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Speaker 1: Good morning. It's Tuesday, the eighteenth of July here in London.

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Speaker 1: This is the Bloomberg Daybreak you at podcast. I'm Caroline

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Speaker 1: hepgeb So Coming up on today's program. Food prices dropped

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Speaker 1: for the first time in three years as the UK

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Speaker 1: braces for crunch inflation data. Rishi Soon Act tries to

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Speaker 1: rebuild the Conservative's corporate credentials with a new business council

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Speaker 1: of top bosses and flying in the face of convention

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Speaker 1: Goblin Sachs says that the US yield curve inversion now

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Speaker 1: doesn't mean that a recession is coming, at least not

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Speaker 1: this time. Let's start with a roundup of our top stories.

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Speaker 1: Food and drink makers here in the UK have cut

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Speaker 1: their prices for the first time in three years. It's

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Speaker 1: a positive sign for Brits bracing for tomorrow's inflation numbers.

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Speaker 1: Bloomberg's James Wilcock has more.

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Speaker 2: UK price rises have exceeded forecasts for four months in

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Speaker 2: a row. That's made tomorrow's consumer price index a crunch point,

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Speaker 2: with economy like Michael Saunders, formerly of the Bank of England,

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Speaker 2: saying any reading above eight point two percent would be

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Speaker 2: quote deeply alarming. There are some positive signs. Data from

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Speaker 2: Lloyd's shows lower costs being passed on in food prices,

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Speaker 2: but the Bank of England is worried about services inflation,

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Speaker 2: which it considers the clearest indicator of domestically generated price

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Speaker 2: pressures in London. James Wilcock Bloomberg daybreak Europe.

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Speaker 1: While staying in the UK. Rishi Sunak has launched a

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Speaker 1: new business council of top chief executives to advise him

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Speaker 1: on driving growth. Bosses from Shell, Astrazeneka GSK, as well

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Speaker 1: as some of Britain's biggest banks, will meet in Downing

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Speaker 1: Street tonight. The Conservative Party has had a fraught relationship

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Speaker 1: with big business since the Brexit vote in twenty sixteen.

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Speaker 1: A new Yugov poll has found that more than half

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Speaker 1: of Britain's would vote to rejoin the EU, a first

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Speaker 1: that reflects growing disillusionment with Brexits. Now, Goldman Sachs has

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Speaker 1: a message for investors stop worrying about the deeply inverted

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Speaker 1: US yield curve. The view flies in the face of

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Speaker 1: conventional wisdom, with curve inversion and almost impeccable predictor of

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Speaker 1: economic downturns. However, Goldman's chief economist jan Hatzier says that

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Speaker 1: the probability of a US recession is now just twenty percent,

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Speaker 1: even as investors demand higher compensation for holding shorter maturity

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Speaker 1: bonds over longer term ones and the US Treasury sector.

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Speaker 1: Janet Yellen seems to agree.

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Speaker 3: Growth is slowed, but our labor market continues to be

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Speaker 3: quite strong. I don't expect a recession. I think that

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Speaker 3: we're on a good path to bringing inflation down. The

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Speaker 3: most recent inflation data we're quite encouraging.

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Speaker 1: Janet Yellen there speaking exclusively with our colleague A Marie

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Speaker 1: Hordern on the sidelines of the G twenty finance ministers

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Speaker 1: meeting in India, and you can get that full conversation

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Speaker 1: on the Bloomberg Talks podcasts all of our top interviews

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Speaker 1: in one place. You can get it on Apple, Spotify,

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Speaker 1: or wherever you listen.

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Speaker 4: Now.

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Speaker 1: Bloomberg understands that Wall Street banks will face stiffer rules

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Speaker 1: on mortgage capital than their global peers. The change is

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Speaker 1: part of a sweeping overhaul of the industry that's due

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Speaker 1: to be unveiled at the end of this month by

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Speaker 1: US regulators. Our banking regulation reporter Katanga Johnson breaks down.

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Speaker 5: The changes with this measureable require is for banks to

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Speaker 5: put more capital aside to help buffer against any potential

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Speaker 5: defaults or losses. And while there are certain standards that

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Speaker 5: globally that banks of all size as well be imposed

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Speaker 5: to the US standards school just a.

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Speaker 1: Little bit beyond Katanga. Johnson's reporting comes as Morgan Stanley

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Speaker 1: and Bank of America gets set to report earnings later today. Finally,

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Speaker 1: Microsoft and Activision are close to finalized their sixty nine

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Speaker 1: billion dollar deal, but they aren't likely to close it

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Speaker 1: by today's deadline. That's according to sources, the UK's Competition

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Speaker 1: Appeal Tribunal, led by a judge paused to fight against

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Speaker 1: a proposed ban on the deal, giving Microsoft a second chance.

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Speaker 1: The UK Sorry discussions are expected to take several days

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Speaker 1: or weeks to resolve, though, and the Competition of Markets

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Speaker 1: Authority has officially extended its target date on the probe

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Speaker 1: to the end of August. Right, those are a few

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Speaker 1: of today's top stories. But catching my eye on the

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Speaker 1: Blueberg Tunl this morning, Harold's is apparently opening its first

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Speaker 1: private members club in Shanghai. It's going to be called

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Speaker 1: The Residents. It's going to be open at the end

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Speaker 1: of this year, two hundred and fifty members to start with,

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Speaker 1: and your fees can you guess one hundred and fifty

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Speaker 1: thousand yue That translates to about sixteen thousand pounds, So

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Speaker 1: it's going to be a pretty exclusive club by the

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Speaker 1: sounds of it. And it's also, if you are familiar

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Speaker 1: with Shanghai, going to be in Cha House, which already

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Speaker 1: has a Harold's tea room and bar, but this is

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Speaker 1: going to be a new club. Apparently you can collect

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Speaker 1: rare whiskies and go to Gordon Ramsey's restaurant there. Hard's,

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Speaker 1: if you remember, is owned by Qatar's Sovereign Well Fund.

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Speaker 1: So courting the Chinese shopper. Guess it makes sense given

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Speaker 1: how much of the luxury spend Chinese shoppers make up.

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Speaker 1: And on the other hand, how much of a concern

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Speaker 1: I suppose is the slowing Chinese economy. Perhaps not much

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Speaker 1: to Harold's if it's targeting, you know, such a kind

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Speaker 1: of small, exclusive number of individuals. But anyway, I thought

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Speaker 1: that was quite an interesting little read, A little side

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Speaker 1: note for you this morning. Let's get back though to

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Speaker 1: the main dish, shall we. Goldman Sachs's influential chief Economists,

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Speaker 1: where he's reduced to the probability of a US recession

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Speaker 1: to twenty percent in the wake of last week's softer

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Speaker 1: US inflation report. This is Yan Hatches. Of course, he

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Speaker 1: says that the US yield curve is actually different this time.

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Speaker 1: Usually you get more yield on bonds as the maturity

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Speaker 1: increase is so an inverted yield curve has pretty reliably

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Speaker 1: foretold a recession, and currently that's the position that we're in.

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Speaker 1: Of course, short term US yields on three month te

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Speaker 1: bills are more than one hundred and fifty basis points,

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Speaker 1: a lot above the longer maturity notes ten year bonds,

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Speaker 1: so that's close to the biggest inversion that we've seen

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Speaker 1: in about four decades. Join me now to discuss in

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Speaker 1: a bit more detail. Bloeberg's chief rates correspondent, Garfield Reynolds.

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Speaker 1: Great to have you on the program this morning. This

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Speaker 1: is quite an unusual pronouncement from someone who's really important

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Speaker 1: in the markets about you know, the predictions for a

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Speaker 1: US recession. What do you make of it?

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Speaker 6: Well, I mean the difficulty is that we're all a

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Speaker 6: bit impatient as human beings, and when the yield curve

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Speaker 6: has been inverted for as long as it has, and dude,

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Speaker 6: where's my recession? It's not here, then it's logical for

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Speaker 6: aole to start the question, is this time going to

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Speaker 6: be the time when the yield curve and version doesn't

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Speaker 6: end up the forecast session. Now, I'm not an economist,

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Speaker 6: so I'm not about to forg us whether there will

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Speaker 6: be one or not. But it's understandable that and Hatsus

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Speaker 6: is not alone in having brought out this question. Will

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Speaker 6: this time be different? Because at the very least, it's

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Speaker 6: been the first time in about forty years that we've

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Speaker 6: had to wait this long after a curving version to

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Speaker 6: work out whether or not that meant there was going

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Speaker 6: to be a recession.

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Speaker 4: Yeah.

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Speaker 1: Absolutely, because it's been more than a year. Now. Look,

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Speaker 1: you are an expert, though on the bond market, so

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Speaker 1: explain the yield curve issue. Why is it so inverted?

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Speaker 6: Well, I mean the inversion owes a lot to the

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Speaker 6: rapidity of We've had the fastest federal reserve rate increases

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Speaker 6: for forty years, and they've taken their benchmark rate to

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Speaker 6: the highest since about two thousand and eight. They might

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Speaker 6: end up going even higher than that. So that has

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Speaker 6: even up short term rates. It's driven up all yields,

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Speaker 6: but especially short term yields because those are the ones

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Speaker 6: that are most tightly linked to what the Federal Reserve

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Speaker 6: is doing. And at the same time, the anticipation is

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Speaker 6: that the Fed will succeed to some extent you're in

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Speaker 6: taming inflation, and that it will do so by bringing

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Speaker 6: down growth. Now the idea that inflation will keep coming

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Speaker 6: down and that slower growth is what's going to drive that.

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Speaker 6: That helps explain why your ten year yields, the standard

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Speaker 6: sort of your long medium terms of long yield that

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Speaker 6: economists and investors look at as being the key benchmark,

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Speaker 6: why those yields have stayed much lower than the short

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Speaker 6: term yields because they're much more about where the economy

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Speaker 6: is going. The difference that Hatius is looking at, well,

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Speaker 6: that's that's something that has hum and others saying that

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Speaker 6: this time it doesn't mean a recession.

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Speaker 1: Yeah, absolutely, And I suppose that isn't it. Why does

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Speaker 1: Hatses think that this time is going to be different

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Speaker 1: when usually, you know, in previous recessions and inversion has

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Speaker 1: always come before recession.

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Speaker 6: Yeah. Well, I mean he's got two key points, and

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Speaker 6: the first is something rather one key called the term premium,

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Speaker 6: which is linked to the idea that investors expect will

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Speaker 6: demand a higher return on a longer term bond because

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Speaker 6: of the term the time that's involved. So if a

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Speaker 6: bond is a ten year bond, then over the course

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Speaker 6: of ten years, there's you know, like why you're going

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Speaker 6: to hold a ten year bond instead of simply buying

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Speaker 6: a three month bill, you know, enough times to replicate

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Speaker 6: that same your income stream. So I can buy a

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Speaker 6: ten year bond now and hold it, or I can

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Speaker 6: buy a three month bill and then when it matures

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Speaker 6: another one and buy another one. So why do I

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Speaker 6: want to hold the ten year bond? I need to

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Speaker 6: be paid extra higher yield, you know for that. And

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Speaker 6: he's saying that with the way that the term printing

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Speaker 6: has come, that's now negative, so you're not getting any

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Speaker 6: compensation for the for the time part of holding for

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Speaker 6: long the time. That means that the you know, the

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Speaker 6: basic mechanics of yield curves and why an inverted curve

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Speaker 6: necessarily means a recession, that those are broken, So you know,

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Speaker 6: that's that's his argument. He also is just saying that

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Speaker 6: he thinks the fair hast done enough to bring inflation

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Speaker 6: down and that therefore we're going to have a soft landing.

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Speaker 6: So it's there's the kind of the process driven side

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Speaker 6: of it, where he thinks the fundamentals the bond market

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Speaker 6: have changed a lot and that's due to you know,

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Speaker 6: decades of central bank intervention mostly, And he also just

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Speaker 6: thinks that this kind of an idiosyncratic I sort of

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Speaker 6: what's going on in the real world, which is at

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Speaker 6: this time round the fair is going to be able

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Speaker 6: to tame inflation without causing a recession, whereas back in

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Speaker 6: the nineteen eighties, for example, they weren't able to fail

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Speaker 6: inflation until they had provoked, in fact, a couple of

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Speaker 6: recessions in their search to do so.

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Speaker 1: Absolutely, Girlfer, thank you so much for being with me

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Speaker 1: and explaining that I think it is a really difficult

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Speaker 1: one but hugely important to understand if you look at

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Speaker 1: the markets, Jan Hatsis is thinking and the yield curve inversion.

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Speaker 1: So thanks so much for your time. Bloomberg's chief rates

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Speaker 1: correspondent Garfield Reynolds. Coming up next, trading at robin Hood

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Speaker 1: may launch in the UK, and why nothing ever gets

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Speaker 1: done after four pm.

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Speaker 2: Now the paper review on blue Burgh Daybreak Europe.

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Speaker 7: The news you need to know from today's.

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Speaker 1: Papers and join me this morning blue Begs of leanne Gerin.

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Speaker 1: So look through the newspapers. Let's start with the Telegraph.

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Speaker 1: It has the headline controversial share trading at robin Hood

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Speaker 1: Plots UK launch.

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Speaker 4: Well, Caroline, cast your mind back to around February twenty

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Speaker 4: twenty one. I know it was the pandemic. Things were

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Speaker 4: super quiet, yes, do you remember? We remember it well?

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Speaker 4: But did the meme stock craze also be.

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Speaker 7: In your mind? And that made me down?

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Speaker 1: Yeah?

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Speaker 7: I feel like it was such a thing, wasn't it.

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Speaker 4: I felt like all we did was speak about it

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Speaker 4: for weeks, Caroline. So I'm just taking you back to

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Speaker 4: some old memories. Now. Robin Hood's chief executive and co founder,

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Speaker 4: Blad Teneth, came under scrutiny for blocking trading and gamestock

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Speaker 4: shares after a sharp rise in its share price. And

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Speaker 4: remember he came out and apologized for that black swan

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Speaker 4: event that we saw. But fos forward a few years,

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Speaker 4: We've moved on and stock trading app is now preparing

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Speaker 4: to target British investors.

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Speaker 7: So basically robin Hood could come here.

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Speaker 4: In recent days, robin Hood has opened up job listings

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Speaker 4: on LinkedIn for a regulatory expert and also an operations lead.

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Speaker 4: It is also said to be seeking a UK chief executive.

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Speaker 4: Now this is all according to the article in the Telegraph.

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Speaker 4: But what is interesting, Caroline is remember robin Hood wanted

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Speaker 4: to come to the UK a few years ago. They

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Speaker 4: didn't make it. But basically this is reignited because politicians

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Speaker 4: and business leaders in the UK are debating ways to

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Speaker 4: rekindle interest in the stock market once again. Now robin

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Speaker 4: Hood's arrival in the UK would bring massive competition to

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Speaker 4: domestic rivals and also traditional retail stockbroker companies.

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Speaker 7: So that's something that we need to think about.

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Speaker 4: And as I said, they once again came really close

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Speaker 4: to launching here, securing a license from the financial regulator

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Speaker 4: and actually signing people up to a waiting list.

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Speaker 1: I just remember that.

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Speaker 4: But all those plans were canceled back in twenty twenty,

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Speaker 4: and that was amid heightened scrutiny in its home market

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Speaker 4: over allegations at mid it misled customers.

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Speaker 6: Yeah.

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Speaker 1: Absolutely, because robin Hood, basically, as the name alludes to,

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Speaker 1: is meant to be about the democratization of trading man.

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Speaker 1: You can do it really easily, very cheaply in an app.

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Speaker 1: But I think the flip side of that was the

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Speaker 1: meme start kind of madness and the fact that they

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Speaker 1: stopped trading and there was huge ayre about that in

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Speaker 1: the markets at the time. And also I think you've

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Speaker 1: got to layer in the fact that now there is

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Speaker 1: there's extra regulation here in the UK about these these apps.

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Speaker 1: You know that regulators getting a lot more wary about

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Speaker 1: anything that looks like a game or that has game

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Speaker 1: like elements when it comes to real money. You know,

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Speaker 1: the getting a bit hot on that. So it's going

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Speaker 1: to be a very interesting discussion, I.

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Speaker 4: Think absolutely, Caroline, and I couldn't agree with you more.

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Speaker 4: Let's see how regulators welcome this or don't welcome this,

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Speaker 4: and what is really involved to get this over the

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Speaker 4: line if Robin Hood does want to launch here in

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Speaker 4: the UK.

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Speaker 1: Okay, let's go to the Wall Street Journal the new

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Speaker 1: work day dead zone when nothing gets done.

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Speaker 4: Well, apparently golf gets done, which four pm. This is

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Speaker 4: the new dead zone. Now, Caroline, I think this story

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Speaker 4: is so interesting. So lots of workers are sticking with

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Speaker 4: the covid era habit of clocking out early and actually

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Speaker 4: making it up later.

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Speaker 7: The four pm meeting is often.

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Speaker 4: Canceled, according to The Wall Street Journal, because half the

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Speaker 4: team can't make it. So basically what happens is bosses

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Speaker 4: send out an email with the main discussion points.

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Speaker 7: And you know what, the replies just roll.

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Speaker 4: In throughout the evening the next so work has extended

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Speaker 4: to the next day, so that what you can do

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Speaker 4: today gets done is no longer. But apparently by four

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Speaker 4: pm on weekdays golf courses are absolutely.

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Speaker 1: But Hannah, this is in the US, right, not just

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Speaker 1: not in the UK as a.

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Speaker 4: No, So this is according to a Stanford University study

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Speaker 4: and it's basically in the US at the moment. But

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Speaker 4: I actually think, Caroline, I'm extremely sporty. That's no lie.

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Speaker 4: My tennis court is packed at four o'clock.

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Speaker 7: Yeah, I don't know if anyone's got a job.

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Speaker 1: This is Bloomberg Daybreak. You up your morning brief on

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