WEBVTT - Daybreak Weekend: Eco Lookahead, BOE Report, Tariff Impact 0:00:00.240 --> 0:00:07.680 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.080 --> 0:00:13.399 This is Bloomberg day Break Weekend, our global look at 0:00:13.400 --> 0:00:15.600 the top stories in the coming week from our Daybreak 0:00:15.640 --> 0:00:18.080 anchors all around the world. It straight ahead on the program, 0:00:18.079 --> 0:00:21.439 What will tariff wars, Wall Street in turmoil, fears of 0:00:21.480 --> 0:00:23.920 a recession, and some key inflation data out this week 0:00:24.120 --> 0:00:27.319 all mean for the bed, Plus a look at the 0:00:27.320 --> 0:00:31.160 potential impact of President Trump's tariffs on the US retail sector. 0:00:31.360 --> 0:00:32.880 I'm Tom Busby in New York. 0:00:33.000 --> 0:00:35.640 I'm Carolyn Hetkee here in London, where we're diving into 0:00:35.720 --> 0:00:39.720 the Bank of England's assessment of the key risks facing 0:00:39.760 --> 0:00:41.760 the UK's financial landscape. 0:00:41.800 --> 0:00:45.479 I'm deg Prisner looking at how the impending reciprocal Trump 0:00:45.560 --> 0:00:48.120 tariffs are resonating through the Asia Pacific. 0:00:49.920 --> 0:00:53.960 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:54.000 --> 0:00:57.680 eleven to three zero, New York, Bloomberg ninety nine to one, Washington, DC, 0:00:58.160 --> 0:01:03.280 Bloomberg ninety two to nine, DAB Digital Radio London, Serious 0:01:03.480 --> 0:01:06.600 XM one twenty one, and around the world on Bloomberg 0:01:06.720 --> 0:01:09.240 Radio dot Com and the Bloomberg Business App. 0:01:13.080 --> 0:01:15.520 Good day to you. I'm Tom Busby. We begin today's 0:01:15.560 --> 0:01:18.440 program with a look at the early fallout from President 0:01:18.480 --> 0:01:21.639 Trump's trade war how it may impact next month's Federal 0:01:21.680 --> 0:01:25.039 Reserve decisions on interest rates and economic policy. We're coming 0:01:25.040 --> 0:01:27.920 off a better than forecast March jobs report, and we 0:01:27.959 --> 0:01:31.920 get us CPI data for March on Thursday, PPI data 0:01:31.959 --> 0:01:35.040 on Friday. It is a lot and tariff policies could 0:01:35.120 --> 0:01:38.160 change at any time. We're joined by Michael McKee, Bloomberg 0:01:38.200 --> 0:01:41.880 International Economics and Policy correspondent. How do you and the 0:01:41.880 --> 0:01:45.320 Federal Reserve policymakers try to make sense of everything we've 0:01:45.360 --> 0:01:46.680 seen this past week. 0:01:46.600 --> 0:01:49.280 From an economic theory standpoint, you can't make any sense 0:01:49.320 --> 0:01:51.760 out of it because it makes no sense. But you 0:01:51.920 --> 0:01:54.040 have to deal with the world that you have, and 0:01:54.080 --> 0:01:55.880 so the Fed is going to be modeling out what 0:01:55.960 --> 0:02:00.960 potential effects this could have on the actually economy. They'll 0:02:00.960 --> 0:02:03.800 sit back and say, yeah, this is really stupid economic policy, 0:02:03.800 --> 0:02:07.040 but they're not gonna They have to do something at 0:02:07.080 --> 0:02:09.960 some point about where we are. So they need to 0:02:09.960 --> 0:02:11.959 try to figure that out. And it's still really hard 0:02:12.000 --> 0:02:16.560 to do because the imposition of the tariffs isn't clear 0:02:16.639 --> 0:02:19.720 exactly what gets tariffed and by how much. 0:02:19.760 --> 0:02:21.600 How soon, So it's going to take. 0:02:21.440 --> 0:02:23.360 A while and some haven't even started. 0:02:23.760 --> 0:02:27.400 So what they'll be looking at is the impact on 0:02:27.600 --> 0:02:32.000 inflation and on unemployment and on consumers. Next week we 0:02:32.080 --> 0:02:36.080 get the CPI report for the month of March, which 0:02:36.120 --> 0:02:38.400 isn't going to tell us much because it's for the 0:02:38.400 --> 0:02:41.560 month of March, and that's before almost all the tariffs, 0:02:41.680 --> 0:02:43.640 and the tariffs that were put on in March are 0:02:43.680 --> 0:02:47.240 basically on the producer side. We may see inflation go 0:02:47.440 --> 0:02:49.200 up a little bit on a year over year basis, 0:02:49.320 --> 0:02:50.600 or it may go down a little bit on a 0:02:50.639 --> 0:02:52.760 your year basis, but it's not going to tell the 0:02:52.760 --> 0:02:55.520 fate about anything about where they're going. So it's going 0:02:55.560 --> 0:02:57.600 to be another month or so before they start to 0:02:57.600 --> 0:02:58.440 have some data. 0:02:58.840 --> 0:03:02.040 The big fear of courses inflation, and we've already heard 0:03:02.080 --> 0:03:05.320 from some companies car makers saying it's going to cost 0:03:05.320 --> 0:03:08.280 you more, and there are reports JP Morgan, Chase, GOBN, 0:03:08.360 --> 0:03:11.320 saks A for high end cars could be fifteen thousand 0:03:11.400 --> 0:03:14.280 dollars more. Mercedes Benz says we're not even going to 0:03:14.320 --> 0:03:16.960 send our lowest price car there because people can't afford it. 0:03:17.240 --> 0:03:19.760 I couldn't afford it even if it were the lowest 0:03:19.760 --> 0:03:23.680 price car. But the interesting thing is that when the 0:03:23.919 --> 0:03:27.600 new car situation, if that plays out that way, used 0:03:27.600 --> 0:03:29.600 cars are going to get very expensive because people who 0:03:29.639 --> 0:03:32.480 can't afford to pay the higher prices for new cars 0:03:32.600 --> 0:03:35.000 are going to go buy used cars, and then supply 0:03:35.040 --> 0:03:39.360 and demand, we'll see used car prices go up. Probably 0:03:39.680 --> 0:03:43.200 inflation is the first danger out of the tariffs that 0:03:43.240 --> 0:03:45.920 the FED is going to be looking at, because prices 0:03:45.920 --> 0:03:48.520 can go up immediately. It will take a while for 0:03:48.560 --> 0:03:50.640 companies to figure out what they need to do with 0:03:50.760 --> 0:03:53.640 staffing if there is a recession, and do we want 0:03:53.640 --> 0:03:54.240 to cut people. 0:03:54.320 --> 0:03:56.440 Remember how hard it was to hire people before. 0:03:56.880 --> 0:04:00.520 It's always sticky, so that'll take some time to play out. 0:04:00.840 --> 0:04:05.520 The good thing for the FED about the jobs report 0:04:05.880 --> 0:04:09.320 on Friday was that it was generally solid. Now, again, 0:04:09.400 --> 0:04:13.720 it was March before all most of this stuff started happening, 0:04:14.200 --> 0:04:17.920 but it fits the narrative as Jay Powell has been saying, 0:04:18.160 --> 0:04:22.240 that the labor market is solid, and the Fed's two 0:04:22.400 --> 0:04:25.680 responsibilities are the labor market and inflation, so they can 0:04:25.760 --> 0:04:30.760 lean on inflation. They can leave rates unchanged because the 0:04:30.760 --> 0:04:35.520 inflation rate is either staying where it is or we 0:04:35.560 --> 0:04:38.479 hope not, but it could be going up. So I 0:04:38.520 --> 0:04:41.679 don't think at this point the Fed is thinking about 0:04:41.839 --> 0:04:43.760 cutting rates, even if Wall Street is. 0:04:44.720 --> 0:04:48.080 And more on that March jobs report, because the Challenger 0:04:48.120 --> 0:04:50.680 Grand Christmas came out this past week said two hundred 0:04:50.720 --> 0:04:54.200 and eighty thousand federal workers were laid off. That was 0:04:54.240 --> 0:04:56.799 in two months, but a lot of them still getting severance, 0:04:56.920 --> 0:04:59.240 so they're not counted in these numbers. Still good. 0:04:59.400 --> 0:05:03.880 Actually, actually they are counted as still employed according to 0:05:04.040 --> 0:05:06.800 the BLS. They put out a note in Friday's jobs 0:05:06.839 --> 0:05:11.960 report that said people who are receiving severance or who 0:05:12.000 --> 0:05:15.000 are on administrative leave are counted as employed. 0:05:15.640 --> 0:05:17.640 So we haven't seen the impact yet. 0:05:17.480 --> 0:05:18.880 And we may not for several months. 0:05:19.040 --> 0:05:22.280 The Challenger survey is based on job cut announcements, and 0:05:22.320 --> 0:05:26.040 they basically said, we took the press releases that Elon 0:05:26.160 --> 0:05:28.240 Musk put out about how many people were going to 0:05:28.240 --> 0:05:31.760 be fired, and that's what we're counting. And people don't 0:05:31.960 --> 0:05:34.240 usually put a lot of weight on Challenger because a 0:05:34.240 --> 0:05:38.320 lot of the job cuts that are announced don't happen. 0:05:38.760 --> 0:05:43.320 Either companies do it through attrition or through just not 0:05:43.480 --> 0:05:48.400 hiring additional people as opposed to actually firing people. It 0:05:48.520 --> 0:05:50.880 was a number that got people's attention, and we're certainly 0:05:50.880 --> 0:05:55.560 going to probably see some big federal job losses. But 0:05:56.480 --> 0:05:57.720 I don't know that we get to two hundred and 0:05:57.720 --> 0:05:58.800 eighty thousand very quickly. 0:05:59.120 --> 0:06:02.960 No, be a while. And it could this March report 0:06:03.040 --> 0:06:06.240 be the last really upbeat job support for a while 0:06:06.279 --> 0:06:07.120 because of these. 0:06:07.360 --> 0:06:08.039 Well it could. 0:06:08.839 --> 0:06:13.080 On Friday, John Ferreroll spoke with the new Labor Secretary, 0:06:13.480 --> 0:06:14.160 who said. 0:06:13.960 --> 0:06:16.920 No, this is not going to be the last good report, but. 0:06:16.920 --> 0:06:20.160 I can't see how it would be a good report 0:06:20.200 --> 0:06:24.960 going forward. And the reason why is the uncertainty. If 0:06:25.000 --> 0:06:27.919 you don't know whether you're going to have to be 0:06:28.000 --> 0:06:30.279 letting people go in a month or so, you don't 0:06:30.279 --> 0:06:34.159 want to be hiring people. And if, indeed, as we 0:06:34.320 --> 0:06:38.119 have seen some evidence already, the economy is slowing down, 0:06:38.440 --> 0:06:40.640 then you can probably meet the demand that you have 0:06:40.720 --> 0:06:43.400 with the employees that you have. So I don't know 0:06:43.440 --> 0:06:47.120 that we're going to see another blowout surprise to the 0:06:47.240 --> 0:06:48.839 upside for a while. 0:06:49.360 --> 0:06:51.240 It's going to be a long four weeks before that 0:06:51.279 --> 0:06:55.159 next meeting. Our thanks to Michael McKee, Bloomberg International Economics 0:06:55.240 --> 0:06:59.480 and Policy Correspondent, well more now on President Trump's sweeping tariffs, 0:06:59.480 --> 0:07:02.440 which a're hitting certain countries a lot harder than others, 0:07:02.480 --> 0:07:08.000 impacting some of America's biggest electronics, apparel, footwear makers, and retailers, 0:07:08.040 --> 0:07:10.840 And for more on the potential impact of those tariffs 0:07:10.840 --> 0:07:14.400 on the retail sector. We're joined by Jennifer bartashis Bloomberg 0:07:14.520 --> 0:07:18.200 Intelligence Senior analyst Retail, Staples and packaged food. 0:07:18.960 --> 0:07:19.280 Wow. 0:07:19.440 --> 0:07:22.280 Well, Jennifer, let's start with a look at the countries 0:07:22.280 --> 0:07:25.760 that supply most of the imported clothing, sneakers, gadgets, furniture, 0:07:25.760 --> 0:07:30.240 and other goods aside from autos. I mean, China, Vietnam, Taiwan. 0:07:30.320 --> 0:07:33.640 These are huge numbers, aren't they They. 0:07:33.440 --> 0:07:35.840 Are, indeed, and so it was a bit of a 0:07:35.880 --> 0:07:39.880 surprise how big some of these numbers were given how 0:07:39.960 --> 0:07:45.320 much some of our companies rely on those countries for manufacturing. 0:07:45.400 --> 0:07:50.200 So when you're talking about Vietnam, India, Thailand, Cambodia, you know, 0:07:50.280 --> 0:07:52.720 I think one of the big takeaways here is that 0:07:52.880 --> 0:07:56.280 our retailers in the United States have been making an 0:07:56.320 --> 0:08:00.240 effort to diversify away from China for the past several years, 0:08:00.600 --> 0:08:02.840 and yet, and with the idea that it would help 0:08:02.880 --> 0:08:05.960 insulate them from higher tariffs. And yet with this new 0:08:06.000 --> 0:08:09.320 wave that is just not the case anymore. And so 0:08:09.560 --> 0:08:11.240 that's that's an area for concern. 0:08:11.680 --> 0:08:14.480 No, but the most impacted country will be China. And 0:08:14.560 --> 0:08:17.760 still you to pick up an article of clothing, a toy, 0:08:18.240 --> 0:08:21.400 chances are an Apple iPhone that it is made in China. 0:08:21.640 --> 0:08:26.560 So much is manufactured there. So still they haven't separated 0:08:26.560 --> 0:08:29.840 themselves totally. I know Apple is making iPhones in India 0:08:29.920 --> 0:08:33.880 now they've tried, but it's a global world, no matter 0:08:33.920 --> 0:08:37.000 what we hear from the White House. How is this 0:08:37.080 --> 0:08:39.720 going to impact US companies? 0:08:40.920 --> 0:08:44.360 Yeah, so, as you said very accurately, China is still 0:08:44.400 --> 0:08:47.960 the main trading partner for a lot of US companies 0:08:48.600 --> 0:08:51.800 and so even those attempts to diversify just don't add 0:08:51.880 --> 0:08:55.040 up to really offset the huge impact that these Chinese 0:08:55.040 --> 0:08:57.840 tariffs are going to have. When you talk about real 0:08:58.320 --> 0:09:03.560 big retailers like Target in particular, you know, China is 0:09:03.600 --> 0:09:07.080 still the biggest, the biggest source for their their their 0:09:07.120 --> 0:09:09.920 goods that are imported. When you're talking about apparel and 0:09:10.000 --> 0:09:14.360 electronics and toys and home furniture, even some beauty products, 0:09:15.080 --> 0:09:18.960 it really puts a lot of pressure on retailers like 0:09:19.040 --> 0:09:23.480 Target that skew to more discretionary spending in how they're 0:09:23.480 --> 0:09:26.839 going to manage all this additional cost You know, Walmart also, 0:09:27.240 --> 0:09:29.600 you know, out of the general merchandise that they sell, 0:09:29.920 --> 0:09:32.959 you know, the bulk of it comes from China. And 0:09:33.000 --> 0:09:35.960 then you can't forget to me one of the areas 0:09:36.000 --> 0:09:38.560 of retail that's going to get hit the hardest, and 0:09:38.600 --> 0:09:43.199 that's the dollar stores because they're very low price point stores. 0:09:43.840 --> 0:09:46.400 Most of what they sell comes from China, and so 0:09:47.120 --> 0:09:49.520 figuring out how they're going to be able to manage 0:09:50.320 --> 0:09:53.679 their business when it's so reliant on China and have 0:09:53.840 --> 0:09:56.839 such low price points is really going to be a challenge. 0:09:56.920 --> 0:10:00.000 And let's face it, importers pay those tariffs, the price 0:10:00.200 --> 0:10:03.680 increases are passed along to consumers. There was no doubt 0:10:03.720 --> 0:10:06.880 about that. So these are ore are the hardest hit. 0:10:06.880 --> 0:10:08.440 People are going to be the folks that shop at 0:10:08.440 --> 0:10:11.480 those Dollar Tree, dollar general stores. I mean this could 0:10:11.480 --> 0:10:12.800 be devastating. 0:10:12.320 --> 0:10:15.520 Yeah, exactly. So you know, you've got consumers who are 0:10:15.520 --> 0:10:18.840 already under pressure, You've got prices going up that's gonna 0:10:18.920 --> 0:10:21.480 you know that from tariffs that are going to create 0:10:21.840 --> 0:10:25.320 even more pressure on these consumers, and dollar stores are 0:10:25.360 --> 0:10:28.360 where people go to seek value, right because they don't 0:10:28.400 --> 0:10:30.000 have a lot of money in their pocket and they 0:10:30.040 --> 0:10:33.480 can get things. And so these retailers in particular are 0:10:33.520 --> 0:10:36.280 going to have a very difficult time navigating this new 0:10:36.360 --> 0:10:39.959 tariff landscape. When we heard about earnings from the fourth 0:10:40.040 --> 0:10:42.920 quarter from these companies, they all said that they had 0:10:43.000 --> 0:10:46.319 mitigation plans in place, so they were talking to their 0:10:46.320 --> 0:10:49.200 suppliers to try to share costs. They were thinking about 0:10:49.520 --> 0:10:51.560 what products they could, you know, if they had to 0:10:51.800 --> 0:10:56.640 not carry anymore. But the tariffs announced are so sweeping 0:10:57.160 --> 0:10:59.840 it doesn't leave them a lot of room for negotiation. 0:11:00.520 --> 0:11:04.080 So you know, whether it's Dollar General, dollar Tree, think 0:11:04.080 --> 0:11:08.560 about five below. Again, these companies are are really up 0:11:08.559 --> 0:11:09.800 against the wall with these. 0:11:09.679 --> 0:11:13.000 Tariffs, and not just those companies. I want to break 0:11:13.040 --> 0:11:16.560 down a Vietnam. I think it's a good example. Forty 0:11:16.559 --> 0:11:21.480 six percent tariffs on imports from Vietnam. Nike Footwear fifty 0:11:21.559 --> 0:11:25.120 one half fifty percent of its footwear is sourced from Vietnam. 0:11:25.120 --> 0:11:29.679 That's according to company fi links compiled by Bloomberg. Also Lululemon, Adidas, 0:11:29.840 --> 0:11:31.880 Abercrat I mean, the list goes on and on. I 0:11:31.880 --> 0:11:33.920 don't know if a lot of people know how much 0:11:34.000 --> 0:11:36.960 is made there and how it's going to affect consumers. 0:11:36.440 --> 0:11:41.720 Here exactly when you're talking about the footwear industry, Vietnam 0:11:41.920 --> 0:11:46.400 is the biggest place for manufacturing for footwear. And so 0:11:46.600 --> 0:11:49.120 whether it's All Birds or it's as you said, Nike 0:11:49.240 --> 0:11:52.280 or Puma or Adidas, you know, all of these companies 0:11:52.360 --> 0:11:56.120 are now faced with how they're going to how they're 0:11:56.120 --> 0:11:59.679 going to manage those costs, and you can only pass 0:11:59.760 --> 0:12:02.800 through so much to consumers. You know, I think it's 0:12:02.840 --> 0:12:05.360 inevitable that consumer costs are going to be coming up, 0:12:05.440 --> 0:12:07.720 but there's a breaking point where you can't do that 0:12:07.760 --> 0:12:09.880 and you have to absorb some. So one of the 0:12:09.920 --> 0:12:12.000 things that everyone's watching is, you know, what's going to 0:12:12.080 --> 0:12:14.600 happen with the margins of these companies as costs go 0:12:14.760 --> 0:12:18.880 up and their ability to raise prices gets capped. And so, 0:12:19.320 --> 0:12:22.439 you know, we think that there may still be room 0:12:22.480 --> 0:12:26.120 for negotiation the way President Trump, you know, announce these 0:12:26.160 --> 0:12:29.920 tariffs before they fully go into effect, but you have 0:12:29.960 --> 0:12:32.000 to plan for the worst, and right now it's looking 0:12:32.040 --> 0:12:35.960 a bit dire for apparel companies and for footwear companies. 0:12:35.679 --> 0:12:38.240 Oh what sure is well? Our thanks to Jennifer Bartash 0:12:38.360 --> 0:12:42.560 is Bloomberg Intelligence senior analysts retail, staples and packaged food, 0:12:42.920 --> 0:12:45.079 and coming up on Bloomberg day Break weekend, we'll dive 0:12:45.120 --> 0:12:48.080 into the Bank of England's assessment of the key risks 0:12:48.320 --> 0:12:51.840 facing the UK's financial landscape. I'm Tom Busby and this 0:12:52.280 --> 0:13:01.800 is Bloomberg. This is Bloomberg day Break weekend, our global 0:13:01.800 --> 0:13:03.880 look ahead at the top stories for investors in the 0:13:03.920 --> 0:13:07.079 coming week. I'm Tom Busby in New York. Up later 0:13:07.120 --> 0:13:09.680 in our program a look at how President Trump's tariffs 0:13:09.679 --> 0:13:13.360 on Chinese goods will impact relations with Beijing moving forward. 0:13:13.679 --> 0:13:16.920 But first, the UK Central Bank releases its quarterly report 0:13:17.000 --> 0:13:19.760 on the stability of the UK's financial system this week, 0:13:19.840 --> 0:13:24.120 along with what it's doing to remove or reduce risks. 0:13:24.480 --> 0:13:28.080 But as geopolitical and global economic tensions rise, can policymakers 0:13:28.320 --> 0:13:32.200 really fortify the Bank of England against market turmoil? For more, 0:13:32.600 --> 0:13:34.520 Let's go to London and bring in Bloomberg day Break 0:13:34.559 --> 0:13:37.160 Euro banker Caroline Hepgar Tom. 0:13:37.280 --> 0:13:40.080 The Bank of England's stability report is meant to support 0:13:40.120 --> 0:13:44.360 the resilience of Britain's financial system and therefore support economic 0:13:44.440 --> 0:13:48.280 growth by scanning the risks on the horizon. In the 0:13:48.360 --> 0:13:51.199 last report, released in November twenty twenty four, the Bank 0:13:51.280 --> 0:13:56.400 of England cited a risky outlook driven by geopolitical tensions 0:13:56.480 --> 0:14:01.960 and global fragmentation. Specifically, they called out material pressures on 0:14:02.040 --> 0:14:06.120 government debt levels and increasing borrowing costs. Even if they 0:14:06.280 --> 0:14:11.760 talked about consumers and businesses remaining resilient. In the six 0:14:11.800 --> 0:14:15.240 months or so since that publication, those risks do appear 0:14:15.640 --> 0:14:19.800 to loom large, still complicating the job of policy makers 0:14:20.080 --> 0:14:24.360 looking to steer the UK's financial markets through the storm. 0:14:24.680 --> 0:14:28.800 In the UK, fiscal pressure has increased. Just look at 0:14:28.800 --> 0:14:32.280 how the Chancellor Rachel Reeves lost half of her ten 0:14:32.480 --> 0:14:37.080 billion pound fiscal buffer in the days after her spring 0:14:37.240 --> 0:14:41.280 financial statement. This is something that the Central Bank did 0:14:41.360 --> 0:14:45.040 worn about back in November. The Bank argued then that 0:14:45.200 --> 0:14:50.040 a deterioration in market perceptions about the sustainability of the 0:14:50.040 --> 0:14:54.120 long term path of government's debt globally may lead to 0:14:54.360 --> 0:14:59.960 higher rates and sharp movements in market prices. In particular, 0:15:00.240 --> 0:15:04.040 Bank of England experts believe that increased debt levels and 0:15:04.280 --> 0:15:09.320 servicing costs for governments could also reduce their capacity to 0:15:09.400 --> 0:15:12.840 respond to future shocks that may be to come, and 0:15:12.960 --> 0:15:17.080 also increase the cost of borrowing and refinancing of debt 0:15:17.160 --> 0:15:20.320 for households and for businesses. So how's the Bank of 0:15:20.360 --> 0:15:25.600 England's financial outlook become riskier and how do they plan 0:15:25.760 --> 0:15:29.560 to keep the country on track? I've been asking Bloomberg's 0:15:29.680 --> 0:15:33.720 finance reporter Laura Noonan, and I began by asking her 0:15:33.840 --> 0:15:38.120 simply to begin with, what the point is of this 0:15:38.400 --> 0:15:40.000 financial stability report? 0:15:40.560 --> 0:15:43.240 So the point of a financial stability report is that 0:15:43.280 --> 0:15:46.200 if there is a financial crisis coming, you see the 0:15:46.280 --> 0:15:48.880 warning signs really early, and you step in and do 0:15:48.960 --> 0:15:52.640 what you can to prevent us. So we, notably in 0:15:52.680 --> 0:15:55.960 the UK, didn't have any before the financial crisis, and 0:15:56.040 --> 0:15:59.480 they introduced this concept in the aftermath of the financial crisis, 0:15:59.480 --> 0:16:02.000 because you would all these people saying why were there 0:16:02.000 --> 0:16:04.800 no alarm bells ringing? And part of the reason that 0:16:04.840 --> 0:16:07.120 there were no alarm bells ringing about the belt up 0:16:07.160 --> 0:16:10.760 of risk was that while every regulator and every center 0:16:10.840 --> 0:16:14.480 bank has general oversight of risk, there was no one 0:16:14.560 --> 0:16:18.080 specifically in charge of ringing the bell. So I would 0:16:18.080 --> 0:16:20.280 think of this financial spell report, this is the. 0:16:20.240 --> 0:16:24.720 Bell Okay, so we're waiting for this bell recap what 0:16:24.920 --> 0:16:28.000 happened in November's report, because they come up with a 0:16:28.080 --> 0:16:31.080 list of risks and they explain them in some detail. 0:16:31.760 --> 0:16:35.000 Think about the time frame between that November report and now. 0:16:35.120 --> 0:16:37.640 Okay, so November was a particularly fun report. It was 0:16:37.680 --> 0:16:40.600 a big bell and that's because they do these things quarterly. 0:16:40.920 --> 0:16:43.720 But they also, as well as having the general laundry 0:16:43.720 --> 0:16:46.240 list of these other risks of the financial system, they 0:16:46.280 --> 0:16:49.920 also do special publications during some and we had a 0:16:49.920 --> 0:16:52.840 special publication in November which I was very excited about, 0:16:52.920 --> 0:16:56.800 which was the outcome of this broad market stress test, 0:16:57.040 --> 0:16:58.640 the first one in the world to see how the 0:16:58.760 --> 0:17:02.320 market system would respond to a crisis, and that found 0:17:02.320 --> 0:17:05.639 that that basically non banks were not particularly ready for 0:17:05.680 --> 0:17:08.800 a crisis. The other things that they warned about were 0:17:09.240 --> 0:17:11.320 the general things they've been warning about for some time. 0:17:11.359 --> 0:17:14.000 And often the language is very important here. It's a 0:17:14.000 --> 0:17:16.080 bit like if you watch the interest rate decisions and 0:17:16.119 --> 0:17:19.800 the commentary around that, the exact words you so you 0:17:19.840 --> 0:17:23.480 can say, you know the outlook, the risk is deteriorating, 0:17:23.520 --> 0:17:26.879 the risk is worsening, risks are escalating. So the exact 0:17:26.960 --> 0:17:30.160 language matters in terms of whether they see big risks, 0:17:30.160 --> 0:17:33.960 whether they see moderate risks in different areas. Last time 0:17:34.000 --> 0:17:38.440 they called out the geopolitical risks were increasing very obviously, 0:17:38.600 --> 0:17:41.800 yes they are, and we can expect that geopolitical risks 0:17:41.800 --> 0:17:45.399 have not subsidies between November and now. So if I 0:17:45.440 --> 0:17:47.600 were a betting person, which apparently we're not allowed to 0:17:47.640 --> 0:17:49.760 be and anymore, But if I were a betting person, 0:17:50.160 --> 0:17:53.760 I will be betting on geopolitical risks to feature heavily 0:17:54.000 --> 0:17:56.679 in the report. And with that we can expect to 0:17:56.720 --> 0:18:01.040 see them warning about the different and risks that different 0:18:01.240 --> 0:18:04.640 parts of the financial landscape face. And geopolitical risk can 0:18:04.640 --> 0:18:07.080 manifest in lots of different things, So you can have 0:18:07.600 --> 0:18:10.520 difficulty trading with certain parts of the world, you can 0:18:10.760 --> 0:18:15.040 have sharp corrections of sharp changes to acid prices because 0:18:15.520 --> 0:18:18.120 of geopilical policies. So there's a number of things there 0:18:18.160 --> 0:18:21.120 and I would expect a lot of warning about geopilical risk. 0:18:21.160 --> 0:18:23.359 They also tend to warn about other things. They'll always 0:18:23.400 --> 0:18:28.920 be something about cyber when the geopolitical situation worsens. There's 0:18:28.960 --> 0:18:32.600 often a heightened fear about cyber because you have state 0:18:32.640 --> 0:18:35.120 sponsored cyber attacks and that's something we saw a lot 0:18:35.240 --> 0:18:37.320 last year where there was a lot of concern about 0:18:37.920 --> 0:18:42.120 how would the financial system withstand an attack from a 0:18:42.200 --> 0:18:45.000 negative state actor, and that's something that they have been 0:18:45.040 --> 0:18:49.760 warning heavily about. They has been ongoing concerned about valuation 0:18:49.920 --> 0:18:54.600 in various asset classes, and obviously valuations have fallen recently 0:18:54.760 --> 0:18:57.879 in recent days anyway, so they are still at fairly 0:18:57.920 --> 0:19:01.840 elevated levels. The other repeat one is the links between 0:19:02.440 --> 0:19:05.560 the private equity slash private credit slash private market space 0:19:05.680 --> 0:19:08.240 and the financial system and the way that those links 0:19:08.720 --> 0:19:10.840 could unravel in a problematic way. 0:19:11.200 --> 0:19:14.399 Okay, so quite a list of risks that they that 0:19:14.400 --> 0:19:16.879 you're watching out for in terms of what they may cite. 0:19:17.560 --> 0:19:21.840 How are these reports then so normally received. 0:19:21.920 --> 0:19:24.119 How we actually get them is actually great fun. So 0:19:24.400 --> 0:19:26.440 how we literally receive them is they take a gang 0:19:26.440 --> 0:19:29.040 of journalists three floors underground in the Bank of England 0:19:29.080 --> 0:19:30.880 and they lock us in with them. It's actually very, 0:19:31.000 --> 0:19:33.119 very fun, and then we have an hour and a 0:19:33.119 --> 0:19:35.400 half with them before we can then broadcast. In terms 0:19:35.440 --> 0:19:39.119 of how they're received by the wider world, they so 0:19:39.240 --> 0:19:43.119 the FPC is part of the Bank of England rather 0:19:43.200 --> 0:19:46.080 than the pure which is the regulatory arm. So basically 0:19:46.480 --> 0:19:49.320 the Bank of England warrants and then the PURE and 0:19:49.359 --> 0:19:53.199 the FCA to an extent, decides, okay, what do we 0:19:53.280 --> 0:19:57.560 want to take greater action in. So if they warrant 0:19:57.560 --> 0:20:01.119 about vulnerabilities in a certain part of the market, the 0:20:01.160 --> 0:20:04.199 PRAA may then go and do an exercise to review that. 0:20:04.960 --> 0:20:07.680 So there are two things the FPC can do. They 0:20:07.720 --> 0:20:11.960 can advise or recommend. They can actually make orders for 0:20:12.000 --> 0:20:14.520 some things, but they very rarely do that. The one 0:20:14.560 --> 0:20:17.560 thing they directly control is something called the counter cyclical 0:20:17.720 --> 0:20:20.479 capital buffer, which some of your listeners may be familiar with, 0:20:20.800 --> 0:20:24.800 and that basically sets the capital buffer banks have to 0:20:24.840 --> 0:20:27.480 maintain to deal with a potential crisis. In the UK, 0:20:27.560 --> 0:20:29.879 it's been at neutral level for quite some time, and 0:20:29.960 --> 0:20:34.880 that's because banks are well capitalized. I don't think they're 0:20:34.920 --> 0:20:38.000 going to change that buffer this week, but they might. 0:20:38.160 --> 0:20:40.000 The other things I should have said earlier that they 0:20:40.000 --> 0:20:43.080 talk about a lot is the resilience of households, the 0:20:43.160 --> 0:20:47.240 resilience of businesses to these things. So they'll talk about, 0:20:47.840 --> 0:20:49.639 you know, for a long time during the last interest 0:20:49.680 --> 0:20:52.400 rate cycle, we heard about their percentage of households whose 0:20:52.400 --> 0:20:54.440 mortgage just would jump by a certain amount, and how 0:20:54.520 --> 0:20:57.520 that would play out. I mean, for us from a 0:20:57.600 --> 0:21:00.440 journalistic point of view, disappointingly, the last few time that's 0:21:00.480 --> 0:21:04.040 been households are resilient, banks are resilient, business are resilient. 0:21:04.320 --> 0:21:07.919 That is no crack whatsoever to report on. But I 0:21:07.920 --> 0:21:10.160 guess what I would imparty with is that the level 0:21:10.200 --> 0:21:13.760 of resilience has been high and as interest rates for 0:21:14.000 --> 0:21:15.800 the level of resilience should increase. 0:21:16.160 --> 0:21:19.359 Okay, So then that probably goes to my next thought, 0:21:19.359 --> 0:21:23.480 which is what is your assessment, Bloomboad's assessment currently of 0:21:23.880 --> 0:21:26.639 the UK's sort of risk landscape and how we're thinking 0:21:26.640 --> 0:21:27.160 about it. 0:21:27.600 --> 0:21:30.720 So the UK's risk landscape is not as from a 0:21:30.760 --> 0:21:35.199 macroeconomic perspective, it's not as bad as some of the 0:21:35.240 --> 0:21:38.520 markets where there are bigger policy changes taking place. So 0:21:38.560 --> 0:21:40.200 I don't think it's the risky ast market. The one 0:21:40.200 --> 0:21:42.560 thing that I would that I'm like watching out for 0:21:42.840 --> 0:21:45.880 is what if anything they say about the deregulation risks. 0:21:45.920 --> 0:21:48.920 So the Bank of England's regularly arm the p r 0:21:48.960 --> 0:21:52.119 A and the FCA, which regulates conduct and other parts 0:21:52.119 --> 0:21:55.120 of the financial industry. They've been pulling back a lot 0:21:55.160 --> 0:21:58.000 of rules in the spirit of promoting the UK's competitiveness, 0:21:58.040 --> 0:22:00.240 which is great and all, and they say that they 0:22:00.240 --> 0:22:03.400 are threading the needle in terms of Okay, we're going 0:22:03.440 --> 0:22:07.920 to make the burdens on financial services firm less and 0:22:07.960 --> 0:22:10.240 that's not going to increase risk by too much. It 0:22:10.359 --> 0:22:14.080 is a fine balancing act and the FPC this report 0:22:14.320 --> 0:22:18.040