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Speaker 2: Welcome to the Merlin Talks Money Market rapp where we
Speaker 2: talk about the biggest moves in Marcus this week and
Speaker 2: was driving them. I'm joined Stepics, senior report and author
Speaker 2: of the award winning Money Distilled newsletter, and joining me
Speaker 2: while Merrin is out is Morewene conyum more whenas co
Speaker 2: editor of the Bloomberg Markets Today blog in London and
Speaker 2: writes about UK assets, economics and markets more generally. Moreena,
Speaker 2: thank you so much for joining us again, thank you
Speaker 2: having me well Whenna, thanks for joining me. Now we're
Speaker 2: recording this in the morning the July eighth Wednesday, so
Speaker 2: we tell you listen to this. Things may have changed,
Speaker 2: but hopefully the themes that we discuss are fairly long running.
Speaker 2: So today we're going to talk about the on again,
Speaker 2: off again Seize finan I ran, the EA bubble has
Speaker 2: bossed thanks to Admitter's CEO, and what all of this
Speaker 2: means for UK markets and your money. The cease fire
Speaker 2: has been on again and then off again, and at
Speaker 2: the moment it's off again. I'm sure that we may
Speaker 2: see fluctuations in that status over the common days, but
Speaker 2: for no, that's certainly. Can I put the wend up
Speaker 2: the market a bit?
Speaker 1: It has.
Speaker 3: We've seen quite a big escalation in bond yields thanks
Speaker 3: to oil price spike following comments from US President Donald
Speaker 3: Trump as far as he is concerncyes fires over. Of course,
Speaker 3: there may well be a lot of further developments on
Speaker 3: that topic.
Speaker 1: But we are seeing some.
Speaker 3: Of the bond rally, you know, really pulling back. Bonds
Speaker 3: are falling in Europe and particularly the UK as those
Speaker 3: inflation concerns start to creep back into people's minds, and
Speaker 3: we're seeing that in central bank bets as well. Those
Speaker 3: hiking bets are being added to. Today, still only pricing
Speaker 3: in at the moment one hike from the Bank of
Speaker 3: England this year, but there's about one in three chances
Speaker 3: now that there might be a second one, and it's
Speaker 3: up quite considerably from where we were earlier in the week.
Speaker 3: So at the moment that's the trajectory. But I think
Speaker 3: what it really shows is that there is still a
Speaker 3: lot of volatility and a lot of uncertainty, and i'd
Speaker 3: say for the last month or so, the market has
Speaker 3: started to be pricing in a degree of stability, thinking
Speaker 3: this ceasefire is going to hold and that the second
Speaker 3: half of the year would be one of lower oil
Speaker 3: prices and improven We're still not back where we were,
Speaker 3: but I think it thinks they are a lot less
Speaker 3: settled than perhaps had started to be deemed the case.
Speaker 2: It's interesting because, I mean, I think the thing that's
Speaker 2: always struck me, struck me since this began is that
Speaker 2: on the wine hidh and it's not always it's not
Speaker 2: a good idea to second guess the market, but at
Speaker 2: the same time, the level of complacency and sort of
Speaker 2: faith that this would all kind of come out in
Speaker 2: the wash. I mean, the fact that oil prices were
Speaker 2: down to where they were at the start at it's
Speaker 2: conflict back at the end of February. I mean, I'm
Speaker 2: sure that this is just another phase in the ongoing
Speaker 2: kind of saga, and it will be all sunching and
Speaker 2: roses again at some point. But I guess it's this
Speaker 2: point about how markets really haven't considered the potential downside here,
Speaker 2: although maybe getting a bit too comfortable with the idea
Speaker 2: that it was all going to be okay, and hence
Speaker 2: they kind of slightly kind of the big reaction to
Speaker 2: today at it not being it's actually not all over.
Speaker 3: Yeah, absolutely, I mean I think there's perhaps an element
Speaker 3: of complacency, as you say, I think there was also
Speaker 3: an element of the we've had a few weeks of
Speaker 3: things seeing seeming steadier, but that followed, you know, months
Speaker 3: of quite extreme volatility with quite big swings on every comment,
Speaker 3: and actually that those moves got smaller, and whilst we
Speaker 3: have seen a sizeable reaction today, it's nothing compared to
Speaker 3: at the beginning of the war. So I think markets
Speaker 3: they've permanently priced in a certain degree of volatility now,
Speaker 3: but very interesting to see. I think where we go
Speaker 3: from here now that uncertainty question is back in there
Speaker 3: and in other areas of markets of course, so we
Speaker 3: are seeing bigger fundamental shifts which are also impacting some
Speaker 3: of the moves. So inequities that we're seeing beyond the
Speaker 3: sort of or again off again Iran wre situation.
Speaker 2: Well, because this is also the EI bubble story, seems
Speaker 2: to be a know up Elsie can't time these things,
Speaker 2: is they had to tell there does seem to have
Speaker 2: been a bit of a sentiment tipping point. I mean,
Speaker 2: I don't know what you think, but I think meta,
Speaker 2: So like the Facebook boss last week coming out and
Speaker 2: saying effectively that are not even to be fair, they
Speaker 2: hinted at it. They said, Okay, so we're building all
Speaker 2: this capacity in order to create an AI, but actually
Speaker 2: we might end up just renting it out to other
Speaker 2: people because you know, that'll make us some money in
Speaker 2: the meantime. And you get the sense that markets took
Speaker 2: that to mean, way, I'm in it, you know, because
Speaker 2: the thing the bow gay Man everyone's waiting for is
Speaker 2: we've built too much of this stuff and now we
Speaker 2: need to monetize it. And if Meta are turned around
Speaker 2: already and saying, okay, we're building all this stuff, but
Speaker 2: effectively we're not going to need it, so we rented
Speaker 2: to someone else. I think it's sort of like appears
Speaker 2: to have made people in the market think twice about
Speaker 2: their exposure to semiconductors and chipman you factor of us,
Speaker 2: I mean, Jane, and that is kind of sort of
Speaker 2: fear somebody.
Speaker 3: Yeah. I think there's definitely been a bit of a
Speaker 3: reassessment and people looking along with supply chain. So where
Speaker 3: we'd seen a lot of the focus those high growth
Speaker 3: sort of chip making stocks, the data centers that has
Speaker 3: been on such a long rally. I think the question
Speaker 3: was always how far can this go? And maybe we're
Speaker 3: starting to get a bit of that answer. We still
Speaker 3: have days of rallies, but we are increasingly seeing the
Speaker 3: sort of reversal. We're seeing a pivot in trading patterns
Speaker 3: and people looking for value elsewhere. So it's still in
Speaker 3: the tech space, but who stands to benefit from other
Speaker 3: parts of the AI trade and some of the sort
Speaker 3: of more traditional tech companies even you know, seeing Ali
Speaker 3: barbars oring in China rather than Samsung, and we are
Speaker 3: seeing a shift, I think, and whether that's going to
Speaker 3: continue in a linear fashion or we're going to see
Speaker 3: a bit of back and forth. But I do think
Speaker 3: there's definitely been rotation starting and some sentiment changing, and
Speaker 3: that is obviously weighing on global equities because it's been
Speaker 3: where so much.
Speaker 1: Of the power has been.
Speaker 3: There are pockets which can be resilient to that, and
Speaker 3: that the UK is one of them.
Speaker 1: We don't have much exposure to tech.
Speaker 3: We've been missing out quite a lot, but on days
Speaker 3: where you see still off. In fact, the last two
Speaker 3: days one of the worst performing sectors in Europe has
Speaker 3: been technology and the UK, particularly the foots one hundred
Speaker 3: is only very slightly exposed to that with some sort
Speaker 3: of funds, meaning that even if it falls with the
Speaker 3: global broader sentiment, it's actually been outperforming peers.
Speaker 1: It's also, of course supported.
Speaker 3: By some fairly heavy weight oil stocks like BP and Shell,
Speaker 3: so the Iran conflict escalation or potential escalation certainly plays
Speaker 3: into its hands as well there. But it's certainly a
Speaker 3: time i'd say, where people would be wanting to look
Speaker 3: at diversifying, and diversifying is paying off and not having
Speaker 3: all of your eggs in one very specific type of
Speaker 3: tech basket.
Speaker 2: Yeah, arguably, I guess in this context, the Yuki is
Speaker 2: a defensive market. Whereas you know, if you're looking for
Speaker 2: something to opposite your your South Korean costs exposure, which
Speaker 2: has been up and down like a yo yo, because
Speaker 2: it's basically two stocks, I guess kind of the UK
Speaker 2: looks more appealing to people. The other big thing this
Speaker 2: week was the bed for easy Jet, which is obviously
Speaker 2: a big name consumer brand, you know, even if it's
Speaker 2: not the largest company and the food see so a
Speaker 2: private equity company that's come along and decided that bed
Speaker 2: for this and it seems to be going through and
Speaker 2: I guess the question is is it going to be
Speaker 2: a point at which, you know, this sale off of
Speaker 2: the UK as a whole kind of comes to some
Speaker 2: sort of end, or we're going to see the IPO
Speaker 2: pipeline pick up. Because someone actually put it very well
Speaker 2: on the Ft the it's a ratio of twenty seven
Speaker 2: to one in terms of the value of stuff vanation
Speaker 2: from the market and the value of things coming in
Speaker 2: to replace it are then hence I so I was
Speaker 2: reading that perhaps in the next six months, in the
Speaker 2: second half of the year, as long as there's a
Speaker 2: bit less volatility, we make it a few more additions,
Speaker 2: you know, in the IPO pipeline. But I guess if
Speaker 2: if what we're seeing right now continues, that make it
Speaker 2: pushed back yet again.
Speaker 1: Yeah.
Speaker 3: I mean, there are a couple of companies that have
Speaker 3: been discussed as potentially IPA can that I think Virgin
Speaker 3: Active was one of them. But overall, you know, we've
Speaker 3: seen two trends. One is UK companies being acquired because
Speaker 3: to our point about the foots generally underperforming in a way,
Speaker 3: they are so much cheaper, so they are seen as
Speaker 3: good value when they're very attractive to overseas buyers. Unfortunately,
Speaker 3: that also means that when companies are looking at where
Speaker 3: which market they're going to list in, they potentially see
Speaker 3: more potential gains from listing in the US. And I think,
Speaker 3: you know, when you look at actual performance, that can
Speaker 3: vary because you can certainly be a bigfish in a
Speaker 3: small pond, or you can potentially be overlooked. But there's
Speaker 3: a lot more investor activity. One interesting thing I think
Speaker 3: it was last week was Robin Hood CEO was talking
Speaker 3: about trying to get people in the UK.
Speaker 1: It's a retail.
Speaker 3: Investment more and you know that could help potentially if
Speaker 3: there's more of an investment culture in the UK. At
Speaker 3: the moment, UK companies aren't even owned predominantly, you know,
Speaker 3: by UK holders, So I don't think we're going to
Speaker 3: see a massive shift in that.
Speaker 1: But of course, if we see a.
Speaker 3: Fundamental change in evaluation ratios, then we might see less
Speaker 3: M and A and more listings here.
Speaker 2: Yeah, I mean I suppose that's the thing, because I mean,
Speaker 2: the Robin Hood thing is interesting because the FCA has
Speaker 2: relaxed the rules about financial advice so in order to
Speaker 2: make it more feasible to give beginner investors the kind
Speaker 2: of very basic stuff that you know, people in this office,
Speaker 2: you know, personal financial others right about all the time.
Speaker 2: But the companies themselves are not allowed to see that
Speaker 2: to people because it's sort of like it has been
Speaker 2: deemed as being too much like personal advice by the
Speaker 2: regulatory regime. But that is getting to relax. So we
Speaker 2: interesting to see if that can put a dent in
Speaker 2: the kind of UK investors kind of you know locked,
Speaker 2: and to see if a law I still think tax
Speaker 2: stuff with body help.
Speaker 3: It was about I was about to say it is
Speaker 3: a lot easier well certainly taxation wise to buy foreign
Speaker 3: docks to the UK stock markets detriment you know, things
Speaker 3: like capital gain sacks do. That's been something that's been
Speaker 3: discussed and I think that will probably continue to be
Speaker 3: in the conversation. If the government, whoever is leading it,
Speaker 3: want to continue this push to make us a nation
Speaker 3: of investors not just savers, that there's going to have
Speaker 3: to be some more sort of attractive incentives. So certainly
Speaker 3: people don't want to feel financially penalized for investing in
Speaker 3: UK companies instead of foreign wants.
Speaker 2: Yeah, can they get the distant duty. But there is
Speaker 2: one osade we were discussing just before you came on
Speaker 2: to the coincident and the activity from outsied in the UK,
Speaker 2: and that's that it may be responsible for the pond
Speaker 2: being surprisingly strong this year.
Speaker 3: It has been suggested that it's at least helping. The
Speaker 3: pound is actually I was just checking that the third
Speaker 3: best performing major currency so far this year, which is
Speaker 3: quite surprising when you consider that the dollar has benefited
Speaker 3: from the US Iran war, which would normally weigh heavily
Speaker 3: than the pound. It's weighed on all peers. But also
Speaker 3: we've had this sort of domestic political turmoil. I mean,
Speaker 3: our Prime minister has just resigned. As yet the successor
Speaker 3: is not absolutely set in stone and what they will
Speaker 3: do is quite largely unknown, which when you look back
Speaker 3: over the last few years at how the pound has
Speaker 3: suffered as a result of economic uncertainty, concerns about what
Speaker 3: Rachel Reaves was going to do, even though she set
Speaker 3: out her plans, it's quite surprising that it's been unbelievably unruffled.
Speaker 3: One of the suggestions is actually that there's a lot
Speaker 3: of inflows as a result of foreign companies investing in
Speaker 3: UK assets, particularly company takeovers. They're both attractive for that,
Speaker 3: but it is supposive of the currency too.
Speaker 2: Okay, so if we get the stock market working again,
Speaker 2: we may have to contend with a week er pound. Okay,
Speaker 2: I think I think that's a price that I'm willing
Speaker 2: to pay. Thanks very much more when I really appreciate
Speaker 2: your time. As always, thank you, thanks for listening. This
Speaker 2: week's Marlton Talks Money Markets Wrap. If you like a show,
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