Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin
Speaker 1: Drugs Money Market Wrap. What we talk about the biggest
Speaker 1: moves in the market this week and what is driving them.
Speaker 1: I'm Merrin sum Zip Web UK Money editor at Large
Speaker 1: and whilst John is still out of the office on
Speaker 1: a beach somewhere, I am joined by Sam and Stead.
Speaker 1: Sam is editor of Bloomberg's Markets Today blog. I'm worried
Speaker 1: about UK stocks, economics, central banks and global markets. Busy time. Sam,
Speaker 1: thanks for joining me, Thanks for having me. If you
Speaker 1: ordered the things to talk about them.
Speaker 2: Yes, indeed, yes, yeah, I mean you take your pick.
Speaker 1: I'll tell you what. Why don't we start with UK gilts?
Speaker 1: Why don't we start with what's going on there? There's
Speaker 1: a lot of political change. We are in chaos again.
Speaker 1: We talked about this some link in our podcast earlier
Speaker 1: in the week, but it is still ongoing. It's going
Speaker 1: to be ongoing for weeks and weeks and weeks. I'm
Speaker 1: going to say we have no idea what's going to happen.
Speaker 1: We have a pretty good idea of what's going to happen,
Speaker 1: and suddenly, from an investors point of view, you might
Speaker 1: say well, nothing good.
Speaker 2: That's exactly how I would frame it, that we are
Speaker 2: in yet another period of political chaos, turmoil, pick whatever
Speaker 2: word you like for it in the UK. But guilts
Speaker 2: are actually having a pretty good week. Ten year yields
Speaker 2: down when I got up from my desk about sixteen
Speaker 2: seventeen basis points over the course of the week. That
Speaker 2: is almost entirely driven by oil, you know, Oild prices
Speaker 2: have been coming down very significantly. Takes away some of
Speaker 2: the inflationary risk. Bets on what the Bank of England
Speaker 2: are going to do and how much they're going to
Speaker 2: hike over the year have been pulled back as well.
Speaker 2: But I find it a little bit curious because so
Speaker 2: if we go back a couple of months so to
Speaker 2: around the local elections and when they were these first
Speaker 2: kind of really substantial speculation about kit Starmer's position. We
Speaker 2: had a lot of strategists then come out and say
Speaker 2: very clearly the most negative outcome for gilt markets would
Speaker 2: be Andy Burnham becoming the prime minister. Right, so that
Speaker 2: was very much baked into what to everyone's thinking. Now
Speaker 2: we've reached that reality. So Kis Starmer has resigned on Monday,
Speaker 2: We've effectively, as you kind of alluded to, moved on
Speaker 2: to the idea that Andy Burnham will be the next premise.
Speaker 2: That's what a lot of MPs keep coming out and saying,
Speaker 2: there is a chance somebody challenges him. I think it's
Speaker 2: will be so much fun fun, Isn't it a good
Speaker 2: way to put it? Yeah, but it would be that
Speaker 2: could well happen, but I think it looks increasingly unlikely, disappointing.
Speaker 2: So you would expect, oh, I would expect, as someone
Speaker 2: who's covered the Gill market for a while, that there
Speaker 2: would be a bit more risk stign to come in,
Speaker 2: at least a bit of uncertainty because at the moment
Speaker 2: you really don't have any great idea at all about
Speaker 2: what he would do, and because we have actually got
Speaker 2: a pretty clear idea of who's going to be in
Speaker 2: charge next, that question should be at the front of
Speaker 2: minds and it is. People are asking that question, but
Speaker 2: they're not asking you very forcefully. It's kind of just
Speaker 2: they're just kind of waiting now to just see what happens,
Speaker 2: which is not how the gil market has acted for
Speaker 2: the last kind of two years or so.
Speaker 1: Interesting, wasn't it, Where it is something of a holding pattern.
Speaker 1: I mean, there has been backtracking on the whole we
Speaker 1: shouldn't be inho to the bond's market nonsense. He has
Speaker 1: someone's explained how the bond market works to him, which
Speaker 1: is great because it means we'll have a prime minister.
Speaker 1: It's a tiny little idea of how it all works.
Speaker 1: It's good news. And he does say that he will
Speaker 1: stick to the fiscal rules, and again we talked about
Speaker 1: that in the podcast earlier this week, and that he
Speaker 1: isn't going to stick to the fiscal rules because that's
Speaker 1: not really possible. Rates or reason was never going to stick
Speaker 1: to the fiscal rules because they all depended on you know,
Speaker 1: spending being really crunched towards the end of this decade,
Speaker 1: which was never going to happen, and it's still never
Speaker 1: going to happen. So we can talk about the physical rules,
Speaker 1: but they'll be new fiscal rules at some point. Having
Speaker 1: the fiscal rules are a statistical nonsense anyway. But nonetheless
Speaker 1: he's talking the correct game.
Speaker 2: He's talking the correct game. Where the uncertainty I think
Speaker 2: I would expect a little bit more insight to be
Speaker 2: coming in is because they are talking already about flexibility
Speaker 2: in those fiscal rules, and I didn't really know what
Speaker 2: that means. That's going to well, we'll see what it
Speaker 2: actually looks like when we when we eventually get there,
Speaker 2: that uncertainty doesn't seem to be a price, you know.
Speaker 2: But then there is actually a sort of counter argument
Speaker 2: to that, which is that you know, already the UK
Speaker 2: pays much higher premium to borrow money anyway, so there
Speaker 2: may well be a feeling that that's already priced in
Speaker 2: extent now, you know. So as far as we're aware,
Speaker 2: this is all already in there, and as you're kind
Speaker 2: of mentioning there, the fact is, once he actually gets there,
Speaker 2: a lot of these kind of initial questions, or these
Speaker 2: initial policies, or these maybe slightly more popular policies that
Speaker 2: are coming out now, he probably won't be able to
Speaker 2: do because everyone is constrained by the same fiscal rules.
Speaker 2: And as you kind of mentioned, it's all well and
Speaker 2: good to kind of not want to be in hot
Speaker 2: to bond markets. If you're not in hock to bond market.
Speaker 1: We are in hoe market exactly. The only way out
Speaker 1: of that is to dramatically slash spending and slash borrowing,
Speaker 1: and then you wouldn't be in hop of the bond
Speaker 1: market exactly, and it's not going to happen.
Speaker 2: So I think so far, you know, he's surrounded himself,
Speaker 2: particularly on the economic side, with a lot of kind
Speaker 2: of big you know, one key figures if you like,
Speaker 2: you know, these kind of like big names within within economics.
Speaker 2: I think where there's still a lot of question. We
Speaker 2: had a nice piece on Bloomberger about this over this
Speaker 2: week foreign Policy know anything there, and I was just
Speaker 2: mentioning the moving guilt. Marcus has been almost entirely down
Speaker 2: to geopolitics over the course of the last week, so
Speaker 2: that also needs to be kind of fleshed out as well.
Speaker 1: Well, let's come back to geopolitics, but actually let's just
Speaker 1: come back to oil. I mean, price is now basically
Speaker 1: down to where it was before the war started. There's
Speaker 1: assumption and none of this really happened. None of this
Speaker 1: really happened. Here we are back square one. So that's
Speaker 1: good in that that inflationary impulse of higher all prices
Speaker 1: is going to come through in the numbers. But we
Speaker 1: could now genuinely we could say that was transitory, and
Speaker 1: for the first time in quite a long time that
Speaker 1: would be true. It genuinely would be transit reinflation. But
Speaker 1: there are other things feeding in which we need to
Speaker 1: talk about. And there is this thing that had happened
Speaker 1: just a few hours ago of Apple saying they're putting
Speaker 1: up their prices fairly substantially because the chip price is
Speaker 1: going up. And we've been talking for a while on
Speaker 1: the podcast about how when people talk about AI, they
Speaker 1: talk about, you know, cost down, and they talk about productivity,
Speaker 1: but in fact, of course the hard ware it's very,
Speaker 1: very expensive, and that is a new inflation room impulse.
Speaker 2: Yeah, I mean, I mean, there are a couple of
Speaker 2: inflationary impulses to think about with AI. So, as you mentioned,
Speaker 2: with memory chip prices, so you had a really neat
Speaker 2: thing happened today where we had Micron Technology, which is
Speaker 2: the biggest memory chip maker in the world, with incredibly
Speaker 2: good results, I mean, way way ahead of expectations, your
Speaker 2: huge demand, revenue, profit, everything that could be.
Speaker 1: I can't get there's one numb and there I can't
Speaker 1: get out of my head with an eighty six percent margin.
Speaker 2: Yeah, it's astonishingly high. Right, So that's on. That's one
Speaker 2: side of the AI story. And so all the chip
Speaker 2: makers and the memory companies are all going up with
Speaker 2: them today and by a lot. And micro remember is
Speaker 2: a big company. I mean, they're already worth nearly two
Speaker 2: trillion dollars, so there's a huge move. But on the
Speaker 2: complete other side of that, you get this other question
Speaker 2: about the sort of the reason that they're making this
Speaker 2: huge margin, which is the memory prices have gone through
Speaker 2: the roof because everything is being directed to AI, so
Speaker 2: the consumer stuff, so everything that's you know, and this
Speaker 2: is we're talking memory chips that go into basically anything
Speaker 2: electronic that exists in the world, from phones, you know
Speaker 2: with Apple, with you know, iPads and mac works. You're
Speaker 2: talking from there to you know, fridges, cars, like basically
Speaker 2: anything anyone buys has any electronics in it will have
Speaker 2: a memory chip in it. So you're getting an inflationary
Speaker 2: impost coming from that because as Apple and Apple being
Speaker 2: kind of the biggest electronics company in the world, they're
Speaker 2: pushing through prices. So if they're a if they're not
Speaker 2: able to sustain those margins and they're having to do it,
Speaker 2: that's not a good sign for everywhere else. And then
Speaker 2: the other side of it is, you know, there's another
Speaker 2: side who gets a triangle is that is the is
Speaker 2: data centers, you know, so spending huge amounts of money
Speaker 2: on data centers, this huge AI capex boom that's going on,
Speaker 2: but that requires lots of electricity, and people are going
Speaker 2: to have to pay for that somewhere down the line, exactly,
Speaker 2: And so eventually that is going to feed into people's
Speaker 2: electricity prices. And so that may that may not be
Speaker 2: because it does take quite a long time to build
Speaker 2: a data center, but even so that will start to
Speaker 2: happen as well, and the cost of building up the grid.
Speaker 2: So you've got all sorts of extra inflationary impulses coming
Speaker 2: from from it.
Speaker 1: It's difficult to tell whether you know, the end effective
Speaker 1: areas should be deflationary, as with all wonderful new technologies,
Speaker 1: but the creation of it did very inflationary. We can't
Speaker 1: quite see where we're going to end up.
Speaker 2: Yeah, that's exactly right, you know. And so as you're mentioning,
Speaker 2: so oil prices have come all the way down when
Speaker 2: you look in the options market for Oilso what people
Speaker 2: are betting on what's going to happen in this sort
Speaker 2: of six months time, it's gone very bearish, Like everyone
Speaker 2: thinks of you know, maybe sort of flat over the
Speaker 2: course of the next sent I.
Speaker 1: Thing I was wondering about on that this is a
Speaker 1: random thought and we should probably els go on to
Speaker 1: oil expect tell us about that you're expending everythings. I'm
Speaker 1: going to ask you. One of the reasons why the
Speaker 1: oild person never went up to one hundred and fifty
Speaker 1: dollars two hundred dollars, like some of the more excitable
Speaker 1: people were suggesting at the beginning of the war, was
Speaker 1: because of the drawdown from everyone's reserves, right, yeah, reserves,
Speaker 1: and in particular from Chinese reserves. Massive drawdowns there because
Speaker 1: you know, we never saw any any demand destruction in China,
Speaker 1: so we know that huge amount of oil being useduff
Speaker 1: they have to be refilled. Yes, so that's a huge
Speaker 1: source of demand over the next couple of years. Yeah, yeah,
Speaker 1: So surely that would suggest that oil prices aren't going
Speaker 1: to fall below the use levels and may actually rise
Speaker 1: from here.
Speaker 2: Yeah, there's certainly a risk that, I mean, I would
Speaker 2: suggest it's more likely that they will stay kind of
Speaker 2: where they are now, so not you know, may marginally
Speaker 2: elevated from where they were before the war, but with
Speaker 2: a lot of a lot of volatility and a lot
Speaker 2: of wobbliness over the course of the rest of the
Speaker 2: year for exactly the reason you're mentioning. So part of
Speaker 2: it will require and this is this is why there's
Speaker 2: such a huge focus on this all the time. That
Speaker 2: the oil starts flowing through the straightforwar mirrors really sustainably
Speaker 2: for an extended period of time now with no breaks
Speaker 2: in it, with no issues, that's a big ask, like so,
Speaker 2: so that has to happen, and during that happening, then
Speaker 2: the reserves can start to be full. So you need
Speaker 2: these two things to kind of happen in concert with
Speaker 2: each other. But while they're happening in concert with each other,
Speaker 2: the likely old presses don't go much further down from
Speaker 2: where they are now, and those inflationary kind of impulses
Speaker 2: that have happened with all going up for a few
Speaker 2: months will still be flowing through during that during that time.
Speaker 1: The last thing I want to ask you about is
Speaker 1: again all connected to your politics, connected to inflation, connected
Speaker 1: for everything, and it's the gold price. Because this is disappointing,
Speaker 1: isn't it for gold bugs, This is disappointing.
Speaker 2: Yeah, yeah, yeah, I mean I would say you know,
Speaker 2: just calm everyone. You know, it's still only just a
Speaker 2: little bit below four thousand dollars nouns, but that was
Speaker 2: a really key level.
Speaker 1: Below four thousand dollars. I mean, remember the excitement when
Speaker 1: over five thousand, John and I could barely contain ourselves.
Speaker 2: Yeah, and we are back. And actually, you know, as
Speaker 2: we go as it comes back through that level again,
Speaker 2: you know, that's the level that it went through as
Speaker 2: gold stopped acting like gold, you know, it started to
Speaker 2: become a kind of momentum trade. So the likelihood is
Speaker 2: you will have had a lot of investors, probably a
Speaker 2: lot of retail traders as well, coming in there as
Speaker 2: it was going above four thousand dollars. So it may
Speaker 2: well be that people are sitting on some some hefty
Speaker 2: losses from gold as well.
Speaker 1: Okay, I thought you were going to say that clever
Speaker 1: retail trades had ridden it all the way up and
Speaker 1: sold it all the way down, and.
Speaker 2: If they hold on then it may well, you know,
Speaker 2: and they've.
Speaker 1: Taken money out to pop into the SpaceX holdings, for example,
Speaker 1: down again today.
Speaker 2: Right, Well, that's that's possible as well. SpaceX. Well, when
Speaker 2: I got up from my desk every almost everything was
Speaker 2: going up for a bit and then it was going
Speaker 2: back down for a bit. And so whether what it's
Speaker 2: doing right at this moment, I can't tell you, but
Speaker 2: you know, yes, so gold, you know, we've had just
Speaker 2: a long period of time when gold hasn't has not
Speaker 2: been acting in the way that gold tradition acts, right,
Speaker 2: and even now as doing what it's doing now, it's
Speaker 2: still not quite doing that. It's not quite the gold,
Speaker 2: you know. And I think there's still a lot of
Speaker 2: air in that market, so it will have that might well,
Speaker 2: you may well see a bit more volatility come through,
Speaker 2: but you know, historically it does remain, you know, you
Speaker 2: pretty elevated.
Speaker 1: Yeah, and I suppose if we've mentioned gold, we're going
Speaker 1: to have to mention Bitcoin, which is now below sixt
Speaker 1: two thousand and again, so we're back to September twenty four. Yes, yes,
Speaker 1: that's quite a big ship.
Speaker 2: Yes, yes, and actually that one so you're just asking
Speaker 2: about SpaceX. That was something we actually really did see
Speaker 2: evidence of, was retail traders getting rid of their Bitcoin
Speaker 2: holdings in order to buy SpaceX. And that was happening
Speaker 2: actually across all sorts of spaces. It was happening with
Speaker 2: some of the high flying kind of chip stocks as well.
Speaker 1: It cost to holding bitcoin forever. I thought that was
Speaker 1: It's not. It wasn't. We've learned as not a currency,
Speaker 1: and the new gig is that it's a long term assage.
Speaker 1: You hold it forever. There's neither of those things.
Speaker 2: That's a great point actually, so so yeah, so last
Speaker 2: year we had this debasement trade, right, This was like
Speaker 2: a for a few months. This was the idea that
Speaker 2: the dollar is no longer king and that people are
Speaker 2: putting their money into gold or bitcoin, and that seems
Speaker 2: to have fritted away over the course of this past year.
Speaker 2: I think a lot of the enthusiasm, you know, cooin
Speaker 2: does rely to an extent on enthusiasm on investors just
Speaker 2: being enthused about getting into gold, pumping their money into
Speaker 2: the ets they've now been launched, you know, these kind
Speaker 2: of institutional funds, all of those companies too. You know,
Speaker 2: when you have this much equity supply, like SpaceX, when
Speaker 2: you have this much excitement about a different corner of
Speaker 2: the marketcoin yes, sorry, yes, about bitcoin, yes, they're so.
Speaker 2: When you have this much excitement about AI or about
Speaker 2: you know, SpaceX particularly and Big I pos coming later
Speaker 2: in the year for open AI or anthropic. When all
Speaker 2: of that is going on, it seems like the sort
Speaker 2: of traders that are in bitcoin are the ones who
Speaker 2: are then thinking, actually, I'm going to move a little
Speaker 2: bit away from here.
Speaker 1: As all about stories, isn't it. I mean, bitcoin is
Speaker 1: very story driven, and one of the things that we've
Speaker 1: seen since since you first heard about bitcoin is the
Speaker 1: constant renewal of the story. It's not there, we were,
Speaker 1: it's not quite that is this? No, no, it is
Speaker 1: this now, it's this, now, it's this, and when there
Speaker 1: isn't a good story and right now there isn't a
Speaker 1: good news story for bitcoin, but they're amazing stories results.
Speaker 1: Where So if you're a story led investor, yeah, you're
Speaker 1: heading to.
Speaker 2: The narrative is not good enough to bring you in.
Speaker 1: Yeah. Now, of course I'm a SpaceX investor, as all
Speaker 1: listeners to my podcast, no, I have nine SpaceX shares,
Speaker 1: and I had promised the team that I would use
Speaker 1: my winnings to take them out for a drink. So
Speaker 1: you know, sorry, guys, well sorry, not winnings. Not winnings,
Speaker 1: and that's not how we call it. We are capital
Speaker 1: gains capital again We're not gambling.
Speaker 2: Yet, but you know, we will see what happens that
Speaker 2: because I mean it's just very briefly on SpaceX. I mean,
Speaker 2: I mean, I've been a reporter on stocks for fifteen years.
Speaker 2: I've never seen an IPO like that ever. And since then,
Speaker 2: they've then they did an acquisition just two days later
Speaker 2: with sixty billion dollars. They are borrowing a huge amount
Speaker 2: of money in credit markets. They are sort of getting
Speaker 2: into all sorts of corners of the market, and so
Speaker 2: they're becoming already quite a kind of important company in
Speaker 2: all sorts of different sexes of the market. It will
Speaker 2: be really interesting to see.
Speaker 1: How that is interesting. And you know, there is nothing
Speaker 1: average about SpaceX at all in there, I'm so interesting
Speaker 1: in so many many ways. But the average tech ipo
Speaker 1: end its first year down about eighteen percent. And my
Speaker 1: concern is that maybe the one place in which SpaceX
Speaker 1: sends out to be average.
Speaker 2: It's possible, It's possible, you know, but I think, you know,
Speaker 2: when we're talking about bitcoin there and then this kind
Speaker 2: of enthusiasm the AI story, there is obviously a huge
Speaker 2: amount of enthusiasm for the AI story. No U and
Speaker 2: SpaceX goes into that as well. But SpaceX is almost
Speaker 2: like a narrative in and of itself, so yes, it
Speaker 2: has kind of this AI element to it. But he's
Speaker 2: the same kind of people who like a story, who
Speaker 2: like a narrative, and if they can get that narrative going,
Speaker 2: then you know, you never know.
Speaker 1: Of course, is the Skuy the limit or the moon
Speaker 1: the limit? The moon that's fantastic. Beau is absolutely fantastic, Okay, brilliant.
Speaker 1: Is there anything else that we need to tell people today?
Speaker 2: No, I think there is so many things to be
Speaker 2: focused on in markets at the moment that if we
Speaker 2: do that, we may never leave.
Speaker 1: We think we've given them enough for one day. Thank you, Sam,
Speaker 1: Thank you so much. Thanks for listening to this week's
Speaker 1: Marion Talks Money Market Rap. If you like our show,
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Speaker 1: be sure to follow me and John on ex or
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Speaker 2: I'm not very much on Twitter, but you can follow
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Speaker 2: blog on Bloomberg UK every day excellent.
Speaker 1: Thank you. This episode was produced by Summersadi and Moses
Speaker 1: and questions and comments on this show and all our
Speaker 1: shows are always welcome. Our show email is Merrior Money
Speaker 1: at Bloomberg dot net