Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Marrin
Speaker 1: Talks Money Market Wrap, where we talk about the biggest
Speaker 1: moves in the markets this week and what is driving them,
Speaker 1: or more what we think might be driving them. I'm
Speaker 1: Maren Sumset, Web Editor at Large for Bloomberg UK Wealth.
Speaker 2: Now.
Speaker 1: My usual co host John Steppeck is on holidays of
Speaker 1: frolicking on a beach somewhere, possibly Greece, I think.
Speaker 2: Anyway, fear not.
Speaker 1: Our trusted fill in, Bloomberg Opinion columnist Marcus Ashworth is
Speaker 1: with us today. Marcus, thank you so much for joining us.
Speaker 2: My pleasure is Ella.
Speaker 1: I think you filled in for me a few times
Speaker 1: on my lengthy holiday in August. Not frolicking on a
Speaker 1: beach and definitely not in grease, but nonetheless away.
Speaker 2: We talked about you a lot, did you. No.
Speaker 1: No, I was about to say welcome back and listen
Speaker 1: to those, but I guess maybe I won't after all. Anyway,
Speaker 1: quite an interesting summer and so much to talk about
Speaker 1: now this summer is over. I think we're going to
Speaker 1: have to start with the bond market, because it's not
Speaker 1: often it makes it onto the front page of most
Speaker 1: of the papers, but this week it has actually done that,
Speaker 1: although things seem to have calmed a little bit now,
Speaker 1: So Marc, it's just in a couple of short sentences
Speaker 1: what's going on.
Speaker 2: It definitely is gil market has dominated, as you say,
Speaker 2: and it hasn't been quite exciting suburb compared to most
Speaker 2: So it's not actually a UK specific reason this time.
Speaker 2: That the sell off all year is being driven by
Speaker 2: domestic factors politics, inflation and a number of other different
Speaker 2: worries about upcoming budget which he now knows November twenty sixth.
Speaker 2: But really what's been happening in the last week or
Speaker 2: two is just a continuation of a much broader global
Speaker 2: very long end bond selloff driven by a number of factors. Firstly,
Speaker 2: as we know in the year was probably the UK
Speaker 2: lad because we have a much increasing changing in our
Speaker 2: pension system, which means that pension funds defined benefit schemes
Speaker 2: do not wish to have as much exposure duration long
Speaker 2: end bond exposure, something similar to happening in Holland. At
Speaker 2: the same time, we've got a big sell off in
Speaker 2: the second largest bond marketing world in Japan, and just
Speaker 2: the last week or so we've also got a political troubles,
Speaker 2: not just in the UK for once, but in France
Speaker 2: with a potential vote on September the eighth, which may
Speaker 2: see and yet another French government. So all these things
Speaker 2: are conspiring with a bit of a sell off in
Speaker 2: US treasury bond years, which the guilt market takes very
Speaker 2: close measure to. But this week we've had some good
Speaker 2: news in some senses from the Debt Management Office quarterly
Speaker 2: guilt auctions, schedules and remits and syndications, and we have
Speaker 2: very successful ten year auction one hundred and forty billion
Speaker 2: pounds worth of overblown supply. But nonetheless they sold fourteen
Speaker 2: billion before. If we've got a girl, all great news,
Speaker 2: so we shows the demands there. This is not a
Speaker 2: UK problem in the sense of liquidity. It may well
Speaker 2: be one instolvency will come onto the budget a second,
Speaker 2: but they are going to be selling a lot less,
Speaker 2: a lot less, fewer more, indeed long end guilt and
Speaker 2: particularly index linked inflation bonds, so you know they are
Speaker 2: the government is at least trying to get out their
Speaker 2: own weight. But nonetheless we still had very high yields.
Speaker 2: It's very worrying and everyone's got a little bit over excited.
Speaker 1: Yeah, let's go back a little too, whether there's UK
Speaker 1: exceptionalism in here or not. So obviously, you know, our
Speaker 1: yells have moved up substantially, But the other thing to
Speaker 1: look at is whether they've moved up relative to other
Speaker 1: countries yields, and that seems to suggest there is more
Speaker 1: wrong in the UK than elsewhere. Right, So, since over
Speaker 1: the last couple of years we've seen the ten year guilt,
Speaker 1: he'll move from sort of knocking around the middle of
Speaker 1: everyone else in the G seven to being actually one
Speaker 1: of the highest prosibly the highest in the G seven,
Speaker 1: which suggests that people are looking at UK guilt and
Speaker 1: going nah, not so much.
Speaker 2: Yeah, I mean, I think that we have two problems here.
Speaker 2: We have higher inflation than cerly in Europe does, and
Speaker 2: aly double because this government continues to do self harming
Speaker 2: things like raising the minimum wage, raising civil servants pay,
Speaker 2: taxing obviously, employer national insurance, and a rath of other stuff,
Speaker 2: which has made the Bank of England's already difficult job
Speaker 2: even harder. The Bank of England, of course, is also
Speaker 2: making everyone's life harder by selling lots of its own
Speaker 2: bond holdings constitative tightening in the active sense, no one
Speaker 2: else does. But then we have a fundamental solvency issue
Speaker 2: here whereby no one believes this government's economic policy is
Speaker 2: going to work. They've not been able to get any
Speaker 2: form of welfare cuts or cuts of any form of
Speaker 2: government spending, and fundamentally everyone's worried about more tax hikes.
Speaker 2: More bond issuance has been the only way out of
Speaker 2: this whole. So unless this government can somehow get its
Speaker 2: way round to actually doing something about controlling the runaway
Speaker 2: government spending bill, then I suspect that is why, as
Speaker 2: you said, the UK accepts and with a much more
Speaker 2: sticky inflation backdrop, is why our yields a higher than
Speaker 2: everyone else's.
Speaker 1: Yeah, and now we've got this long wait for the
Speaker 1: autumn budget end of November, now where we look at
Speaker 1: this and we think, well, what will she do? And
Speaker 1: that everyone assumes that this government is incapable, as you say,
Speaker 1: of cutting spending and incapable of understanding the trade off
Speaker 1: between government presence across the economy and growth, and only
Speaker 1: capable of bringing in more and more and more taxes.
Speaker 1: So it seems looking around that it's unlikely that we'd
Speaker 1: find some kind of happy medium of lower inflation and
Speaker 1: higher growth. Yeah, so we should be nervous, should be
Speaker 1: really nervous.
Speaker 2: Yeah, Well, I think the crux for all this is
Speaker 2: the Office for Budget Responsibilities assessment and it's down to
Speaker 2: this neebolous concept of productivity and whether they think productivity
Speaker 2: growth is falling or rising indeed in the UK, and
Speaker 2: this is going to make a very big difference. Every
Speaker 2: zero point one percentage point of its change, probably worse
Speaker 2: in where it expects productivity to be, will cost about
Speaker 2: nine to ten billion extra for the government for Rachel
Speaker 2: Rus to find, so most estimates, I think he's going
Speaker 2: to have to find an extra twenty billion on top
Speaker 2: of a ten billion head rugs of thirty billion in
Speaker 2: total to get a back itself back where she was
Speaker 2: in the spring statement. There are lots of different other estimates,
Speaker 2: but that seems to be consensus. But this will could
Speaker 2: dramatically change if they alter the productivity growth assessment. This
Speaker 2: is really in the weed stuff. We shouldn't be beholden
Speaker 2: to some form of spreadsheet analysis and having a change
Speaker 2: in targub on policy to keep up to this the
Speaker 2: whole time. It is madness, but it's exactly what we've
Speaker 2: got for another three months worth or whatever. It is.
Speaker 2: Then a renmber to find out more scarce stories about
Speaker 2: which tax tax is going to have to raise to
Speaker 2: somehow make these magic numbers that up.
Speaker 1: Yeah, I suppose one thing we could say, I'm im
Speaker 1: presumably the rest of the world, should they ever bother
Speaker 1: to look at us, look at us and think wow,
Speaker 1: all their senior politicians keep crying on the telly and
Speaker 1: looking at for example, example, Angela.
Speaker 2: Raina's current problems.
Speaker 1: Will only look at these through.
Speaker 2: The lens of tax.
Speaker 1: Okay, you know, obviously one of the things it says is, oh, look,
Speaker 1: stamp duty is incredibly complicated and difficult to deal with,
Speaker 1: such that even your own housing secretary can't understand the
Speaker 1: way your stamp duty works.
Speaker 2: But given this political hiccup.
Speaker 1: That the government are having at the moment, do you
Speaker 1: think less likely that they're going to go for more
Speaker 1: and increasingly complicated property taxes in the budget. Could you
Speaker 1: maybe step back and say, do you know what, maybe
Speaker 1: they'll just leave that one alone because it's a little sensetive.
Speaker 2: I hope they don't do it. It's a simple thing called
Speaker 2: the Laugher curve. And I think they've gone over the
Speaker 2: top of the Africa on stamp detail land tax and
Speaker 2: they need to reduce them outs where it was working
Speaker 2: perfectly fine for many, many years, but they keep on
Speaker 2: reading the honeypot and now they've got a situation where
Speaker 2: clearly they've basically killed the profiting market. So this type
Speaker 2: of government cannot help but resist the temptation of an
Speaker 2: enables resistantation in the sense of always wanted to tinker
Speaker 2: with something. And there's a lot too much noise in
Speaker 2: the press and various different traveling has being floated, so
Speaker 2: suggest they aren't going to have a look at it
Speaker 2: some stage. I hope they avoid it. I hope they
Speaker 2: keep things simple because virtual all the suggestions so far,
Speaker 2: if we replace one thing, they have to place with
Speaker 2: five other different things. And the consequences and.
Speaker 1: The warriors, of course, is that they bring they say
Speaker 1: they're going to replace something with something, and then they
Speaker 1: just bring it in and layer it on top, which
Speaker 1: is when you look at for example, you don't putting
Speaker 1: capital gains tax on sales of taxes or a wealth
Speaker 1: tax on more expensive houses, etc. You know that's just
Speaker 1: going to be ladled on top of this apparently incomprehensible
Speaker 1: stamp duty.
Speaker 2: Correct. I don't think it's that incomprehensible. It's all I
Speaker 2: would say is that, No, I don't think it is
Speaker 2: the three different lawyers irritating, but giving selective advice to
Speaker 2: each three of them is the reason why you get
Speaker 2: yourself in these troubles. But the rest of us it's
Speaker 2: not that difficult, okay.
Speaker 1: Now, apart from property, the biggest pool of available cash
Speaker 1: in the UK is in pensions, and we just talked
Speaker 1: about it. Possibly one of the reasons why guilt yields
Speaker 1: the rising is because the pension industry no longer wants
Speaker 1: to or needs to hold quite so many long dated guilts.
Speaker 1: But put that aside, that's still where the money is.
Speaker 1: So if you were the chancellor, and if you're the
Speaker 1: current chancellor, and maybe you'll be the one delivering the budget,
Speaker 1: maybe it won't be. But nonetheless, if you're looking for money,
Speaker 1: that is where the money is, right.
Speaker 2: Yeah, And I think there will be changes to the
Speaker 2: amount we are allowed to put in each shirt. It's
Speaker 2: currently sixty thousand. It slightly oddly went up for forty
Speaker 2: thousand under Jeremy Hunt. I think they may almost certainly.
Speaker 2: I think they will reduced that same time the forty
Speaker 2: percent or forty five percent tax break. I suspect they
Speaker 2: may want to blend that with the lower rate tax
Speaker 2: at twenty and perhaps gople on one rate I'll say
Speaker 2: around thirty percent. So I definitely think they will reduce
Speaker 2: pension benefits in some says, I don't think you'll alter
Speaker 2: how many people will will will save. I think most
Speaker 2: employees will still put thirty percent in rather than the
Speaker 2: forty percent may be enjoying. It's not a very nice
Speaker 2: way of doing things, but I think it's a very
Speaker 2: easy one. And because it's already bedded the system, and
Speaker 2: allreading is changing the rate and change the amount you
Speaker 2: put in, I think it'll be easy one. And they
Speaker 2: can also very easily brush it off as a type
Speaker 2: of thing labor government would do, making it more advantageous
Speaker 2: for lower income people.
Speaker 1: What about the amount of money that people come withdraw
Speaker 1: tax free. I mean that's one that we know some
Speaker 1: of the people inside the treasury are very unhappy about
Speaker 1: that you can still withdraw well over a quarter of
Speaker 1: a million quid tax free from mesion. It seems that
Speaker 1: that would be a pretty easy way to raise money.
Speaker 1: Take that down to fifty. I mean, obviously everyone's going
Speaker 1: to hate you, but you know, I.
Speaker 2: Think they'll void that one. I think that's harder than
Speaker 2: it looks, and as you said, it would be egregiously unfair.
Speaker 2: You know, if you put all this money into a pension,
Speaker 2: you should be allowed to stick to the rules. What
Speaker 2: you put in in the future is changed. That's a
Speaker 2: different story, but very aggressive and taking away or something
Speaker 2: you could you're allowed to do on Wednesday, and then
Speaker 2: on Thursday you're not allowed to do it. I don't
Speaker 2: think they will do that. I hope they they'll do that.
Speaker 2: I think that's very unfair. Have you said that. I
Speaker 2: have made sure I've taken mine out just in case,
Speaker 2: have you Interesting?
Speaker 1: Now, the one thing that's happening with all this guilt
Speaker 1: market or bond market turmoil around the world is that
Speaker 1: the gold price has gone berserk, something we've been telling
Speaker 1: people's going to happen for nearly thirty years now, and
Speaker 1: here we finally are success.
Speaker 2: Yeah, we've broken up. It should continue to raise higher.
Speaker 2: I note this time round, it's silver's going with it,
Speaker 2: possibly even leading it. You could argue, but you know, look,
Speaker 2: this is just a symptomatic of of we've got Trump
Speaker 2: tariffs and possibly getting ruled out and what happens in
Speaker 2: place if that was the case. You can see why.
Speaker 2: You know, central banks allegedly, I'm not sure how you
Speaker 2: can really trust this data, but they now hold more
Speaker 2: gold than they do you as treasuries. You know, this
Speaker 2: is a long standing trend, and you know, look, I
Speaker 2: think there is not much to suggest that that gold
Speaker 2: will not continue to do exactly what's been doing for
Speaker 2: the last year or more, and it will probably be
Speaker 2: continued to ahead higher as this world gets more complicated
Speaker 2: and confusing, and indeed people are looking at stock markets
Speaker 2: all time highs and thinking that doesn't make any sense.
Speaker 2: With bond yields this hive as normally you would expect
Speaker 2: that would hurt equities. Maybe that comes at some point.
Speaker 1: Did you take that money to go out your passion
Speaker 1: and shovel it end?
Speaker 2: Gold? Spedule? A whole lot of it. I have put
Speaker 2: it in other things. Some of it's all but not enough, clearly.
Speaker 1: No, never enough, never enough. You know, for years and
Speaker 1: years and years you talk about gold, you tell people
Speaker 1: about gold, and then when it actually happens. Of course
Speaker 1: you don't have enough gold, but as you say, it
Speaker 1: does have interesting implications for the UKs dot market as well.
Speaker 1: And of course, you know kept smaller caps that had
Speaker 1: a fairly lousy beginning of the week. The footy one
Speaker 1: hundred stocks absolutely fine. But nonetheless, if you're getting to
Speaker 1: the point when you can get a better yield from
Speaker 1: a bond than you can from an equity, things do
Speaker 1: you begin to change, don't they?
Speaker 2: Yeah, well that's a very interesting point. I mean, if
Speaker 2: you think about it in unity terms, which we always
Speaker 2: used to have to be forced into doing with our pensions,
Speaker 2: these yields are very attractive. At some point people are
Speaker 2: going to realize that this is a great opportunity to
Speaker 2: lock in five points something yields and in a sort
Speaker 2: of a tax efficient way, it can be even higher.
Speaker 2: That is making more sense. And I don't know why
Speaker 2: we don't make more of anuities and make it better regulated,
Speaker 2: more visible, and more competitive. And I think that something
Speaker 2: this government could do to help, if they wanted to
Speaker 2: do something positive towards thevention industry.
Speaker 1: What's the end game do you think, Marcus? I mean,
Speaker 1: here we are we talk about the fiscal problems of
Speaker 1: the UK. We talk about rising guilty als, we talk
Speaker 1: about the gold price, etc. Is there any way that
Speaker 1: we can pull back or weaves can pull back from
Speaker 1: the brink, or do we look forward and say, actually,
Speaker 1: things are going to get really nasty over the next
Speaker 1: few years.
Speaker 2: Well, I'm not too persimistic about the UK economy and
Speaker 2: the context that what this government is doing, which is
Speaker 2: not great is that they're shifting and all the spending into
Speaker 2: the public sector away from the private sector. But the
Speaker 2: private sector has actually been fairly resilient, or more resilient
Speaker 2: this year than we should have expected. I do believe
Speaker 2: the banking will have to layer interest rates, which will
Speaker 2: in theory help, And I think that we are destined
Speaker 2: for more than one percent but less than two percent
Speaker 2: growth for the foreseeable But that isn't the end of
Speaker 2: the world. We don't have the worst debt GDP though
Speaker 2: some people think we have. We are not going anywhere
Speaker 2: near the IMA. All these sock stories about the IMF
Speaker 2: is fairly I'm understanding a couple of things. One, our
Speaker 2: economy six lives in the world three trillion more is
Speaker 2: too big to bail out. The IMF doesn't have a firepower.
Speaker 2: It's not the right type of crisis. The IMF last
Speaker 2: time bailos up more as we had a foreign currency crisis.
Speaker 2: That are yeah, in a sense of current account deficit issue,
Speaker 2: which which we still do to a degree, but not
Speaker 2: to quite at the same extent. We are on our
Speaker 2: own in the sense that France is even worse predicament
Speaker 2: the LISTA has Germy to bail that out again.
Speaker 1: Yeah, well that the IMF can't bail out France either,
Speaker 1: and it.
Speaker 2: Wouldn't be able to, and it wouldn't want to. That
Speaker 2: would be up to Germy phrase. But you know, they
Speaker 2: can't bail out either these huge economies, and nor could.
Speaker 2: They're the wrong types of crisis. There's nothing the RMF
Speaker 2: could suggest or do which would help anyway. So the
Speaker 2: point is that we have to stop government spending rising
Speaker 2: at the level it is. That is what has to break,
Speaker 2: and this government has to realize it and will unfortunately
Speaker 2: realize it sooner hopefully rather than later.
Speaker 1: Well that will be interesting, be fascinating to see what
Speaker 1: drives them to actually realize that and start doing something
Speaker 1: about it. I'm slightly less optimistic than you, but Marcus,
Speaker 1: anything else we should say before we finish.
Speaker 2: Up, No, might I just think that this is unfortunately
Speaker 2: going to be a long drawn out autumn with ever
Speaker 2: more scared stories on what taxes, well taxes and various
Speaker 2: other different things are going to come out, and it's
Speaker 2: so unnecessary. Yeah, I sincerely hope that the banging stops
Speaker 2: its active concerted tiding policy. We'll find out that on
Speaker 2: the September the eighteenth. Hopefully the Federal Reservoi of cut
Speaker 2: interest rates by then, and hopefully that means the banking
Speaker 2: itself will will start thinking about that in November, and
Speaker 2: then maybe, just maybe we'll be slightly better stage if
Speaker 2: the OBR gives us a reasonably optimistic outlook on the economy. Brilliant.
Speaker 1: Thank you, Thank you, Marcus, and thank you for listening
Speaker 1: to this week's Marin Talks Money debrief. If you like us,
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Speaker 1: and Marcus is at Marcus Ashworth. This episode was produced
Speaker 1: by Somersati and Moses and Questions and comments on this
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Speaker 1: Email is Marimaney at bloomberg dot net.