WEBVTT - Bloomberg Daybreak Weekend: Banks, Congress, Tesla, UK 0:00:03.600 --> 0:00:06.160 This is Bloomberg day Break Weekend, our global look at 0:00:06.160 --> 0:00:08.799 the top stories in the coming week from our day 0:00:08.800 --> 0:00:10.959 Break anchors all around the world, and straight ahead on 0:00:11.000 --> 0:00:14.520 the program. Another big week coming for bank earnings. I'm 0:00:14.520 --> 0:00:15.920 Tom Busby in New York. 0:00:16.000 --> 0:00:18.239 I'm Stephen Carolin London with a Prime Minister and the 0:00:18.280 --> 0:00:20.200 Bank of England. We'll be hoping there won't be another 0:00:20.280 --> 0:00:22.680 unpleasant inflation surprise in store. 0:00:22.760 --> 0:00:24.880 I'm Brian Curtis in Hong Kong. We look ahead the 0:00:24.960 --> 0:00:27.920 Tesla's earnings and the company's progress in China. 0:00:28.040 --> 0:00:30.720 I'm Kayleie Lyones in Washington, where we're getting ready for 0:00:30.800 --> 0:00:34.040 Congress to come back to the capital after two week recess. 0:00:34.360 --> 0:00:36.360 Watch for fireworks when they return. 0:00:37.200 --> 0:00:40.479 That's all straight ahead on Bloomberg day Break Weekend on 0:00:40.640 --> 0:00:43.480 Bloomberg Eleve Them three OW New York, Bloomberg In ninety 0:00:43.560 --> 0:00:47.120 nine to one, Washington, d C, Bloomberg one O six one, Boston, 0:00:47.200 --> 0:00:52.000 Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius 0:00:52.120 --> 0:00:55.400 XM one nineteen and around the world on Bloomberg Radio 0:00:55.480 --> 0:00:57.760 dot com and via the Bloomberg Business App. 0:01:01.280 --> 0:01:03.240 Good day to you. I'm Tom Busby, and we begin 0:01:03.280 --> 0:01:06.440 today's program with all the first quarterbank earnings that began 0:01:06.560 --> 0:01:09.800 this past Friday and continue in the coming week. Bloomberg 0:01:09.840 --> 0:01:13.720 Wall Street reporter Shanalie Basic joining me now for some insight. Hello, 0:01:13.760 --> 0:01:16.800 shanale I, am all right. Well, let's start with some 0:01:16.800 --> 0:01:19.760 of the good news that we heard on Friday, particularly 0:01:20.040 --> 0:01:23.480 upside earning surprises from the biggies, JP Morgan, Chase and 0:01:23.560 --> 0:01:24.080 City Group. 0:01:24.520 --> 0:01:27.360 Yeah, there are a few things. For JP Morgan in particular, 0:01:27.560 --> 0:01:30.600 not only did they beat on revenue, they also had 0:01:30.640 --> 0:01:34.600 some really interesting items within different lines of the banks. So, 0:01:34.720 --> 0:01:37.040 for example, they said they were going to make billions 0:01:37.120 --> 0:01:41.640 of dollars more in net interest income than was initially expected. 0:01:42.120 --> 0:01:44.400 Another thing that happened though, was that they beat on 0:01:44.520 --> 0:01:48.000 fixed income trading, and so you also saw an institutional 0:01:48.080 --> 0:01:51.560 business do very well here relative to what was expected. 0:01:52.080 --> 0:01:55.200 That was similar for Citygroup as well. Remember, the markets 0:01:55.200 --> 0:01:57.480 are still very volatile, so the fact that they're still 0:01:57.520 --> 0:02:01.440 making money from institutional clients are a big deal as 0:02:01.480 --> 0:02:03.640 we watch some of the cracks in the market and 0:02:03.680 --> 0:02:06.560 how they affect both the consumer and institutional clients. 0:02:07.200 --> 0:02:10.200 Now, speaking of those cracks, JP Morgan, Chase CEO Jamie 0:02:10.200 --> 0:02:13.240 Dimond told investors, you can count the number of troubled 0:02:13.280 --> 0:02:16.560 banks on your hands. What does that tell us? 0:02:16.639 --> 0:02:19.040 You know, nobody wants to be in a banking crisis. 0:02:19.120 --> 0:02:21.440 Or you can use what Muhammad Alarian would say, and 0:02:21.480 --> 0:02:24.200 he says it's a banking tremor, not a banking crisis. 0:02:24.639 --> 0:02:27.720 And even with the struggles we're seeing with the likes 0:02:27.720 --> 0:02:30.200 of Silicon Valley Bank, a lot of questions still around 0:02:30.200 --> 0:02:32.800 for as Republic. But JP Morgan and City Group are 0:02:32.800 --> 0:02:37.000 telling you that this is fairly contained. Now. JP Morgan 0:02:37.120 --> 0:02:41.120 banks hundreds of banks in America as well. They're more 0:02:41.120 --> 0:02:44.680 than four thousand of them. And there's a consensus here 0:02:44.680 --> 0:02:47.240 among even the largest banks which have benefited a lot 0:02:47.360 --> 0:02:50.399 from this kind of banking tremor crisis, whatever you want 0:02:50.400 --> 0:02:53.880 to call it. The thing here is those regional banks 0:02:53.880 --> 0:02:56.080 are really what touches a lot of America. They have 0:02:56.120 --> 0:02:58.679 a lot of exposure to commercial real estate, for example, 0:02:58.960 --> 0:03:02.880 small businesses which employ a lot of the American economy. 0:03:03.120 --> 0:03:05.280 So if those regional banks face a lot of pressure, 0:03:05.280 --> 0:03:06.760 which is really what we're going to see the bulk 0:03:06.800 --> 0:03:08.639 of in terms of their earning cycle, the next couple 0:03:08.720 --> 0:03:12.520 of weeks there could be ripple effects to any pains 0:03:12.560 --> 0:03:14.240 those banks, the smaller banks would feel. 0:03:15.280 --> 0:03:17.680 And in the earnings that we that we just had 0:03:17.720 --> 0:03:21.040 on Friday, do we see the movement of a lot 0:03:21.080 --> 0:03:23.320 of money, a lot of deposits coming out of those 0:03:23.360 --> 0:03:24.880 regional banks and into the biggiaest. 0:03:25.000 --> 0:03:27.280 It was most notable at JP Morgan, where they supposed 0:03:27.440 --> 0:03:31.040 they posted a surprise increase in deposits. They had been 0:03:31.480 --> 0:03:34.639 drawing down for the last couple of quarters here because 0:03:34.720 --> 0:03:37.720 interest rates are still very high, people moving into money 0:03:37.720 --> 0:03:40.760 market funds instead. JP Morgan is telling you that don't 0:03:40.800 --> 0:03:44.040 expect this kind of increase in deposits to continue, even 0:03:44.080 --> 0:03:46.000 what they took in in the wake of kind of 0:03:46.040 --> 0:03:49.360 the Silicon Valley bank issue. They say that these are 0:03:49.400 --> 0:03:52.040 not necessarily sticky deposits. They can go out the door 0:03:52.200 --> 0:03:54.200 just as easily as they've come in. Of course, we 0:03:54.240 --> 0:03:57.080 don't worry about deposits at JP Morgan. You know, I 0:03:57.080 --> 0:03:59.800 want to say that their deposit base is probably bigger 0:03:59.840 --> 0:04:02.960 here than the GDP of France. It's two point three 0:04:03.080 --> 0:04:06.280 seven trillion dollars we're talking about in deposits at JP Morgan. 0:04:06.520 --> 0:04:10.440 But again, you know, does that deposit movement cause fragilities 0:04:10.480 --> 0:04:13.040 in the smaller banks. That's where it becomes more of 0:04:13.080 --> 0:04:13.560 a question. 0:04:14.480 --> 0:04:16.640 Now I want to touch on something you spoke about, 0:04:16.680 --> 0:04:19.719 and that is higher interest rates and how these banks 0:04:20.000 --> 0:04:22.840 benefited from the what's it been nine in a row 0:04:22.839 --> 0:04:26.279 of increases from the Federal Reserve and maybe one or 0:04:26.320 --> 0:04:27.080 two more to come. 0:04:27.360 --> 0:04:30.200 The interesting thing about this is that if you look 0:04:30.200 --> 0:04:32.359 at City Group and if you look at JP Morgan, 0:04:32.600 --> 0:04:36.000 a lot of this is coming from their credit card portfolios. 0:04:36.279 --> 0:04:39.880 So they're really getting more because people are borrowing more 0:04:40.040 --> 0:04:42.679 from on their credit card debt. That's not the same, 0:04:42.760 --> 0:04:44.359 by the way, as we know for a lot of 0:04:44.360 --> 0:04:47.640 the regionals and for Wells Fargo, which is more heavily 0:04:47.680 --> 0:04:50.960 tilted towards, for example, the mortgage market, which has been 0:04:50.960 --> 0:04:53.359 facing a lot of pressures in this higher interest rate environment. 0:04:53.560 --> 0:04:56.920 Oh yeah, and we just saw, speaking of credit cards, 0:04:57.360 --> 0:05:03.200 retail sales dipping last last month. But still it's a 0:05:03.200 --> 0:05:05.800 big pot that you know, we're spending a lot of money. 0:05:05.560 --> 0:05:07.400 Americans, and it makes total sense. You see them in 0:05:07.400 --> 0:05:10.240 the bank numbers. Also you see card spending up at 0:05:10.240 --> 0:05:13.800 these banks. How long that continues for remember a couple 0:05:13.880 --> 0:05:16.640 times this year. Jamie Diamond has said that the consumer 0:05:16.680 --> 0:05:18.040 will start to hit a cliff at the end of 0:05:18.040 --> 0:05:21.159 this year. So you have city groups saying that you 0:05:21.200 --> 0:05:24.480 can expect kind of a soft or shallow recession, if 0:05:24.520 --> 0:05:26.440 you will, maybe in the second half of this year. 0:05:26.880 --> 0:05:28.880 But then you also have to take into account what 0:05:28.920 --> 0:05:32.080 Jamie Diamond and JP Morgan has said about the uncertainties 0:05:32.080 --> 0:05:34.839 that bake into twenty twenty four into next year. So 0:05:34.880 --> 0:05:37.360 we're talking about a long horizon of uncertainty here. 0:05:37.839 --> 0:05:42.480 So so despite the upbeat earnings, they are very cautious. 0:05:42.520 --> 0:05:45.440 They are being cautious. They're telling investors it's not over. 0:05:45.360 --> 0:05:49.000 Yet, certainly not. And even in their numbers alone, you 0:05:49.120 --> 0:05:52.599 see them really preparing with higher provisions for credit losses, 0:05:53.000 --> 0:05:56.000 even higher charge offs. The ninety day delinquency rate on 0:05:56.120 --> 0:05:58.320 for example, JP Morgan's credit card book has ticked a 0:05:58.320 --> 0:05:59.080 little higher. 0:05:59.200 --> 0:06:00.280 They're well blow. 0:06:01.320 --> 0:06:05.240 Levels we've seen that would be considered alarming. They're well 0:06:05.240 --> 0:06:08.760 below that. JP Morgan calls it a normalization. We're getting 0:06:08.839 --> 0:06:11.480 back to more normal levels. You're going to get more 0:06:11.560 --> 0:06:14.520 losses as you're lending more. But all in all, I 0:06:14.560 --> 0:06:18.560 mean JP Morgan is very profitable. In fact, in terms 0:06:18.560 --> 0:06:21.720 of revenue, they just had a record corridor. So that 0:06:21.880 --> 0:06:26.520 is pretty incredible considering all the worries that we had 0:06:26.560 --> 0:06:27.680 gone into the quarter with. 0:06:28.120 --> 0:06:33.119 Right, and now the cavalcade of earnings continues this coming 0:06:33.160 --> 0:06:36.799 week and we hear from some the rest of the biggies, 0:06:37.200 --> 0:06:39.320 a lot of the regional banks, even the small ones. 0:06:39.400 --> 0:06:42.400 So what are we expecting to hear from Bank of America, 0:06:42.440 --> 0:06:45.640 from Golden Sechs, from Morgan Stanley on the Bank. 0:06:45.520 --> 0:06:47.280 Of of America front. I think it'll be interesting to 0:06:47.320 --> 0:06:49.480 see what they say on that interesting income, given that 0:06:49.480 --> 0:06:52.000 there's such a big lender to the American economy. Do 0:06:52.040 --> 0:06:53.960 they say the same things as JP Morgan that they 0:06:54.080 --> 0:06:57.440 expect more? Remember City Group didn't really change their outlook 0:06:57.480 --> 0:07:01.000 for the year, and also JP Morgan City Group in particular, 0:07:01.040 --> 0:07:04.400 their headcount has risen over the past year. How about 0:07:04.480 --> 0:07:08.279 Bank of America Wages have risen also, so we know 0:07:08.360 --> 0:07:11.840 that expenses tied to pay are rising, but how much 0:07:11.840 --> 0:07:14.400 can banks really take on with that much uncertainty ahead? 0:07:14.720 --> 0:07:17.960 There's also Schwab on Monday. Remember Schwab will be very 0:07:18.000 --> 0:07:21.320 interesting because they've had a large sell off. They you know, 0:07:21.400 --> 0:07:24.960 are very concerned and their investors rather are concerned about 0:07:24.960 --> 0:07:28.160 people moving from deposits to money market funds. It's not 0:07:28.200 --> 0:07:31.000 a question of viability of the firm necessarily, it's a 0:07:31.080 --> 0:07:34.680 question of profitability and what will cause more pressures at 0:07:34.680 --> 0:07:38.200 a place like Schwab. You also have Goldman, Zachs and 0:07:38.240 --> 0:07:40.960 Morgan Stanley in the coming days after that. Like I said, 0:07:41.000 --> 0:07:45.120 the institutions invest in banking fees are way down, but 0:07:45.760 --> 0:07:49.480 Goldman in particular, if they find the same fixed income 0:07:49.560 --> 0:07:53.480 trading figures or beats that JP Morgan and Citygroup had, 0:07:54.040 --> 0:07:56.960 you know, their bankers are just fine. Let's put it 0:07:57.000 --> 0:07:57.400 that way. 0:07:58.840 --> 0:07:59.000 Now. 0:07:59.240 --> 0:08:02.760 Some of the others, though, so that have truest is 0:08:02.800 --> 0:08:05.160 one that we just heard news from them last week. 0:08:05.560 --> 0:08:08.040 Fifth third key corpse, some of the second level or 0:08:08.080 --> 0:08:11.200 third level of banks, and are we seeing a similar thing. 0:08:11.440 --> 0:08:13.320 That's what you talked about. The ones that are the 0:08:13.360 --> 0:08:16.240 regional banks that are really vital to smaller communities. 0:08:16.320 --> 0:08:18.320 This is where it gets so stressful. The big banks 0:08:18.400 --> 0:08:20.960 this quarter are they're very easy stories more or less. 0:08:21.160 --> 0:08:25.920 But the regional banks, line by line number my number, 0:08:26.040 --> 0:08:28.040 if I take a look at P and C all 0:08:28.080 --> 0:08:30.560 through Friday had been kind of up and down in 0:08:30.600 --> 0:08:33.720 the stock market. They were up, they were down, and 0:08:33.800 --> 0:08:37.800 remember they were stable in their actual numbers. When you 0:08:37.840 --> 0:08:40.640 looked at the deposit flows, they actually did better than 0:08:40.640 --> 0:08:44.200 what Wallstreet had expected. So do we see the same 0:08:44.240 --> 0:08:46.120 from M and T and Fifth Third and all of 0:08:46.120 --> 0:08:49.280 these other regionals or did they for whatever reason face 0:08:49.640 --> 0:08:54.680 stiffer outputs and deposits from their clients? You know, P 0:08:54.760 --> 0:08:56.560 and C is based in Pittsburgh, some of them. Some 0:08:56.600 --> 0:08:59.600 people say that these are regional differences. It tended to 0:08:59.600 --> 0:09:01.760 be a lot of the California banks. People were concerned 0:09:01.800 --> 0:09:05.000 about the concentration and some of those you know, First 0:09:05.040 --> 0:09:08.360 Republic and Silicon Valley Bank kind of stories and their 0:09:08.720 --> 0:09:11.720 balance sheets. But do you see those same pressures really 0:09:11.760 --> 0:09:14.760 start to come across from the client base, at least 0:09:14.960 --> 0:09:17.760 from a lot of these regionals. And then you have 0:09:17.800 --> 0:09:19.840 to add the other question of what did their loan 0:09:19.840 --> 0:09:23.480 books look like, which is another question that will continue 0:09:23.520 --> 0:09:26.760 to be a worry throughout the year. Is if you're 0:09:26.800 --> 0:09:30.079 worried about credit quality deteriorating, and some. 0:09:30.040 --> 0:09:33.400 Of those regional banks obviously maybe on Jamie Diamond's list. 0:09:33.880 --> 0:09:37.640 You know, we saw wild fluctuations at PacWest, a big 0:09:37.720 --> 0:09:40.840 lender in the Los Angeles area, you know, which it 0:09:40.880 --> 0:09:43.880 could be spillover from Silicon Valley Bank. But do we 0:09:43.920 --> 0:09:46.400 have any idea what some of these where some of 0:09:46.400 --> 0:09:49.440 these banks are are? Which banks he may be referring to. 0:09:49.840 --> 0:09:51.960 Eh, which ones know? And you don't want to say 0:09:51.960 --> 0:09:53.959 them either, because you don't want to cause any alarm. 0:09:54.040 --> 0:09:56.920 But you know, it's interesting you named pac West. Something 0:09:56.960 --> 0:10:00.240 interesting about PacWest was one thing they did to kind 0:10:00.240 --> 0:10:03.480 of cooled down the market was they said that they 0:10:04.240 --> 0:10:06.200 instead of going out to the market and raising money, 0:10:06.240 --> 0:10:10.440 they got essentially, you know, credit facility from a private 0:10:11.040 --> 0:10:14.160 firm named Atlas sp. This is a firm those started 0:10:14.160 --> 0:10:16.679 by Apollo in the wake of credit sue and they 0:10:16.720 --> 0:10:19.760 basically lent the money against a series of assets to 0:10:19.880 --> 0:10:22.480 weather the storm. And so you know, we could see 0:10:22.480 --> 0:10:24.560 more deals like that. It was a very interesting deal 0:10:24.600 --> 0:10:27.680 that I know that a lot of investors wanted to model. 0:10:28.200 --> 0:10:31.480 And it also showed you another thing that if these 0:10:31.520 --> 0:10:34.120 banks want to tap the capital markets, if they want 0:10:34.160 --> 0:10:37.400 to raise money. You know, when Silicon Valley Bank happened, 0:10:37.880 --> 0:10:41.359 that wasn't possible. The market was closed to these banks. 0:10:41.679 --> 0:10:45.679 But now they're finding other folks comes at a cost, 0:10:46.000 --> 0:10:48.040 but they could raise money to make it through this 0:10:48.080 --> 0:10:49.560 difficult environment if they need to. 0:10:49.679 --> 0:10:52.600 An alternative means of raising money. Yeah from the past, 0:10:52.760 --> 0:10:55.840 Thank you, Shanali. That was Bloomberg Wall Street reporter Shanali 0:10:55.920 --> 0:10:58.600 Bassic And coming up on Bloomberg day Break weekend in 0:10:58.679 --> 0:11:02.000 the UK, some key data coming our way ahead of 0:11:02.040 --> 0:11:05.840 the Bank of England's next interest rate decision. I'm Tom Busby. 0:11:06.120 --> 0:11:16.400 This is Bloomberg. This is Bloomberg Daybreak weekend, our global 0:11:16.440 --> 0:11:18.600 look ahead at the top stories for investors in the 0:11:18.640 --> 0:11:21.480 coming week. I'm Tom Busby in New York. Up later 0:11:21.520 --> 0:11:24.240 in our program, watch for a lot of drama as 0:11:24.280 --> 0:11:26.760 members of Congress get ready to return to Capitol Hill. 0:11:27.040 --> 0:11:29.800 But first in the UK, we'll get some key data 0:11:29.840 --> 0:11:32.080 in the coming days which will factor into the Bank 0:11:32.120 --> 0:11:35.280 of England's next interest rate decision. Like the FED, the 0:11:35.360 --> 0:11:37.679 UK Central Bank is thought to be close to ending 0:11:37.760 --> 0:11:41.720 a hiking cycle, although the economic situation in Britain does 0:11:41.960 --> 0:11:44.640 look quite different. Now for more, let's head to London 0:11:44.640 --> 0:11:48.479 and bring in Bloomberg Daybreak Europe Banker Stephen Carroll, Stephen Tom. 0:11:48.280 --> 0:11:51.040 The Prime Minister Iscisinak named halving the race of inflation 0:11:51.080 --> 0:11:53.400 as one of his five key priorities for this year. 0:11:53.440 --> 0:11:56.200 He'll be hoping that the CPI print from March starts 0:11:56.200 --> 0:11:58.640 to show that trend after we had a surprise uptake 0:11:58.720 --> 0:12:01.640 to ten point four percent in February. To discuss this 0:12:01.920 --> 0:12:03.760 and some more of the data points we'll be unpacking 0:12:03.920 --> 0:12:06.160 from the UK in the coming days, I'm joined by Boomberg, 0:12:06.320 --> 0:12:09.360 senior UK economist Dan Hansen, and our UK correspondent Lizzi 0:12:09.360 --> 0:12:12.840 Burdeness in studio with us as well. Dan, this February 0:12:12.840 --> 0:12:16.160 CPI number was a shocker. Remind us what drove that? 0:12:17.559 --> 0:12:19.520 Yeah, so we had we had to pick up in 0:12:20.360 --> 0:12:22.800 a little well quite a big pickup actually. The surprising 0:12:22.920 --> 0:12:25.560 core goods inflation, so clothing and footwear and also in 0:12:25.679 --> 0:12:29.080 food inflation as well. They were the sources of surprises. 0:12:30.920 --> 0:12:33.760 And we were expecting a reading of nine point nine percent. 0:12:34.080 --> 0:12:36.040 It came in ten point four percent. The Bank of 0:12:36.040 --> 0:12:37.920 England was expecting a reading of nine point nine percent. 0:12:37.960 --> 0:12:42.000 So you're right, it was a big surprise. Looking ahead, 0:12:43.160 --> 0:12:46.160 I think it will probably be seen as a blip. 0:12:47.880 --> 0:12:50.560 And there are sort of two parts of this. One 0:12:50.640 --> 0:12:53.960 part is you're just going to get these what economists 0:12:54.000 --> 0:12:57.120 called base effects. So these these effects, these big price 0:12:57.200 --> 0:12:59.520 rises last year falling out of the annual comparison, and 0:12:59.559 --> 0:13:01.800 that's going to be part of the story in March. 0:13:01.840 --> 0:13:05.280 It's going to become a more significant story in April 0:13:05.320 --> 0:13:07.120 and later in the year when we get the falls 0:13:07.400 --> 0:13:11.119 the rises in gas prices falling out of the annual comparison. 0:13:11.280 --> 0:13:13.480 But I think looking to the March number we're going 0:13:13.520 --> 0:13:15.520 to we think we're going to see drop back from 0:13:15.559 --> 0:13:17.280 ten point four percent. We actually think we're going to 0:13:17.360 --> 0:13:21.120 fall a little bit beneath ten percent. So it looks 0:13:21.160 --> 0:13:23.280 like it's going to be a temporary blit a February figure. 0:13:23.400 --> 0:13:25.839 Okay, And you mentioned the energy prices there, of course 0:13:25.920 --> 0:13:27.840 one of the big drivers that pushed inflation up to 0:13:27.880 --> 0:13:31.520 these levels in the end towards the end of last year. 0:13:32.080 --> 0:13:35.600 Where is inflation looking stickier now or where within the 0:13:35.600 --> 0:13:37.360 detail of the numbers should we be thinking about it? 0:13:37.440 --> 0:13:39.679 Yes, I mean this is I mean it goes to 0:13:39.760 --> 0:13:42.120 the Bank of England's thinking as well. So you've got 0:13:42.480 --> 0:13:44.480 you've got this, You're right, you've got this energy component. 0:13:44.520 --> 0:13:46.839 And over the course of this year, if wholesale energy 0:13:46.840 --> 0:13:49.880 prices stay where they are at the moment, over the 0:13:49.880 --> 0:13:51.920 course of this year, you're going to get about four 0:13:51.920 --> 0:13:55.240 and a half percentage points off the headline rate of inflation, 0:13:55.320 --> 0:13:56.959 So you're at ten point four at the moment. That's 0:13:56.960 --> 0:14:00.560 going to get you to six, partly mechanically through base effects, 0:14:00.600 --> 0:14:03.319 partly because we've had this fall in gas wholesale gas 0:14:03.360 --> 0:14:07.400 prices since the start of the year. Where the stickiness 0:14:07.480 --> 0:14:09.960 then comes, I think there are actually two bits of it. 0:14:10.040 --> 0:14:12.520 One is is services inflation, and that's what the Bank 0:14:12.520 --> 0:14:15.719 has said it's very focused on. But actually what has 0:14:15.800 --> 0:14:19.600 probably been a bit stickier than most, including us, have 0:14:19.800 --> 0:14:23.320 expected is the good side of the basket and where 0:14:23.480 --> 0:14:28.520 the supply chain disruption really was the source of that inflation. 0:14:28.680 --> 0:14:31.960 But actually it hasn't come down as quickly as we'd 0:14:32.000 --> 0:14:34.200 been expecting all the Bank of England has been expecting, 0:14:34.320 --> 0:14:36.920 So there is some stickiness there which is cause for concern. 0:14:37.600 --> 0:14:39.520 But I think the really key area to watch in 0:14:39.600 --> 0:14:42.040 terms of persistence, and going to your question, is services 0:14:42.040 --> 0:14:45.680 and services inflation, which again jump back up in February. 0:14:46.480 --> 0:14:48.520 We think it's going to ease slightly in March. 0:14:49.160 --> 0:14:50.880 I mentioned as you see an max premise of having 0:14:50.920 --> 0:14:53.080 inflation by the end of the year. Your colleague Jamie 0:14:53.120 --> 0:14:54.520 Ross is scincly put it that you could put a 0:14:54.520 --> 0:14:56.960 suttling pig in charge of the economy and inflation would 0:14:56.960 --> 0:14:58.720 still fall by half by the end of the year. 0:14:59.160 --> 0:15:01.800 How does the pig look a little bit further out 0:15:02.480 --> 0:15:03.480 in terms of inflation. 0:15:03.680 --> 0:15:05.280 Well, Jamie's got a much better wife of words. 0:15:06.200 --> 0:15:07.840 I think he was a bit embarrassed after that. 0:15:08.080 --> 0:15:12.640 Actually should be. It's not very becoming. But look, I 0:15:12.680 --> 0:15:15.080 think I think he's going to get He's going to 0:15:15.120 --> 0:15:18.240 meet his target. So I think Jamie's right, You're going 0:15:18.280 --> 0:15:21.640 to get there predominantly through these base effects as as 0:15:21.640 --> 0:15:25.240 we've mentioned, but I think there's going to be there 0:15:25.320 --> 0:15:28.800 is going to be somewhat of a slowdown in other components. 0:15:28.840 --> 0:15:31.600 So I think core goods will continue to ease in 0:15:31.680 --> 0:15:32.440 terms of inflation. 0:15:32.560 --> 0:15:32.800 There. 0:15:33.440 --> 0:15:35.520 Food inflation I think will come off a little bit. 0:15:35.600 --> 0:15:37.960 It's it's extremely high at the moment, and it's probably 0:15:37.960 --> 0:15:40.800 going to pick up again in the March report. But 0:15:40.800 --> 0:15:42.960 I think it's going to come off and on our 0:15:43.000 --> 0:15:46.160 forecast you get to three percent by the end of 0:15:46.160 --> 0:15:49.520 the year headline inflation. But I think what that masks 0:15:50.040 --> 0:15:53.040 is core inflation, which we think is going to end 0:15:53.040 --> 0:15:55.680 the year about four and a half percent, so significantly higher. 0:15:56.080 --> 0:15:59.400 And that again reflects this mainly reflects services inflation, but 0:15:59.440 --> 0:16:01.360 also what I'm on the good side as well. 0:16:01.560 --> 0:16:03.520 Another piece of the economic puzzle that we're going to 0:16:03.560 --> 0:16:05.880 learn more about next week is the labor market. We've 0:16:05.880 --> 0:16:08.240 got jobs data out the UK's had a particular problem 0:16:08.320 --> 0:16:11.680 with participation post the pandemic as well. Are we likely 0:16:11.720 --> 0:16:13.240 to see any improvement in that front? 0:16:13.800 --> 0:16:15.320 So I think what you're going to see from the 0:16:15.400 --> 0:16:19.040 jobs the job's data is a steady unemployment rate. So 0:16:19.400 --> 0:16:21.480 this has been a bit of a theme this year 0:16:21.600 --> 0:16:23.880 of the economy doing a little bit better, the labor 0:16:23.920 --> 0:16:26.560 market's staying a little bit tighter than people thought and 0:16:26.680 --> 0:16:32.120 not cooling as quickly. But the sort of the interesting 0:16:32.160 --> 0:16:34.280 side of this is how quickly wage growth seems to 0:16:34.280 --> 0:16:36.480 be cooling. So if you look on if you look 0:16:36.520 --> 0:16:39.680 at the headline measures of wage growth, we think private 0:16:39.720 --> 0:16:42.280 sector regular pay is going to fall from seven percent 0:16:42.520 --> 0:16:44.600 to six and a half percent, which is a big 0:16:44.680 --> 0:16:47.440 drop down. But actually if you look on an underlying basis, 0:16:47.480 --> 0:16:50.240 so the headline measures a year on year three months 0:16:50.320 --> 0:16:52.160 moving average. It takes a long time for the numbers 0:16:52.200 --> 0:16:54.720 to sort of call and fall off. But if you 0:16:54.760 --> 0:17:00.760 look at sort of more timely time, more timely picture 0:17:00.880 --> 0:17:04.520 of the underlying wage picture, actually it's actually calling very quickly. 0:17:04.760 --> 0:17:07.159 Now that's obviously not consistent with a title what you 0:17:07.200 --> 0:17:10.840 would expect in a tight labor market and with expectations 0:17:10.840 --> 0:17:15.159 inflation expectations, pay expectations up at sort of five percent 0:17:15.280 --> 0:17:17.800 mark at least in the near term. But there is 0:17:17.840 --> 0:17:20.919 a story there that is really important, particularly for the 0:17:21.280 --> 0:17:23.639 Bank of England, and that's something that we're going to 0:17:23.680 --> 0:17:26.600 be really focused on in the next jobs release. 0:17:26.880 --> 0:17:30.720 Yeah, At Lizziebriddan, you've been waiting patiently to listening into 0:17:30.720 --> 0:17:32.639 this conversation as well. But I know the story that 0:17:32.640 --> 0:17:34.639 you've been following is that the change in the makeup 0:17:34.680 --> 0:17:37.000 of the Bank of Englands Monetary Policy Committee won't affect 0:17:37.040 --> 0:17:40.040 the next meeting. But tell us about Meghan Green who's 0:17:40.080 --> 0:17:40.800 joining the NPC. 0:17:41.080 --> 0:17:44.199 Yeah, not the meeting after that. It's the replacement for 0:17:44.280 --> 0:17:48.280 Silvana ten Reiro. She is currently Global Chief Economist at 0:17:48.320 --> 0:17:51.760 the Crawl Institute. She's got a background in financial services, 0:17:51.800 --> 0:17:55.760 also in academia, and you know, it's a difficult, delicate 0:17:55.800 --> 0:17:59.680 moment to be joining the MPC because we're nearing the 0:17:59.760 --> 0:18:02.200 end of the tightening cycle. You've had eleven straight hikes 0:18:02.240 --> 0:18:06.800 so far. And this debate currently is between Silvana Tanrairo, 0:18:07.040 --> 0:18:10.120 who Green's replacing, and Swatti Dingra at the duvish end, 0:18:10.200 --> 0:18:12.200 and then at the hawkish end of the spectrum Catherine 0:18:12.280 --> 0:18:15.600 Mann about whether it's time to pause. As Dan says, 0:18:16.560 --> 0:18:19.359 Dan I noted putting a foot in both camps, whether 0:18:19.640 --> 0:18:24.320 it's going to be a hold or a hike. But 0:18:24.480 --> 0:18:27.920 fortunately Megan Green is a regular on Bloomberg TV and radio, 0:18:28.000 --> 0:18:29.639 so we've had a bit of an insight into her 0:18:29.680 --> 0:18:33.800 thoughts already. Recently she's said that she's concerned about the 0:18:33.840 --> 0:18:37.719 impact of tightening monetary policy on the banking system, and 0:18:37.760 --> 0:18:39.719 she said it more in the context of the US, 0:18:40.080 --> 0:18:42.600 but it's very applicable in the UK as well, because 0:18:42.640 --> 0:18:44.800 of course we've had the fallout of Credit Swee and 0:18:44.920 --> 0:18:48.440 Silicon Valley Bank. This was a question that was raised 0:18:48.440 --> 0:18:50.800 around the last meeting at the Bank of England. Have 0:18:51.119 --> 0:18:53.520 financial conditions tightened so much that the work of the 0:18:53.520 --> 0:18:56.119 Bank of England has been done for it and so 0:18:56.520 --> 0:18:59.800 it's interesting that she has already had this view out there, 0:19:00.560 --> 0:19:03.240 and given her financial services background, we know that she's 0:19:03.359 --> 0:19:04.040 very aware of it. 0:19:04.720 --> 0:19:08.040 How will her appointment affect the balance then on the committee? 0:19:08.280 --> 0:19:11.639 I mean it's hard. I think as Dan's colleague Anna 0:19:11.960 --> 0:19:17.520 noted to be more dubvish than Silvana Tenreiro. She's voted 0:19:17.560 --> 0:19:19.840 to hold at the past three meetings. She's even been 0:19:19.880 --> 0:19:23.919 talking about cutting rates before she leaves the committee. So 0:19:24.320 --> 0:19:27.480 it seems that this appointment can be nothing but a 0:19:27.560 --> 0:19:31.240 tilt to the hawkish side, no matter how duvish Meghan. 0:19:31.000 --> 0:19:31.600 Green may be. 0:19:32.240 --> 0:19:34.160 But the reality is she isn't going to take her 0:19:34.200 --> 0:19:36.959 seat until two meetings time. As I say, the hiking 0:19:37.000 --> 0:19:41.080 cycle could be over by then. More interesting perhaps for 0:19:41.440 --> 0:19:46.360 our UK listeners then is her open criticism of Brexit 0:19:46.720 --> 0:19:51.200 on Twitter, and she might have to rein that in 0:19:51.480 --> 0:19:53.840 if she joins the now that she's joining the MPC. 0:19:54.200 --> 0:19:56.680 Okay, Lizzie Burden, thank you very much, a UK correspondent 0:19:56.760 --> 0:19:59.800 under senior UK economist Dan Hansen as well. I'm Stephen 0:19:59.800 --> 0:20:02.320 CA in London. You can catch us every weekday morning 0:20:02.320 --> 0:20:04.840 here for Bloomberg Daybreak. You're at beginning at six am 0:20:04.840 --> 0:20:07.000 in London and one am on Wall Streets. 0:20:07.119 --> 0:20:09.719