Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to the Mernon Talks Money Market Wrap, where we
Speaker 2: talk about the biggest moves in the markets this week
Speaker 2: and wat's driving them. I'm joined Steppeck, Senior report and
Speaker 2: author of the Money Distilled newsletter. And unbelievably Marnon is
Speaker 2: still off on holiday, so we managed to twist Marcus
Speaker 2: Ashworth's arm to come back. Marcus is a Bloomberg opinion
Speaker 2: column is a very good friend of the show and
Speaker 2: all doing Marcus guru, So welcome back, Marcus, Thank you
Speaker 2: for doing it.
Speaker 1: Again, pleasure. What's the holiday?
Speaker 2: Exactly exactly right? So this week this week today, today
Speaker 2: is Thursday, and UK GDP figures have just come out
Speaker 2: and they were surprisingly good.
Speaker 1: Yes, our quan statistic stuck out for me was that
Speaker 1: on a per capita as in per head basis, since
Speaker 1: Labor's been in power, we are all richer by the
Speaker 1: tune of zero point seven percent. And don't we just
Speaker 1: feel it time, We just feel it. So that's not
Speaker 1: a lot, but it's a lot better than it could
Speaker 1: have been. And perhaps what we may feel it was
Speaker 1: is so the only thing I was says is that
Speaker 1: all these backward data, which GDP by definition is and
Speaker 1: oneted subject to heavier revision, is not what's going to
Speaker 1: happen as we head up to the long, very very
Speaker 1: unpleasant road up to the budget probably the end of
Speaker 1: October and November. But I do think there was more
Speaker 1: momentum in the economy than we may have feared. However,
Speaker 1: if you look at the data of the zero point
Speaker 1: three rise in quarter two, zero point twenty seven, of
Speaker 1: it is the government, which was all about our budget
Speaker 1: last year, and the punk priming which is coming through
Speaker 1: is that it is starting to work. That's the good news.
Speaker 1: The bad news is that consumption and investment in the
Speaker 1: private sector is flatlining and down. So in that sense,
Speaker 1: we have in this tectonic shift where more money has
Speaker 1: been thrown at the public sector at the cost of
Speaker 1: taxpayers and the private sector. I don't think that's very
Speaker 1: healthy long term, but it just leads to the point
Speaker 1: that you know, growth is going to stay above one
Speaker 1: percent just probably for the rest of this year. We
Speaker 1: will nominally probably be the second best performing nation in
Speaker 1: the G seven after the States, but by a fraction
Speaker 1: and look at it could have even been zero point
Speaker 1: four this last quarter. Quarter two, So you know, after
Speaker 1: zero point seven quarter one, you know that the start
Speaker 1: of twenty twenty five has been better than people expected.
Speaker 1: The tariff thing was initial boosts and inventory builds and
Speaker 1: things like that. That's carried through into quarter two. It's
Speaker 1: not all bad news. We should probably be a little
Speaker 1: bit more optimistic. The only thing I would say from
Speaker 1: that is the Bank of England probably should look through
Speaker 1: these numbers and not get worried about the economy. Maybe,
Speaker 1: but equally it's all about the labor market and it's
Speaker 1: all about inflation, and those things are saiparated. I don't
Speaker 1: think this GDP data alters of you that it's a
Speaker 1: fifty to fifty coin toss whether they cut again in
Speaker 1: November to three and three quarters. But we will see that.
Speaker 1: You know, they've got plenty of time to do that,
Speaker 1: So I don't think this number changes the dial for
Speaker 1: the Bank of England.
Speaker 2: Yeah, I mean it's interesting. One thing that I keep
Speaker 2: heeding about the hostsold seed is the hostal balances are
Speaker 2: pretty healthy, and the question is why is the savingsury.
Speaker 2: It's all high To me, thus fairly obvious reasons for
Speaker 2: that if we're all paranoid about how much money is
Speaker 2: going to get taken out of our pensions on whatever
Speaker 2: come the next budget, and that's going to make people
Speaker 2: see if harder. But is that a compositionion effect here?
Speaker 2: What is the food?
Speaker 1: Food? I think is what people see the most quickly,
Speaker 1: and that they change the consumer sentiment sort of because
Speaker 1: of that. So you know, we've had pretty low food
Speaker 1: price up to failurey seeing that they've definitely bounced back,
Speaker 1: and that's quite a noticeable effect on people. I think
Speaker 1: underlying exactly what you're saying is just that the sort
Speaker 1: of negative meat and people like you and I, which
Speaker 1: is yes, exactly, it's causing people to be perhaps much
Speaker 1: more reticent and therefore that's all the savings break and
Speaker 1: then you get the paradox of thrift where it just
Speaker 1: is people saved money. It just does not the economy,
Speaker 1: and we will get misery and terror.
Speaker 2: I was fining the paradox are thrift a little bit.
Speaker 2: It's a fair point in the short term, but it's
Speaker 2: this whole idea that saving is, you know, I mean
Speaker 2: we can have the the economy also needs capital and
Speaker 2: needs saving that investment.
Speaker 1: That's where perhaps breakdown. But then we can all go
Speaker 1: into the laughter curve and real time they had experiences
Speaker 1: of how the works and why we're spending less.
Speaker 2: Anyway, the other thing that came out to do was
Speaker 2: the latest REX survey. I don't know how much of
Speaker 2: attention you pay the REX Survey the canal. This is
Speaker 2: where they ask all the estate agents and the surveyors
Speaker 2: what they think of what's going on in the housing market.
Speaker 2: Ain't there. But one thing that surprised me slightly is
Speaker 2: they go a little bit gloomier this month and they
Speaker 2: kind of the bits and pieces of anecdotal data at
Speaker 2: the end were all about, oh, you know, yeah, the
Speaker 2: cells have to be very realistic on price, and somebody
Speaker 2: was saying this it was very funly a buyer's market.
Speaker 2: Someone was even saying prices have probablydropped about ten percent
Speaker 2: in the last twelve months. And I was quite surprised
Speaker 2: by just how how gloomy they were. And I also
Speaker 2: noticed that repossessions of load they're still very low, in
Speaker 2: the second quarter ticked up and they're now on a
Speaker 2: kind of rising trajectory there still likes it from a
Speaker 2: very very low base, we're only back to where we
Speaker 2: were on a monthly.
Speaker 1: On that because it's just infintestical compared to what it
Speaker 1: perhaps was in the light I es or something. But
Speaker 1: I definitely feel that, for instance, the lost interest right
Speaker 1: cuff of man coming and is almost as it didn't
Speaker 1: happen because it was so hokeish about what happens next.
Speaker 1: I think that's taken what little momentum was potentially coming
Speaker 1: from that out. So now I definitely since I do
Speaker 1: quite a lot of sort of anecdotal stuff talking to
Speaker 1: various people in the property market, and they're all pretty despondent,
Speaker 1: and definitely I think it's it's ten percent or something
Speaker 1: off prices. Is certainly, you know, there's always a ten
Speaker 1: percent bid off of spread between what sellers expect they
Speaker 1: can get on buyers are prepared to sort of pay
Speaker 1: it in one stage, and very much it's the buyers
Speaker 1: are waiting ahead of the budget. There's no incentive for
Speaker 1: them to get moving. We've still got quite a sort
Speaker 1: of slow Perhaps everyone rushed to get everything completed at
Speaker 1: the end of March and since then, everyone's you know,
Speaker 1: doesn't seem to be moving far as completing things with
Speaker 1: councils and searches and theirs and all that sort of stuff,
Speaker 1: which is there's no momentum coming back through that. If
Speaker 1: you look at the mortgage approvals that seems to be
Speaker 1: okay ish house prices which are I think the Halifax
Speaker 1: the nationwide surveys are very misleading. Where we look at
Speaker 1: them a monthly, we really should. We should the Rich survey,
Speaker 1: which is more backward looking than those, take a little
Speaker 1: bit more prest view on it. But there's been nothing
Speaker 1: particularly optimistic on the consumer side to make the housing
Speaker 1: market do anything other than what we've been seeing throughout
Speaker 1: the course of this year, which is it's definitely taken
Speaker 1: quite a sizable knock, and I think we can put
Speaker 1: a lot of that blame on Rachel Ruves is handling
Speaker 1: in the economy and the whole lead up to the
Speaker 1: October budget and the fallout from it and now exact
Speaker 1: same rints repeat, which is economic and political madness as
Speaker 1: far as concerned, to make the same mistake twice. But
Speaker 1: she is not giving any form of incentive to anyone.
Speaker 1: You know, if they're talking about taking away gift taxes
Speaker 1: and inheritance taxes and more pensions, and we know at
Speaker 1: the FINT that the whole thing is depressing you know,
Speaker 1: you look at the data on concrete, you know, the
Speaker 1: lowest since nineteen sixty three. There are no house building
Speaker 1: plans going through. To look at what Decarn's done in London,
Speaker 1: you know on an affordable homes something like three hundred
Speaker 1: and fifty. That's it. The entire year. Nothing is getting
Speaker 1: built and nothing is clearly going through as far as
Speaker 1: the big developers. A concern lot of landfill, tax problems,
Speaker 1: a lot of other knock on effects from you know,
Speaker 1: stamp duty and what have you, is creating this complete
Speaker 1: lack of rationale for property developers and builders to actually
Speaker 1: commit to new projects. The banking isn't helping on that
Speaker 1: front either. But you know this is this is the
Speaker 1: only thing which gives me long term conference pats house
Speaker 1: prices is that we're going to get a huge drop
Speaker 1: in activity, which isn't great for anyone, particularly the ancilliary
Speaker 1: things like you know, plumbers, Yeah, whereas all the different
Speaker 1: carpets as what have you. But prices at some point
Speaker 1: will have to correct or go back up again because
Speaker 1: there's nothing been built, no supply supply and demand demand.
Speaker 1: The economy is still there, but we may get a
Speaker 1: long protracted period of statis, which I think we're already
Speaker 1: into where activity is very very low. Volumes don't just
Speaker 1: there's nothing there, and that creates a very poor market
Speaker 1: and house prices I think will continue to drop for
Speaker 1: for a while, but there is an underlying flow there
Speaker 1: in supply isn't going to happen.
Speaker 2: And just before we wrap up, you wrote an interest
Speaker 2: in peace recently, and this sort of ties back to
Speaker 2: the way that question of tax and government and who
Speaker 2: we sort of and this was about the credit spreads,
Speaker 2: So the gap between the yield or the interest rate
Speaker 2: that companies need to pay and the yield or the
Speaker 2: interest rate the government needs to pay on bordings, and
Speaker 2: that has noted And usually that is the saying, if
Speaker 2: I'm not in connective, possibly a rational exuberance when people
Speaker 2: won't lend money to companies for the same amount as
Speaker 2: that won't lend to governments as that.
Speaker 1: Well, yeah, maybe back in the dark I used the dinosaurs.
Speaker 1: I used to it now look joking apart that I've
Speaker 1: written quite a lot on this as far as reason why,
Speaker 1: I mean, look at guilt yields. They're now the wildest
Speaker 1: they've been to the United States for for a long
Speaker 1: while looking them up at thirty five bits away. It's
Speaker 1: just like we are creating our own problems, particularly longer
Speaker 1: end government yields, because no one really trusts this government
Speaker 1: expects I'm going to borrow more in the economy not
Speaker 1: being great and the interest rates clearly from Bank of
Speaker 1: England being so high. So but the basic point is
Speaker 1: that the corporate world is you know, if you look
Speaker 1: at the probably the best corporate earning season in the
Speaker 1: States for well since COVID, certainly for a very long period,
Speaker 1: we've got you know, eighty eighty five percent of companies
Speaker 1: are beaten what the analysts expect him to do. It's
Speaker 1: not just tech stocks that's dragging. Everything with the US
Speaker 1: economy is going fine, And why would you want to
Speaker 1: lend to the United States? You know, we're know thirty
Speaker 1: seven trillion in counting. That's why they's lost its last
Speaker 1: of its triple a's. Then why would you want to
Speaker 1: lend a Microsoft or Apple or something like that. So
Speaker 1: I think that's you know, the reason why corporate debt
Speaker 1: is doing well is because underlying profits are very strong,
Speaker 1: the economy is holding up, and the credit world and them,
Speaker 1: so of course they're buying back they stocks obviously, but
Speaker 1: you know buybacks are still very very strong. But the
Speaker 1: point here is is that the corporate worlds and pretty
Speaker 1: good rules rude health. Whereas always seeing its governments around
Speaker 1: the world, UK, US in particular now Germany interestingly having
Speaker 1: to borrow more and having a real problems with the
Speaker 1: budget deficits, can't control fiscal spending as we've seen in
Speaker 1: the UK. And that's that's you're just getting a dynamic.
Speaker 1: Why would you look to the risk free rate and
Speaker 1: government yields as being sort of the load star when
Speaker 1: you could lend to a corporate Anything I would say
Speaker 1: is we do have one very interesting thing in the UK,
Speaker 1: and just in the UK, is that if you buy
Speaker 1: a UK guilt, particularly on they load coupon, you don't
Speaker 1: pay any capital gains tax on it. Remember capital gains tax,
Speaker 1: because I think great roofs certainly capical games tax and
Speaker 1: should be coming back on that one. But at the moment,
Speaker 1: for buying a guilt and particularly not paying on one
Speaker 1: of the very low coupons that you'll pay to get
Speaker 1: mostly money from the game, you're buying something at say
Speaker 1: ninety pence on the pound, and insures in a few
Speaker 1: years time. At one hundred, you know you're not going
Speaker 1: to pay any tax on that game. You will pay
Speaker 1: just a very modest thing on a very only for
Speaker 1: the very looky points.
Speaker 2: Actually, this is a really useful tip to remember because
Speaker 2: you rate all this that is efficient, and also from
Speaker 2: from an individual's point of view, if we're going to
Speaker 2: get hammered and everything else, the one thing that she
Speaker 2: won't touch is something that creates extra demand for guilt.
Speaker 2: At this point you would have thought, yes, okay, well,
Speaker 2: on that optimistic note, Mark is I think we'll wrap
Speaker 2: up for the time being. Thanks for listening to this
Speaker 2: week's Man Talks Money Debrief. If you like our show,
Speaker 2: rate review, and subscribe wherever you listen to podcasts. This
Speaker 2: episode was produced by Moses and and Summer Sadie Special
Speaker 2: thanks to Marcus Ashworth. As always, in questions and comments
Speaker 2: on this show and all our shows are always welcome.
Speaker 2: Our show email was Mere and Money at bloomber dot net.