesting interesting words you'll be listening out for later when

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Speaker 1: we hear from Andrew Bailey.

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Speaker 10: Yeah, So if we get into the specifics of the language,

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Speaker 10: I mean, I've got it up in front of me here.

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Speaker 10: I think the work. The sentence really that people and

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Speaker 10: markets will pour over is sentence that was in the

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Speaker 10: Minutes in March and also in February. It's I there.

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Speaker 10: It says, if there were to be evidence of more

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Speaker 10: persistent pressures and more persistent inflationary pressures, then further tightening

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Speaker 10: in monetary policy would be required. Now, I think the

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Speaker 10: question around this is does it change? Does that would

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Speaker 10: get softened to a could or a maybe? And by

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Speaker 10: doing that, if the bank did decide to soften that language,

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Speaker 10: then the bar for another hike would would be raised

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Speaker 10: and we could get data surprises, but it wouldn't be

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Speaker 10: automatically then linked to another twenty five basis point hike.

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Speaker 10: So I think that's the bid of the minutes or

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Speaker 10: the Monetary Policy Summary that everyone will be watching to

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Speaker 10: see to see whether we get some softening.

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Speaker 2: Now I was going to say, so highlighters are the ready,

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Speaker 2: but these days it's an AI tech, a text analytical tool.

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Speaker 2: I'm sure, isn't it Dan, So yeah, no need for

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Speaker 2: the highlighters to spot the differences in the sentence. Is

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Speaker 2: what about the vote split? Is that going to be

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Speaker 2: of interest? I speket to Liz Martin's earlier of HSBC,

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Speaker 2: and she was saying, you know, base cases, it's seven

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Speaker 2: to two, just like last time, So seven voting for

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Speaker 2: a twenty five basis point hike and two for no change.

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Speaker 2: But she says at the margin there could be some

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Speaker 2: who attempted to vote again for fifty based on some

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Speaker 2: of the strength of the wages and inflation data.

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Speaker 10: Yeah, I think that's right. I think that's right, and

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Speaker 10: I think you would say that Catherine Mann's the most

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Speaker 10: likely of the MPC to do that. I mean, one

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Speaker 10: reason to think she may not do that is that

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Speaker 10: she's been quite attumed to what the Fed's been doing,

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Speaker 10: and the FED has been obviously stepped down to twenty

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Speaker 10: five and obviously has signaled a if you like a

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Speaker 10: conditional pause as well. So I think there is a

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Speaker 10: risk there, But I also think there's a risk the

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Speaker 10: other way equally, with how high rates are now, I

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Speaker 10: think there's a risk there that Cunn left John cunnleft

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Speaker 10: the Deputy Governor goes for a pause as well. So

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Speaker 10: I think there are risks in both directions. But you know,

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Speaker 10: our base case, like HSBC's is for seventy two.

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Speaker 1: How much of an issue is divergence for the Bank

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Speaker 1: of England if we look at the FADS moving to pause.

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Speaker 10: So I mean, I think you know the Bank of

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Speaker 10: England's back in February, it went onto this, It moved

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Speaker 10: itself to this conditional pause phase where I think it

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Speaker 10: would have quite happily stuck at four percent if the

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Speaker 10: data had broadly gone in line with its forecast. What

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Speaker 10: we've had in the event is a number of very

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Speaker 10: very big data surprises on CPI but on wages. So

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Speaker 10: I think it's really important for them to maintain this

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Speaker 10: optionality going forward. And I think what's really interesting if

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Speaker 10: we just cast our minds even back to November. The

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Speaker 10: bank was warning about rates going above five percent and

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Speaker 10: really sending a message to the market that that level

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Speaker 10: of pricing was too aggressive. Now we've got a world

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Speaker 10: where five percent handle isn't isn't out of the realm

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Speaker 10: of possibility.