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Speaker 2: Welcome to the Merton Talks Money Market rap where we
Speaker 2: talk about the biggest moves in markets this week and
Speaker 2: what's driving them. I'm join Stebick, senior reporting author of
Speaker 2: the Money Distilled newsletter. Merion is offer on the slope
Speaker 2: somewhere hopefully not falling over. So I'm stepping into lead
Speaker 2: this week's market debrief and with me in the studio
Speaker 2: is always is Bloomberg Increasingly as always is a Bloomberg
Speaker 2: Opinions market sash and a new guests. So from our
Speaker 2: Marcus Today team, Morwenia Conium, thanks for joining us this
Speaker 2: week more whena and thank you once again Marcus. Very
Speaker 2: good of you as always. And I thought, actually we'd
Speaker 2: start with Morewena because so Morwena goes. You need watch
Speaker 2: this blog on the Bloomberg website in markets today and
Speaker 2: this is the basically the ruling market report and more
Speaker 2: when there's one of the great reporters on there and
Speaker 2: has been covered closely this week. So I just wanted
Speaker 2: to see what's the thing that stood out to you
Speaker 2: more was the big story this week? More inflation a haha.
Speaker 3: Started off on Tuesday when we had labor market data
Speaker 3: which showed wage growth slowing, the pace of increases slowing
Speaker 3: a lot more than had been expected. That put the
Speaker 3: wind and sales of those who are looking for the
Speaker 3: Bank of England to cut interest rates sooner rather than later,
Speaker 3: because obviously if wages aren't increasing as fast, then that
Speaker 3: suggests that that pressure and inflation is coming down. And
Speaker 3: we actually saw markets adjusting their bets on interest rate
Speaker 3: cuts from the Bank of England to fully pricing in
Speaker 3: at one point for April and over sort of seventy
Speaker 3: percent chance of that happening as soon as March. What
Speaker 3: we thought was going to be the really big story
Speaker 3: was actually inflation data on Wednesday CPI reading, that is
Speaker 3: the final CPI reading before the March interest rate decision
Speaker 3: from the Bank of England. It was expected to show
Speaker 3: inflation had called, and it did, but the reading was
Speaker 3: actually in line with expectations. There are a few pockets
Speaker 3: of things that were slightly higher than we'd have liked
Speaker 3: to have seen, but it really did solidify that narrative
Speaker 3: of disinflation. Didn't see a huge change in what traders
Speaker 3: were expecting from the Bank of England, but it certainly didn't.
Speaker 3: Also what had already happened the day before. We've seen
Speaker 3: the pound therefore coming down this week quite substantially, and
Speaker 3: that's actually been added to today by policymaker Catherine Mann
Speaker 3: saying that the inflation was better than she hoped it
Speaker 3: would be, which suggests that the balance may well be
Speaker 3: in favor of a rate cut very very soon.
Speaker 2: I got this sense, certainly from just the vebes of
Speaker 2: the last meeting. They basically Andrew Bailey is now looking
Speaker 2: for an excuse to join the dovish side, and the
Speaker 2: blank in general is no more freaked out about the
Speaker 2: employment market than as a bit inflation. I don't know, Marcus,
Speaker 2: you've been talked about. There's quite a lot recently in
Speaker 2: the podcast. You think they're behind, don't you completely?
Speaker 1: And I think I think they should have cut last
Speaker 1: week or whatever it was, for every fifth part of me.
Speaker 1: But I think the reason they didn't was they hadn't
Speaker 1: prepped it. But I think Bailey was literally needs an
Speaker 1: excuse not to cut. I think man as we want
Speaker 1: of saying, would almost go fifty basis points now. She's
Speaker 1: quite curial. I definitely think Taylor would, and probably so
Speaker 1: dingerous so I think they will almost certainly cut on
Speaker 1: Mars the nineteenth. I think they will cut again, possibly
Speaker 1: the next meeting, but certainly by June, and I expect
Speaker 1: a further one later than the year. I've for that,
Speaker 1: and I think that they've they've got, they missed the boat.
Speaker 1: They made a policy mistake. I don't know what Hugh
Speaker 1: pill is on. He thinks indistrates should be higher. So
Speaker 1: the one to watch is Clailon Bardelli, I think, who
Speaker 1: is quite hawkish, and she actually moved much more to
Speaker 1: neutral last time around, so I wouldn't be surprised to
Speaker 1: see a seven two vote even for a cut. But yeah,
Speaker 1: we've got we've got some serious problems and youth unemployment
Speaker 1: is coming front and center everywhere. I mean, I don't
Speaker 1: really trust any of the OECD data, however, when it's useful,
Speaker 1: I'll choose it. And this time around they're actually saying
Speaker 1: that youth unemployment in the UK has actually risen above
Speaker 1: the EU average. That is shocking, and it's not just
Speaker 1: down to this current government, but this current gol is
Speaker 1: making it worse, and largely as it's coming from all
Speaker 1: angles against ractual reason, it's including the ifs are saying
Speaker 1: that minimum wage rises, and particularly this sort of eighteen
Speaker 1: year old. You know, by upping minimum wages for eighteen years,
Speaker 1: it's price to the matter of the jobs market. We
Speaker 1: all know the graduate situation is pretty poor, but the
Speaker 1: eighteen to twenty five bucket is in unnecessary stress. There
Speaker 1: are lots of medical reasons apparently about it. But I
Speaker 1: think the government is going to have to and will
Speaker 1: backtrack on this very soon, I think.
Speaker 2: I mean, how do you think that may occur? I mean,
Speaker 2: do you think they're all because part of those too
Speaker 2: the shoe see I don't know when is that the
Speaker 2: minimum wage itself is very high. It's one of the
Speaker 2: highest in the world relative to the median wage, so
Speaker 2: it's about sixty six percent, which is the kind of target.
Speaker 2: But obviously people don't consider that that's much much higher
Speaker 2: in the northeast of England than it is in London,
Speaker 2: for example, But that there's also this other issue of them.
Speaker 2: Basically there's a lower minimum wage for eighteen year olds
Speaker 2: than there is for twenty five year olds, but they've
Speaker 2: started to harmonize that. So basically it's going to cost
Speaker 2: you almost the same.
Speaker 1: And it's much more expensive to hard people anyway. Yeah,
Speaker 1: and then this is the point that people who are
Speaker 1: going to be mostly joining will be the younger ones
Speaker 1: coming in as trainees or whatever you want to call it.
Speaker 1: But particularly in hospitality, in retail, and even in construction,
Speaker 1: and those areas are getting killed.
Speaker 3: I was going to say the increased national insurance and
Speaker 3: employers in the budget before last mostly impacted those kind
Speaker 3: of businesses which have a lot of employees, you know,
Speaker 3: all of whom they now who may be near at
Speaker 3: the minimum wage, they're going to have to pay more
Speaker 3: on that. But also the national insurance contributions going up,
Speaker 3: and so it seems to be impacting the same group
Speaker 3: of people.
Speaker 1: Well, we're having what's such a strange market. It's not
Speaker 1: so much people getting fired. Its employers having been sort
Speaker 1: of holding on to employees' post pandemic, worried they wouldn't
Speaker 1: be a replacement, are now not hiring. It's it's a
Speaker 1: lack of hiring which is coming through. And therefore as
Speaker 1: the youth come through and we'll look for jobs, there
Speaker 1: aren't the jobs there.
Speaker 2: And you know, just an interest because on this, because
Speaker 2: I do think this is quite interesting, because there's that
Speaker 2: thing where Okay, so the economy is in a sticky situation,
Speaker 2: but it feels as though if we get interest rate,
Speaker 2: it's coming through, and if the government doesn't keep going
Speaker 2: in the direction is being going in, then there's still
Speaker 2: a chance to perceive things or ton things that don't
Speaker 2: make this better this year. I don't know if you
Speaker 2: would you think, Mawena.
Speaker 3: I mean, it's difficult to backtrack on things that they've
Speaker 3: announced as their planship policies fifteen.
Speaker 1: I think let got on new turns.
Speaker 3: That's true, but usually after usually before they actually announced them.
Speaker 3: I mean, it feels like they've announced sorts of things
Speaker 3: and you turned on them, but usually, you know. I
Speaker 3: think it's a tricky one. And whether we see you know,
Speaker 3: waging inflation continuing to sort of come down overall probably
Speaker 3: also kind of makes the difference as to expectations at
Speaker 3: the top of the pile. So I don't know whether
Speaker 3: it's something that they can easily resolve. You can't stop
Speaker 3: people kind of progressing through life, graduating. You've got a
Speaker 3: population that you've got, you've got the employment needs that
Speaker 3: you have. It's a really tricky one.
Speaker 1: I think we haven't had the Employment Rights Bill really
Speaker 1: yet kick in, and that's another thing which is going
Speaker 1: to hurt the employment. It makes again much more expensive
Speaker 1: for employers are going to have to give rights much
Speaker 1: earlier and don't have the ability to be set to
Speaker 1: say higher and fire or you know, people don't work out.
Speaker 1: And then we also have the renter's rights coming through,
Speaker 1: which is again going to impact on the housing market.
Speaker 1: So there's a lot of stuff to come through which
Speaker 1: could be worse. Having said all that, I'm actually quite
Speaker 1: optimist on the UK economy despite the best efforts of
Speaker 1: this government.
Speaker 2: Give us the bullish cays then.
Speaker 1: What I mean we are seeing bag of England saying
Speaker 1: zero point nine this year. I think that's too low.
Speaker 1: I think we will be in the early mid ones,
Speaker 1: which saying definitely, oh yeah, absolutely, yeah, you know, I'm
Speaker 1: all around, but I mean it's it's to my mind,
Speaker 1: what's impacting is is the shift from the private sector
Speaker 1: has been hampered by all the things we just mentioned,
Speaker 1: and the state sector is is still waiting for the
Speaker 1: big boosts coming through from all the various plans that
Speaker 1: all the taxes and all the various different measures we
Speaker 1: spoke about or were designed to raise money's for so
Speaker 1: I think the state sector is in rude health in
Speaker 1: that sense, and we saw the last the last data,
Speaker 1: the strongest bit was very much government spending. I think
Speaker 1: that's an ongoing trend. However, this private sector real data,
Speaker 1: particularly things like purchasing managers surveys, even the British are
Speaker 1: retail consortiums, sales are actually more optimistic than we thought.
Speaker 1: This always the first quarter in the UK. Maybe it's
Speaker 1: our seasonals in our stats, I don't know, but the
Speaker 1: first quarter is normally pretty strong and it looks like
Speaker 1: this first quarter is going to be again quite good.
Speaker 1: So I'm blast half full.
Speaker 2: Well, that's good. And obviously if industry it has come
Speaker 2: doing hose and market maybe kicks another and it's been
Speaker 2: really weak for a good couple of years now, I
Speaker 2: presumably we can get better.
Speaker 3: And rents have actually well, the pace of rent increases
Speaker 3: has been coming down quite substantially, and it's you know
Speaker 3: in London even you know, we're seeing it sort of
Speaker 3: the lowest rate inflation I think since the peak in
Speaker 3: twenty twenty four. You know, it really has come down
Speaker 3: a lot, and so that helps interest rates coming down
Speaker 3: may help landlords further. Although I think there's quite a
Speaker 3: lot of other things that need to be done to
Speaker 3: help landlords further, to make that a more attractive proposition.
Speaker 3: But I think you know you've got certainly some backways,
Speaker 3: and like you said, the purchasing manager's surveys are indicating
Speaker 3: increasing confidence. Perhaps now some of that uncertainty from the
Speaker 3: last budget has passed. I don't think we're necessarily expecting
Speaker 3: the same kind of drama around the next one. We
Speaker 3: haven't been talking about it so much this time last year.
Speaker 3: We were already on it.
Speaker 1: The statement last year was was an important thing because
Speaker 1: they missed. This time around, we're allowed to believe marks.
Speaker 1: The third I think will be a non event. So yeah,
Speaker 1: it looks like the headroom. The headroom very boring, ongoing problem,
Speaker 1: looks for the moment not to be an issue in
Speaker 1: that that I think is more saying is this.
Speaker 3: Bond yields actually coming down as well means that the
Speaker 3: government does have true money potentially, So that's good for everybody.
Speaker 1: We hope it just there would be a lot cheaper
Speaker 1: it wasn't for the the political milestrom strum ash.
Speaker 3: Still thrist into an extent there as much.
Speaker 1: I think it's guilts of forty fifty basis points high
Speaker 1: than they would otherwise be if we weren't worrying about
Speaker 1: from one day at the next the fate of who
Speaker 1: will be leading covenment.
Speaker 2: Yeah, I know that will be interesting because obviously next
Speaker 2: week we've got that big buy election and then me
Speaker 2: we've got more elections and a loll beacon a trap
Speaker 2: by her points for Kistat up presumably, But I guess
Speaker 2: we just have to wait and see what happens with that.
Speaker 2: But there was another big story this week, A massive
Speaker 2: name in the city, another kind of monsters UK asset
Speaker 2: was snapped up by foreign bayals. Marcus, what do you
Speaker 2: make of the shrewder still?
Speaker 1: Well, I mean I think ever since Bruno Shoda died
Speaker 1: and his daughter the only sort of essentially became the
Speaker 1: most important person to represent the family, it always looked
Speaker 1: like she wanted to sell. And I think that's clearly
Speaker 1: what has been shown. It's it's they wanted to sell
Speaker 1: all of it, and they want to sell all of
Speaker 1: it for cash, and they found a very interesting buyer.
Speaker 1: Nuveene is not a very well known name in the
Speaker 1: in the UK anyway, I wasn't sure it was a
Speaker 1: cleaning product at first, but it isn't. It actually very
Speaker 1: long older company based in Chicago, but it's owned by
Speaker 1: the Teachers Pension Fund, Insurance and Annuity Association, which is
Speaker 1: a big thing in the States, you know, and this
Speaker 1: is this is legacy money, and this is retirement, very safe, secure.
Speaker 1: But they're actually really smart guys, and I think they've
Speaker 1: had the strategy for quite some while within what they're
Speaker 1: doing in the States, from private AIRCUA to private credit
Speaker 1: to all sorts of different types of things. But they've
Speaker 1: realized that the one big missing point they've got was
Speaker 1: exposure outside of the States. Now, as the dollar we've
Speaker 1: seen weekend ten percent or so this year, a lot
Speaker 1: of US money, not just foreigners putting money into US assets,
Speaker 1: they're going to have to think about, Okay, maybe we
Speaker 1: hedge your dollar exposure, but also American investors thinking, hang,
Speaker 1: do I not need some offshore exposure. It could be
Speaker 1: emerging markets, could be in commodities, doesn't have to be
Speaker 1: in Europe, but it could be in Asia. And the
Speaker 1: one thing that Schroder's got is large exposure. Has got
Speaker 1: three joint ventures China, India, and Japan, and obviously a
Speaker 1: huge suite of products in Europe and the UK, and
Speaker 1: I think it's a very interesting move for them, for
Speaker 1: teachers and moving to gain you know, extra trillion dollars
Speaker 1: worth of assets. It's probably cheap of them to buy
Speaker 1: an old city name which wanted to sell. Then buying
Speaker 1: in the States give some better diversification.
Speaker 2: So you're sort of seeing this as part of the
Speaker 2: dollar hedge and story almost.
Speaker 1: Yeah, I think it is. I I think, you know,
Speaker 1: obviously the big black Rocks and Wellington's and Fidelities. I've
Speaker 1: long been offshore, but a lot of the sort of
Speaker 1: endowment money and university and all that sort of stuff
Speaker 1: money in the States, and there's lots and lots and
Speaker 1: lots of pension funds haven't much exposure offshore. And this
Speaker 1: is a very smart move I think for teachers to
Speaker 1: offer a wide range of products at a cheaper price
Speaker 1: for them, and it gets some you know, exposure outside
Speaker 1: the dollar, and obviously their internal client based a lot
Speaker 1: more options. There will be a lot more I think.
Speaker 1: I'm not saying it's time to buy Aberdeen or the
Speaker 1: rather different companies that there might be in a comparable
Speaker 1: situation to Schroeders but certainly I think US money managers
Speaker 1: buying overseas money managers is I think that's what we'll
Speaker 1: see more of that.
Speaker 2: Oh okay, that's interesting because that all sector and the
Speaker 2: UK has been can out armored, hasn't it. I kind
Speaker 2: of if it's come back a bet, No, hasn't it.
Speaker 2: But it's still one of the cheaper bets to see
Speaker 2: the fund management as management.
Speaker 3: Yeah, the AI scare trade of course very well. Yeah,
Speaker 3: so I mean already, yes, we do have quite a
Speaker 3: lot of value potentially in new stocks. They are relatively cheap.
Speaker 3: But there are particularly quite a few sectors which usually
Speaker 3: would be immune from all the technology hype. I suppose
Speaker 3: this week were impacted because it's sort of started to
Speaker 3: seep into areas that had previously been seen as very unexciting,
Speaker 3: like sort of software information firms and publishers and wealth managers.
Speaker 3: So that did take a chunk out of those, but
Speaker 3: like I said, they have mostly recovered a little bit. Well,
Speaker 3: it's just because the.
Speaker 2: FIRSTY one hundred that was checking the starts from the
Speaker 2: start of the year and I actually we're up about
Speaker 2: eight percent this year as the S and PECE flat
Speaker 2: and I think Japine's the base. It's of a bit
Speaker 2: twelve percent in stealing terms. But I mean have you
Speaker 2: been have you been noticing that and noticed because obviously
Speaker 2: they one hundred has been doing quite well. Was the
Speaker 2: two fifties still lagging a bit? Any scenes of a
Speaker 2: chef the med caps or.
Speaker 3: Yeah, I mean they have been favored by quite a
Speaker 3: lot of strategists coming into the year, and I think
Speaker 3: we are seeing quite a bit of value still to
Speaker 3: be found in those mid caps. Of course, you look
Speaker 3: at the Footsy one hundred, you have a lot of
Speaker 3: effects from the dollar actually because a lot of them
Speaker 3: earn their earning overseas, particularly in US dollars, so you
Speaker 3: have a huge currency effect there. And the Footsy one
Speaker 3: hundred is also driven by these big international companies which
Speaker 3: have had a lot of strong drivers this year, like miners.
Speaker 3: I mean, you know, precious Meussiles have been absolutely through
Speaker 3: the roof and that's really benefited those companies' defense has
Speaker 3: become another theme. So there's more sort of thematic trades
Speaker 3: I think going on that are helping the Footsy one hundred,
Speaker 3: which aren't necessarily about being in the UK, Whereas I
Speaker 3: think when you're yeah, looking at the mid caps, then
Speaker 3: they are generally undervalued, and we have started to see
Speaker 3: I suppose sometimes it misses out, but sometimes it's been
Speaker 3: relatively said.
Speaker 1: And even energy, I mean, especially if you get something
Speaker 1: goes on in the Middle East over the next few days,
Speaker 1: which is a possibility. You know, the energy is doing better,
Speaker 1: you know, and that's that's a definite for evaluation of
Speaker 1: lots of different types of industrials and staples and and
Speaker 1: you said sort of value. And the old companies that
Speaker 1: burn profits and pay dividends.
Speaker 3: Shall you know, biggest company in the futsy one hundred.
Speaker 3: You know, you're always in the top three caps change,
Speaker 3: So that's a big, bigger driver overall success.
Speaker 2: Yeah, so old fashioned stocks still doing well. Watch the
Speaker 2: al praise okay for I mean you were seeing the
Speaker 2: elttle and you thought that maybe something mate happening around.
Speaker 2: I won't give you that feeling.
Speaker 1: For two reasons. One because if you remember the lead
Speaker 1: up to the Ukraine or everyone went, oh, yes, he's
Speaker 1: putting all these he's putting all those troops on the border,
Speaker 1: but he won't do it, will he Well he did,
Speaker 1: and he did because there was a sense of momentum.
Speaker 1: And I think when you have two sets of aircraft
Speaker 1: carrier fleets, there is a momentum there whereby you know,
Speaker 1: you have to think, well, if a deal isn't shown
Speaker 1: from the ittolers in the Iranian regime fairly soon, which
Speaker 1: is exactly what Trump wants, and it's gonna be quite hard,
Speaker 1: I think to resist that sort of momentum. So and
Speaker 1: I think, to my mind, I cannot see you're on
Speaker 1: backing down, and therefore I think there will be almost
Speaker 1: a yeah, we fall into wall. But I mean I
Speaker 1: think that's a there's a high chance that this is
Speaker 1: not backing down. And the more and more munitions have
Speaker 1: been put in in the zone, it becomes almost sadly
Speaker 1: self fulfilling.
Speaker 2: Okay, well, I think I think when that one will
Speaker 2: we'll wrap up. We'll see what that pomp show. Well,
Speaker 2: you see what happens next week. But but it's not. Well,
Speaker 2: thanks very much for that, Marcus, Thanks very much for weather.
Speaker 2: Thanks for listening to this week's Merton Talks Money Debrief.
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