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Speaker 1: This is Bloomberg Day bakup for this Friday, the twenty

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Speaker 1: third of June in London.

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Speaker 2: Coming up today, Unsustainable. The Bank of England's Bailey sets

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Speaker 2: his sight on profit margins and pay as the Central

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Speaker 2: Bank surprises markets with a half point hike Banking.

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Speaker 1: It, Powell says Wall Street giants could face a twenty

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Speaker 1: percent jump in capital requirements.

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Speaker 2: Yellen for a soft landing. The US Treasury Secretary tells

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Speaker 2: Bloomberg that recession risks are receding.

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Speaker 3: The governor's bad press day and consoles in court. Those

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Speaker 3: of the stories we're looking at in today's papers. I'm

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Speaker 3: James Walcock.

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Speaker 1: Plus the Titanic tragedy. The Coast Guard reveals the five

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Speaker 1: man sub crew died after a catastrophic implosion.

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Speaker 4: That's all straight ahead on Bloomberg Daybreak Europe. The Business

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Speaker 4: news you need to start your day in just one

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Speaker 4: fifteen minute podcast on Apple, Spotify, the Bloomberg Business App

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Speaker 4: and everywhere you get your podcasts.

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Speaker 2: Good morning. I'm Stephen Carroll and.

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Speaker 1: I'm Caroline Hetger. Here are the stories that we're following today.

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Speaker 1: Profit margins need to fall and pay rises need to

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Speaker 1: be curbed. That's the message from the Bank of England

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Speaker 1: after its surprise markets with a half point interest rate hike.

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Speaker 1: The nine member Monetary Policy Committee voted seven to two

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Speaker 1: for an increase to five percent. The Governor, Andrew Bailey

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Speaker 1: had this message for companies and workers.

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Speaker 5: We've got to get and we will get inflation back

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Speaker 5: to its target. To do that, we cannot continue to

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Speaker 5: have the current level of wage increases and we can't

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Speaker 5: have companies seeking to rebuild profit margins, which means prices

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Speaker 5: continue to go up at their current rates. But what

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Speaker 5: I would say to people is we expect inflation to

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Speaker 5: come down and it's important then that price setting and

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Speaker 5: wage setting reflects that because the current levels are'll be

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Speaker 5: absolutely honest, are unsustainable.

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Speaker 1: So unsustainable well. Policy makers, led by Andrew Bailey, also

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Speaker 1: said nothing to rein in market expectations for interest rates

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Speaker 1: peaking of round six percent by early next year. Bloomberg

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Speaker 1: Economics calculates that that rate at that rate, it would

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Speaker 1: lead to a two percent drop in UK GDP. Britain

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Speaker 1: remains an outlier in the group of seven nations, with

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Speaker 1: consumer prices rising eight point seven percent in May, four

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Speaker 1: times the Bank of England's two percent target. And more

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Speaker 1: than double the rate in the United States.

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Speaker 2: The Prime Minister Richisunac has doubled down on his belief

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Speaker 2: that inflation will be below five percent by the end

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Speaker 2: of the year. Here's what Sunac have to say to

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Speaker 2: voter is, after the Bank of England opted for that

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Speaker 2: half point hike, I'm.

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Speaker 6: Sure that actually fills many of you with some anxiety

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Speaker 6: and some concern about what's going on and what does

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Speaker 6: that mean for you and your families. That I'm here

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Speaker 6: to tell you that I am totally one hundred percent

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Speaker 6: on it, and it is going to be okay, and

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Speaker 6: we are going to get through this.

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Speaker 2: His words will do little to ease the political pressure

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Speaker 2: facing his government. The effect on the mortgage market of

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Speaker 2: the central bank tightening has been dramatic. Since March of

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Speaker 2: last year, the interest rate on the average two year

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Speaker 2: fixed deal has trebled to six percent. That's led many politicians,

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Speaker 2: including in Sunak's own party, to call for more support

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Speaker 2: for those facing surging borrowing costs and now to the

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Speaker 2: Federal Reserve.

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Speaker 1: Chared Your Own Power says that Wall Street's biggest banks

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Speaker 1: may have to increase capital requirements by twenty percent. Speaking

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Speaker 1: before the Senate Banking Committee. Powell said that the largest

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Speaker 1: lenders will have to set aside the most.

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Speaker 7: The capital requirements will be very, very skewed to the

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Speaker 7: eight largest banks, the jesups. There may be some capital

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Speaker 7: increases for the other banks, and they won't. I'm not

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Speaker 7: I think none of this should affect banks under one

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Speaker 7: hundred billion.

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Speaker 1: The one hundred billion dollar figure that Powell mentioned there

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Speaker 1: is far lower than the existing two hundred and fifty

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Speaker 1: billion dollar threshold where many of the toughest rules kick in. Now,

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Speaker 1: Bloomberg understands that dozens of regional US banks might have

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Speaker 1: to meet new standards, with lenders warning the rules will

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Speaker 1: hinder economic growth.

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Speaker 2: US Treasury Secretary Janet Yellen has told Bloomberg she sees

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Speaker 2: a diminishing risk of a US RESCIS session from New York,

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Speaker 2: Dell Kresner reports.

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Speaker 8: Yellen said the odds of recession, if anything, have gone down.

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Speaker 8: That's because of a tight labor market and inflation coming down.

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Speaker 8: When it comes to consumption, Yellen said, we probably need

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Speaker 8: to see some slow down in spending in order to

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Speaker 8: get inflation under control. She said the core measure of

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Speaker 8: price increases is quite high. Yellen also said we could

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Speaker 8: have a lovely debate about what the inflation target would be,

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Speaker 8: but this is not the time for that debate.

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Speaker 9: Cher J.

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Speaker 8: Powell has rejected the idea of entertaining a change in

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Speaker 8: the two percent target, sent a bit he reiterated before

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Speaker 8: Congress this week in New York. I'm Doug Prisner, Bloomberg Daybreak. Europe.

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Speaker 1: JP Morgan has agreed to pay a four million dollar

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Speaker 1: fine to settle allegations the bank mistakenly deleted forty seven

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Speaker 1: million records. The Securities and Exchange Commission says the information

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Speaker 1: was requested for a dozen investigations. The SEC didn't say

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Speaker 1: whether those actions were focused on the bank itself, and

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Speaker 1: JP Morgan hasn't admitted or denied the allegations. In twenty

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Speaker 1: twenty one, the bank paid two hundred million dollars to

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Speaker 1: regulate US to settle claims that it failed to save

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Speaker 1: business communications on platforms like WhatsApp.

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Speaker 2: The five men aboard the missing sub near the Titanic

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Speaker 2: are presumed dead after the US Coastguard found evidence of wreckage.

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Speaker 2: The Coastguard says the vessel is likely to have suffered

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Speaker 2: a catastrophic implosion. Matthew Tullock was a friend of Paul

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Speaker 2: enrin Agelais, who was one of the passengers on the

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Speaker 2: missing sub He's.

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Speaker 9: Just answering professional, you know, and aside from that, just

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Speaker 9: very humble individual too. You know, he was in this domain.

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Speaker 9: There are a lot of people with a lot of

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Speaker 9: bluster and a lot of big egos to try to

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Speaker 9: show what they've done and where they've been and what

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Speaker 9: they've accomplished for exploration and things, and he was never

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Speaker 9: like that. And he's even said I've heard him say

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Speaker 9: multiple times on his own, if there were ever a

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Speaker 9: catastrophic implosion, you would never even know about it.

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Speaker 7: You know.

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Speaker 9: It wouldn't be like you know, you see in movies

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Speaker 9: where you know, things start to creak a little bit

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Speaker 9: or something like this, right, it would be ninoseconds. Then

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Speaker 9: it would just implode in a strange sort of morbid sense.

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Speaker 9: I guess you could say there was a certain reassurance

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Speaker 9: in knowing that they didn't suffer.

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Speaker 2: Matthew Tullock's comments come after debris was found by a

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Speaker 2: robot close to the wreck of the Titanic. Such operations

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Speaker 2: are ongoing in an attempt to determine the cause of

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Speaker 2: the implosion and.

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Speaker 1: Now to some corporate news, Citygroup has begun telling managers

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Speaker 1: to let staff know that they'll face consequences if they

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Speaker 1: don't comply with policies for office attendance. That story now

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Speaker 1: from Bloomberg's Charlie.

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Speaker 10: Pellett's sources tell Bloomberg. While the vast majority of staffers

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Speaker 10: are following the firm's rules for hybrid work, the moves

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Speaker 10: are focused on those employees with persistent, unexplained absences. The

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Speaker 10: sources managers will consider compliance with the rules when rating

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Speaker 10: performance and crafting pay packages. Citygroup is widely seen as

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Speaker 10: to be among the most amenable financial firms when it

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Speaker 10: comes to flexible work arrangements following the COVID nineteen pandemic

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Speaker 10: in New York. Charlie Pellett, Bloomberg Daybreak Europe.

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Speaker 2: So are some of our top stories in the program

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Speaker 2: this morning. Interesting to see that actually the UK is

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Speaker 2: part of our reporting around that City story as well.

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Speaker 2: That is one of the places where management are talking

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Speaker 2: to employees about tracking the data of who's badging in

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Speaker 2: in cities offices in London, Edinburgh and Belfast as well.

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Speaker 2: So that's an area of where the bank is looking

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Speaker 2: to check in on who's coming to the office and

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Speaker 2: how often.

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Speaker 1: Yeah, absolutely work from home. Look, I feel the need

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Speaker 1: for something a bit lighter, a bit more fun this morning.

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Speaker 1: Oh good game stop. Do you remember the mad story,

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Speaker 1: the frenzy around the meme stock, Yeah, I think pandemic.

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Speaker 1: It was actually late twenty twenty, early twenty twenty one

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Speaker 1: where we were reporting on this the video game retailer.

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Speaker 1: It's got like a chain of shops in the US.

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Speaker 1: Everybody kind of thought it was doomed at that time,

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Speaker 1: and then it suddenly became this massive trade because of

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Speaker 1: a bunch of retail traders online. They've turned the whole

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Speaker 1: story into a Hollywood movie.

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Speaker 2: I'm thrilled to watch this, to be honest, I think

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Speaker 2: that it was, you know, for those of us that

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Speaker 2: were watching, had happened in real time and baffled frankly

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Speaker 2: by the financial reasoning behind why. But that's what makes

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Speaker 2: it such a great story, exactly.

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Speaker 1: It was kind of minnows versus the titles, or at

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Speaker 1: least that's what it came to symbolize. And that's in fact.

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Speaker 1: I've looked at the trailer. Hilarious, You've got to watch it.

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Speaker 1: The train is brilliant, and that's the kind of focus. Actually,

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Speaker 1: it does seem of this story that it really is,

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Speaker 1: you know, the little guy against Wall Street, and you've

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Speaker 1: got the whole famous actor treatment. So Keith Gill, who's

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Speaker 1: Roaring Kitty, who's the kind of instigator of a lot

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Speaker 1: of this, the blogger influencer who galvanized it, or he's

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Speaker 1: being played by yeah, by by Hollywood star. And Gabe

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Speaker 1: Plotkin who's Melvin Capital. He's played by Seth Rogan. So

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Speaker 1: every famous Hollywood man has got a part of it.

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Speaker 2: I'm on board a team outing. Okay, well, that's one

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Speaker 2: thing to watch out for it. Let's bring ourselves back

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Speaker 2: down to earth and talk about that move by the

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Speaker 2: Bank of England raising rates by half a percentage point

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Speaker 2: to five percent and warning that it may have to

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Speaker 2: hike again. Our colleague Philipoldrick, one of our senior economy

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Speaker 2: reporters here at Bloomberg, says that it means Britain's mortgage

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Speaker 2: market has become a horror show for borrowers and for

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Speaker 2: the government because soaring interest rates threatening to leave households

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Speaker 2: destitute and the economy on the rocks a pretty bleak picture.

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Speaker 2: Let's discuss more where now with Bloomberg's chief you're of

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Speaker 2: economist Jamie Rush. Good morning to you, Jamie. What's your

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Speaker 2: take on what the Bank of England did and said yesterday?

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Speaker 11: Well, I mean they're responding really to the surprise, well

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Speaker 11: two surprises. One was that wage growth was like north

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Speaker 11: of seven percent, faster than they expected, and core inflation

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Speaker 11: keeps going up, not going down, which is quite different

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Speaker 11: from what they expected, and it's also different from what

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Speaker 11: the US and the Eurozone is experiencing. So they've taken

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Speaker 11: that information on board and they panicked and they've just

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Speaker 11: and they lifted rates by fifty basis points. Most people

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Speaker 11: in markets, I think probably expected twenty five and more

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Speaker 11: measured response. Why do they expect that Well, because interest

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Speaker 11: rate expectations have climbed so much already that that's doing

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Speaker 11: a lot of the work for the Bank of being

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Speaker 11: them for it anyway, So away they've added this fifty

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Speaker 11: basis point high, which is going to exacerbate that repricing

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Speaker 11: of interest rate expectations and we are in for a

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Speaker 11: rough ride. It's going to be extremely difficult with mortgage

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Speaker 11: rates at six percent or above. And why do lending

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Speaker 11: rates the economy going up to much. It's likely now

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Speaker 11: that we're heading for a recesion.

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Speaker 1: Yeah, okay, that's very interesting. There is a huge amount

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Speaker 1: of pressure then on Andrew Bailey, political pressure also on

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Speaker 1: the government. I thought it was quite interesting. We spoke

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Speaker 1: earlier to Sanana Sinna Haldeo, who's global head of Private

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Speaker 1: Capital Advisory at Raymond James, and I kind of ended

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Speaker 1: asking her quite bluntly whether there is an issue with

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Speaker 1: the governor of the Bank of England, whether she could

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Speaker 1: envisage any change. She called it a back or sack

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Speaker 1: moment for Andrew Bailey, but the government was backing him.

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Speaker 1: Are we do you think, really in that that sort

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Speaker 1: of territory there are a lot of concerns around the

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Speaker 1: credibility of the Bank of England.

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Speaker 3: I don't think so.

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Speaker 11: I mean, they've done what everyone else has done, right.

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Speaker 11: I mean they've lifted interest rates at pretty much the

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Speaker 11: same time, actually slightly earlier than other central banks did

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Speaker 11: when the inflation crisis began, and they've lifted rates by

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Speaker 11: roughly the same amount. Everyone's in the same boat here,

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Speaker 11: So I don't think it's an Andrew Bailey specific issue.

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Speaker 11: I think you could have put anyone in charge, and

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Speaker 11: they've been in a very similar position.

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Speaker 2: So is the bank just doing essentially what a central

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Speaker 2: bank has to do when a time of inflation raising

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Speaker 2: raids to bring down inflation.

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Speaker 11: Well, I think there is a danger they're overcooking it

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Speaker 11: a bit. But if you focus on headlineing well on

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Speaker 11: core inflation, by the time it starts coming down, what

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Speaker 11: it tells you is that policy was tight enough to

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Speaker 11: get inflation down about a year ago. So if you're

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Speaker 11: just existing in the rear view mirror like this, you're

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Speaker 11: much more likely to make a policy mistake and overshoot

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Speaker 11: and end up actually tanking the economy and sending information

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Speaker 11: below target in the medium term. So I think there's

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Speaker 11: a danger this obsession with just looking at the core

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Speaker 11: infation numbers is probably an unhealthy one. They should be

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Speaker 11: looking at early indicators. What's happening in the lad market.

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Speaker 11: We see that the vacancy ratios start to fall back,

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Speaker 11: expectations for wage growth, also falling inflation expectations and also

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Speaker 11: settling back down. So for these reasons they really ought

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Speaker 11: to I think be a bit more cautious. And the

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Speaker 11: problem is that once you start lifting rates towards six percent,

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Speaker 11: you're increasing the risk of hitting some sort of tipping

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Speaker 11: point where you create a price. It's rather than rather

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Speaker 11: than a soft landing. And the problem is you don't

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Speaker 11: know when you're going to get there until you're there,

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Speaker 11: so I think they ought to be a bit more cautious.

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Speaker 11: I don't think fifty was the right choice, but it

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Speaker 11: won't matter.

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Speaker 4: Too much hopefully.

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Speaker 1: Okay, Jamie Rush, thank you so much for your time

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Speaker 1: this morning. Blueberg's Chief europe economist, Jamie Rush taking us

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Speaker 1: through reaction to the Bank of england hike yesterday.

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Speaker 2: Up next to the governor's bad press day and consoles

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Speaker 2: and course.

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Speaker 4: Now the paper review on blue Bird Daybreak Europe. The

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Speaker 4: news you need to know from today's papers.

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Speaker 1: James well Cock joins us now for a look through

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Speaker 1: the newspapers and a lot of talk about the Bank

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Speaker 1: of England. What do the newspapers say today?

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Speaker 3: Well, so there's a real range Caroline and sort of

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Speaker 3: levels of nuances how I'm going to describe it. But

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Speaker 3: what unites them all is there is quite intense criticism

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Speaker 3: of Andrew Bailey and the level of almost fury in

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Speaker 3: some of the papers. I mean, look, the Daily Mail

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Speaker 3: is to start with sort of the top of the bunch.

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Speaker 3: They call Bailey the bumbling governor, call him at Nette,

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Speaker 3: have a big photo of him sat in his armchair

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Speaker 3: and repeatedly reference his nearly six hundred thousand pounds salary

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Speaker 3: and I mean The Guardian have quite pointedly run an

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Speaker 3: explainer on their front page titled who hires and fires

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Speaker 3: the Bank of England Governor. The male's argument is very much,

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Speaker 3: you know, this is pain for people. There's been a

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Speaker 3: failure to get in control of inflation and now we

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Speaker 3: will have to suffer. I'll take to the time zone.

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Speaker 3: It's got a bit more of a nuanced argument here

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Speaker 3: of this is an argument that the beer we should

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Speaker 3: have acted sooner. They go in a mortgage misery for

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Speaker 3: millions and saying that they go with Bailey's comments that

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Speaker 3: saying inflation level assessments were unsustainable for workers, and so

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Speaker 3: they sort of point out that kind of if this

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Speaker 3: has been handled earlier, people, ordinary people, their readers wouldn't

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Speaker 3: be having such a difficult problem. The Telegraph have a

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Speaker 3: very contrariant take in their opinion column by their international

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Speaker 3: business owners at Ambrose Evans Pritchard. He said the rate

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Speaker 3: hike was unnecessary. He points to the fact that it's

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Speaker 3: anomalous data. He thinks the ber are overreacting and he

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Speaker 3: now sees this as a overtightening that is going to

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Speaker 3: cause more pain. It's a very monitorous view. He says.

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Speaker 3: You do not regain lost credibility by lurching from one

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Speaker 3: mistake to the opposite mistakes. That's sound like a bit

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Speaker 3: different and then the ft, how I would argue, quite

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Speaker 3: a complicated view that takes a bit of a moment

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Speaker 3: to unpack. They say that the bee we can no

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Speaker 3: longer hide behind lower price pressures, the credib ability of

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Speaker 3: the institutions at still, and that Britain has its own

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Speaker 3: personal inflation problem and misjudgments by the bank's NPC have

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Speaker 3: contributed to it. So what they're trying to get at

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Speaker 3: here is it's not about the b we show have

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Speaker 3: acted sooner, and not just that at least, it's the

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Speaker 3: BB Show identified that Britain alone has a problem, unlike

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Speaker 3: other nations, and it is the Bank of England's job

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Speaker 3: as an independent institution to be honest about that and

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Speaker 3: to have acted more strictly earlier on in the crisis.

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Speaker 3: So there's a real sort of differing sort of perspectives

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Speaker 3: from different papers here, but they are all coming in

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Speaker 3: for Andrew Bailey.

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Speaker 2: Okay, James, and a word too on what the papers

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Speaker 2: are saying about the Microsoft Activision Blizzard deal.

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Speaker 3: Yes, I mean it is sixty eight billion dollars in

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Speaker 3: the tie up that could happen, and what it was

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Speaker 3: the first day in American courts yesterday. What is fasting

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Speaker 3: about those courts is they take a very different views

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Speaker 3: to the UK's ones. They're both trying to block the deal,

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Speaker 3: but for very different reasons. The UK try to block

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Speaker 3: it because of cloud computing concerns. The US is both

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Speaker 3: those but also very interested by the consoles on it.

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Speaker 3: But what the real challenge is, Stephen, is unless this

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Speaker 3: deal is wrapped up by July eighteenth, Microsoft have to

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Speaker 3: pay a three billion dollar breakup fee to Activision Blizzard

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Speaker 3: or renegotiate new terms.

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Speaker 2: This is Bloomberg Daybreak Europe, your morning brief on the

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Speaker 2: stories making news from London to Wall Street and beyond.

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Speaker 1: I'm Caroline Hepka and.

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