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Speaker 1: They say. Is the Bloomberg Daybreak Europe podcast, available every

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Speaker 1: morning on Apple, Spotify or wherever you listen. It's Wednesday,

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Speaker 1: the seventeenth of April in London. I'm Stephen Carroll.

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Speaker 2: And I'm Lizzie Burden. Coming up today. UK inflation drops,

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Speaker 2: but not as much as expected, as traders trim their

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Speaker 2: bets on Boe cuts.

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Speaker 1: The Thouds Your Own Pal concedes that ray cuts will

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Speaker 1: need to be delayed due to persistently high inflation.

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Speaker 2: And Jamie Diamond goes all in on AI, speaking exclusively

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Speaker 2: to Bloomberg. JP Morgan's CEO makes the case for it

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Speaker 2: transforming banking, but admits it will replace jobs.

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Speaker 1: Let's start with a roundup of our top stories.

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Speaker 2: UK inflation slowed less than expected last month, as falling

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Speaker 2: food prices were partially offset by the cost of fuel.

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Speaker 2: CPI rows three point two percent in March compared with

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Speaker 2: a year earlier, and while the figure was lower than

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Speaker 2: the February reading, it was still a fraction higher than

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Speaker 2: economists had forecast. Headline inflation has fallen sharply from a

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Speaker 2: peak above eleven percent. The fur further fall toward the

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Speaker 2: two percent expected this month. On the back of falling

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Speaker 2: energy prices.

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Speaker 1: Today's data comes just hours after the Bank of England

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Speaker 1: Governor Andrew Bailey said Britain is on a different inflation

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Speaker 1: path to the United States. The comments imply the BO

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Speaker 1: we might cut interest rates before the Fed. Bailey says,

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Speaker 1: US inflation is being led by demand, unlike the situation

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Speaker 1: in the UK.

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Speaker 3: I think the dynamics of inflation are rather different between Europe,

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Speaker 3: and I mean Europe geographically now and the US. We're

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Speaker 3: still seeing the extension of the process of coming out

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Speaker 3: of the big supply shocks that we had, the impact

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Speaker 3: of the war, the impact of coming out of COVID.

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Speaker 1: Bailey was speaking at the IMF Spring meetings in Washington.

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Speaker 1: In its latest economic outlook, the Fund predicted AI could

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Speaker 1: boost the size of the UK economy by sixteen percent

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Speaker 1: in the first ten years of adoption, higher than most

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Speaker 1: other countries.

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Speaker 2: Also, speaking Stateside, the Chancellor, Jeremy Hunt says the prospect

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Speaker 2: of interest rate cuts could lift the mood of voters

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Speaker 2: on their view of the Conservatives of a possible UK

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Speaker 2: general election. He told Blomberg the economy will be in

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Speaker 2: a better place in the months ahead.

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Speaker 4: At that situation, we were in eighteen months ago with

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Speaker 4: inflation at eleven point one percent, that is well and

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Speaker 4: truly behind us. We think we have very strong growth prospects,

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Speaker 4: so a feel good factor as interest rates start to

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Speaker 4: come down, as people start to feel higher, real disposable

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Speaker 4: incomes will be stronger in people's minds come the early autumn.

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Speaker 2: Hunt's comments back up speculation that the government's planning to

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Speaker 2: hold an election in the autumn. Markets are currently pricing

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Speaker 2: in a first production in the BOEES five point two

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Speaker 2: five percent rate in November.

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Speaker 1: Turning next to the Federal Reserve chair Jerome Powell, who

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Speaker 1: says policymakers will probably have to wait longer than previously

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Speaker 1: anticipated to cut interest rates. His comments come after three

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Speaker 1: months of surprisingly high inflation readings and jobs data that

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Speaker 1: suggests the US economy remains resilient. Speaking during a panel

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Speaker 1: discussion in Washington, Powell's head rates need to see more

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Speaker 1: evidence that the pace of price rises is cooling.

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Speaker 5: So we've said at the FMC that we'll need greater

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Speaker 5: confidence that inflation is moving sustainably toward two percent before

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Speaker 5: it be appropriate to ease policy. You know, we took

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Speaker 5: that cautious approach and sought that greater confidence so as

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Speaker 5: not to overreact to the string of low inflation readings

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Speaker 5: that we had in the second half of last year.

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Speaker 1: Palser marks represent a shift in his message. Policymakers narrowly

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Speaker 1: penciled in three interest rate cuts in forecasts published last month,

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Speaker 1: but investors in out betting on just one to two

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Speaker 1: cuts this year.

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Speaker 2: Meanwhile, the European Central Bank President Christine Lagarde has doubled

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Speaker 2: down on the message she gave last week that the

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Speaker 2: bank is on a firm path to a first rate cut.

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Speaker 2: In June, she told CNBC that as long as shocks

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Speaker 2: don't derail the slowdown in Eurozone inflation, it'll be time

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Speaker 2: to moderate the restrictive stunts in reasonably short order. The

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Speaker 2: god wouldn't comment on how many cuts in borrowing costs

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Speaker 2: are likely to materialize in the coming months. Speaking in Washington,

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Speaker 2: she also highlighted that the German economy may be starting

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Speaker 2: to recover after being rocked by a series of shocks

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Speaker 2: in recent years.

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Speaker 1: The Dutch tech from ASML was hit by a slump

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Speaker 1: in demand for its advanced chip makers, with bookings missing estimates.

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Speaker 1: Europe's most valuable firm in the Space reported three point

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Speaker 1: six billion euros worth of orders in the first quarter

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Speaker 1: of the year. Shares down three point seven percent this morning,

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Speaker 1: just as we go into the second hour of cash trading.

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Speaker 1: The company's been hit by a weakness and demand from

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Speaker 1: clients in Taiwan and the US, ASML expecs weaker than

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Speaker 1: expected sales in the second quarter before demand starts to

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Speaker 1: pick up.

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Speaker 2: Jamie Diamond has told Bloomberg that artificial intelligence will transform banking,

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Speaker 2: but it will also lead to job losses. The JP

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Speaker 2: Morgan CEO's comments come after he devoted a chunk of

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Speaker 2: his annual shareholder letter to the importance of AI for

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Speaker 2: the Wall Street Giant's business and for society at large,

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Speaker 2: likening its impact to that of the steam engine. Here's

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Speaker 2: what Diamond told Emily Chang on the latest episode of

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Speaker 2: The Circuit.

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Speaker 6: But the way to think about for us is every

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Speaker 6: single process, so errors, trading, hedging, research, every app every database,

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Speaker 6: you can be applying AI. So it might be as

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Speaker 6: a copilot, it might be to replace humans. You know,

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Speaker 6: AI is doing all the equity hedging for us. For

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Speaker 6: the most part. It's idea generation is large language models.

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Speaker 6: It's no taking while you're talking to someone and a

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Speaker 6: whiles taking notes and may actually say to you that,

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Speaker 6: you know, here's the thing of interest to climb bike

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Speaker 6: Peterston all error. All customer service is a little bit

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Speaker 6: of everything.

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Speaker 7: But it is going to replace some jobs, of course.

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Speaker 6: Yeah, but I look, folks, people have to take a

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Speaker 6: deep breath. Okay, Technologies always replaced jobs. Your children will

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Speaker 6: live to one hundred and not have cancer because of technology,

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Speaker 6: and literally they'll probably be working three and a half

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Speaker 6: days a week.

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Speaker 2: You can watch that full, wide ranging interview with Jamie

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Speaker 2: Diamond on the latest episode of the Circuit with Emily

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Speaker 2: Chang on Bloomberg Originals, available on the app or YouTube

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Speaker 2: or as a podcast.

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Speaker 1: The U ask US had to play sanctions on Iran's

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Speaker 1: drone program after the country's attack on Israel. According to

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Speaker 1: the White House National Security Advisor Jake Sullivan, Washington is

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Speaker 1: coordinating a comprehensive response alongside G seven countries. US Treasury

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Speaker 1: Secretary Janet Yellen says the measures will come into play shortly.

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Speaker 7: I fully expect that we will take additional sanctions action

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Speaker 7: against Iran in the coming days. We don't preview our

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Speaker 7: sanctions tools, but in discussions. I've had all options to

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Speaker 7: disrupt terrorist financing of Iran continue to be on the table.

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Speaker 1: Janety Allen speaking there, the US will also announce sanctions

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Speaker 1: against entities supporting the Islamic Revolutionary Guard Corps and Around's

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Speaker 1: Defense Ministry, and expects allies to follow in.

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Speaker 8: At a moment.

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Speaker 1: We'll bring you more on the rate repricing after today's

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Speaker 1: UK inflation data, as well as what top central bankers

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Speaker 1: have been saying at the IMF and World Bank Spring

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Speaker 1: meetings in Washington. Another story that caught her eye this morning.

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Speaker 1: I don't know if you've seen the pictures on social

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Speaker 1: media of the flooding in Dubai.

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Speaker 2: Well, of course, Stephen, if I haven't told your already,

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Speaker 2: I've been in Dubai recently and I just didn't believe.

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Speaker 8: It that you could get hailstorms there.

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Speaker 2: One occurred as I was mid camel riding lesson in fact,

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Speaker 2: but it's because of this thing called cloud seeding, which honestly,

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Speaker 2: I thought was a myth when they first told me

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Speaker 2: about it. But it's because of the water security issues

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Speaker 2: in the region, and so whenever you have they try

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Speaker 2: to coax more rain from clouds. Essentially, they put natural

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Speaker 2: salts like potassium chloride. I have been researching, and they

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Speaker 2: put it when there are clouds to improve the rainfall.

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Speaker 2: And it's been dubbed the rains of Goodness by Dubai's

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Speaker 2: media office. But by the looks of the videos on

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Speaker 2: social media, I think you can be the judge of that.

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Speaker 1: Yeah, I mean flights disrupted, schools, shots people tell to

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Speaker 1: work from home as well. Pretty dramatic rainfall in Dubai,

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Speaker 1: but really interesting to get the some of the context

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Speaker 1: as to why the rain is perhaps worse than otherwise

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Speaker 1: would be given the additions made to that by the

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Speaker 1: Dubai authorities.

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Speaker 2: Yeah, not an active god by any means. But there's

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Speaker 2: a lot of happening elsewhere on rates markets this morning.

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Speaker 2: J Parl's hints yesterday on later rate cuts and the

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Speaker 2: hotter than expected UK inflation print this morning feeding into

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Speaker 2: all of that. We managing editor for FX and Rates,

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Speaker 2: Rachel Evans, with us in the studio to pass it all. Rachel,

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Speaker 2: thanks for being with us. Let's start with the FED.

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Speaker 2: How significant is the shift in J. Parl's language on

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Speaker 2: the rate path.

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Speaker 8: I think it's pretty significant indeed, and we'd obviously had

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Speaker 8: the dot plot that came out at the Fed's meeting

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Speaker 8: in March suggesting that we're going to see three cuts

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Speaker 8: by the FED this year, of course, subject to the data,

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Speaker 8: and Power has basically come out and said, yeah, that

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Speaker 8: data's not looking so good, and that really casts a

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Speaker 8: pall over that outlook for rates. At the moment, markets

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Speaker 8: are seeing about forty basis points of cuts by year end,

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Speaker 8: so that would equate to one full cuts and maybe

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Speaker 8: a chance of another. And I think that kind of

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Speaker 8: really tells you just sort of you know where things

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Speaker 8: are headed. You know, there's been a lot of Fed

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Speaker 8: speak recently away from Powell, suggesting that one two cuts

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Speaker 8: might be more appropriate than three. So I think there's

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Speaker 8: going to be a very interesting conversation amongst the Federal

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Speaker 8: Reserve officials when they next meet in early May.

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Speaker 3: Yeah.

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Speaker 1: Indeed, and of course we're hearing plenty from those central

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Speaker 1: bankers at the IMF and World Bank Spring meetings as well.

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Speaker 1: Bloomber Theacy meekens with us in studio this morning too

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Speaker 1: to help us look into the UK inflation numbers, which

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Speaker 1: is another piece of this puzzle too. Lucy, good morning

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Speaker 1: to you just took us through the headlines from these

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Speaker 1: inflation numbers. It does seem to have been a bit

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Speaker 1: of a surprise. On some points, it's.

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Speaker 9: Not all awful, but at the end of the day

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Speaker 9: in missed estimates, people are a little disappointed by that,

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Speaker 9: and that's led to a fairly dramatic repricing of rate

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Speaker 9: cut bets. So now people are expecting just one twenty

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Speaker 9: five basis point cut this year. A few weeks ago

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Speaker 9: we were seeing two to three a second one is

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Speaker 9: now a bit of a toin coss coin, toss coin

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Speaker 9: and toss so it's a bit of a change. People

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Speaker 9: are a bit disappointed, but as I say, it could

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Speaker 9: have been worse.

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Speaker 2: Yeah, And for the market's Rachel, the big point here

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Speaker 2: is partly the divergence between European interest rates and American

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Speaker 2: interest rates, the ECB and the Bank of England. What's

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Speaker 2: the big next data point to watch in this debate?

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Speaker 8: Well, I mean we've kind of got a lull on

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Speaker 8: the US data front. I think we have GDP coming

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Speaker 8: out Thursday, PCE Friday. Those are going to be things

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Speaker 8: that people really want to watch as we sort of

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Speaker 8: head towards the next big line in the sound, which

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Speaker 8: is really going to be that FED meeting on May one.

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Speaker 8: That's going to be the thing that people are are

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Speaker 8: listening for, and it's really the commentary heading into that

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Speaker 8: about exactly what that data is telling people. We've now

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Speaker 8: seen CPI in the US, We've now seen non farm

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Speaker 8: payrolls in the US, both showing that the economy is

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Speaker 8: running really hotter than forecast. So GDP will give us

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Speaker 8: another read on that will also give us some kind

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Speaker 8: of sense of that too. But really it's going to

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Speaker 8: come down to what the says are on May first.

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Speaker 8: That is really going to be the best guide for

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Speaker 8: the market on where they're headed.

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Speaker 4: Lucy.

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Speaker 1: We've also been listening to the conversation that Andrew Bailey

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Speaker 1: was having while he was in Washington about who goes first.

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Speaker 1: Is it a really big deal that he suggested the

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Speaker 1: UK could cup before the US.

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Speaker 9: Yes, I think so, and I think where he's saying

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Speaker 9: it is important too. These big meetings are so fascinating

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Speaker 9: because they are I mean, they are talking all the time.

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Speaker 9: I don't you know. I've seen central bankers' names pop

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Speaker 9: up on other central banker's phones. They do talk all

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Speaker 9: the time, but when they're actually in the same room

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Speaker 9: and they're talking about divergence. I think that is so

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Speaker 9: interesting and it's a really big message from Bailey, particularly

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Speaker 9: when he's got quite a divided committee at the moment.

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Speaker 9: We've got people like Meghan Green who will be speaking later,

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Speaker 9: and also Jonathan Haskell is speaking later, so we're going

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Speaker 9: to watch it for those But they've both been very

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Speaker 9: recently voting for hikes. So yes, I think one it's important,

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Speaker 9: but to also wear what's really important.

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Speaker 2: Yeah, I mean it is interesting to think about the

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Speaker 2: Andrew Bailey's saying that really the BOE has got its

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Speaker 2: own mind, it could go first. But I wonder whether

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Speaker 2: that's actually going to happen. Rachel, from what you're seeing,

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Speaker 2: from what you're hearing, is it just that they could

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Speaker 2: or that they will?

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Speaker 8: I mean time will tell on that. I think it's

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Speaker 8: probably more likely that Europe diverges than the UK and

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Speaker 8: when it comes to who can cut first.

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Speaker 1: Although Andrew Bailey was very keen to protest and he

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Speaker 1: says Europe he was refu Yeah, he did that, which

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Speaker 1: I actually was silently applauding frankly because it's one of

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Speaker 1: my massive bugbears, as people suggesting the UK is somehow

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Speaker 1: no longer part of euro exactly.

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Speaker 8: This is a floating island. But no, yeah, I mean

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Speaker 8: the prospect of the ECBE cutting first, I think is

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Speaker 8: more real than the BOE managing to do that. I mean,

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Speaker 8: when you look in the market currently that the expectations

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Speaker 8: amongst traders for the FED cutting and for the Bank

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Speaker 8: of England cutting, it's both in November as the first

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Speaker 8: time a cut is fully priced into the market. There

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Speaker 8: was a chance they go earlier, but that's the first

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Speaker 8: time it's fully priced, whereas for the ECB we're looking

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Speaker 8: much earlier. We're looking at sort of July kind of time,

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Speaker 8: June July. So I think when you're kind of thinking

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Speaker 8: about that divergence, like Leguard has been very clear that

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Speaker 8: she will diverge from the US if deemed appropriate, Bailey

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Speaker 8: is trying to follow a similar line and flagging that

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Speaker 8: there are different issues in the UK versus in the

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Speaker 8: US as it relates to inflation. But these hotter inflation

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Speaker 8: reports have got to give central bankers pause. You know,

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Speaker 8: it's not long ago that we were at eleven percent

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Speaker 8: in the UK.

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Speaker 1: Rachel I wonder if we were talking to Mark cod

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Speaker 1: more earlier for my Market's Live team, and he was saying,

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Speaker 1: you know, his expectation now or his view is as

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Speaker 1: though there won't be any cuts at off from the

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Speaker 1: Federal Reserve this year, how much of a repricing could

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Speaker 1: there still be in markets if we see rate bets

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Speaker 1: shifting even further.

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Speaker 8: Yeah, I mean I think you saw, you know, shift

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Speaker 8: in yields even yesterday on the Pale comments. You know,

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Speaker 8: the two year going through five percent. That's pretty significant.

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Speaker 8: You know, it wasn't that long ago that you know,

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Speaker 8: we were talking about sort of yields heading back down,

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Speaker 8: you know, heading towards three percent, and now we're back

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Speaker 8: kind of approaching sort of the cycle peaks that we

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Speaker 8: saw in October last year in kind of the five

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Speaker 8: percent area. You know, we still got a distance to go,

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Speaker 8: you know, for kind of the tenure of the benchmark.

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Speaker 8: And I think, you know, at the moment, given that

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Speaker 8: we do have forty basis points of cuts price for

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Speaker 8: the year, if that were to go away, that could

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Speaker 8: really send yields significantly high. And of course, you know,

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Speaker 8: you've got to remember investors came into this year expecting

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Speaker 8: lots of cuts, six cuts, and yields to fall significantly,

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Speaker 8: So this is a pain trade for a lot of

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Speaker 8: people at this point.

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Speaker 2: Yeah, and it was kind of outlandish at one point

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Speaker 2: that Larry Summers was suggesting there was a meaningful chance

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Speaker 2: there would be no rate cuts this year, and now

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Speaker 2: that just seems an even more likely prospect. But Lucy,

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Speaker 2: just to end with you where you had Peal speaking yesterday,

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Speaker 2: where you've got this likelihood maybe of no cuts from

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Speaker 2: the third this year and three hot inflation prints out

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Speaker 2: of the US, at what point is it just going

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Speaker 2: to be acknowledged that there's been a policy error.

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Speaker 9: Or at the other side having already been accused discerning

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Speaker 9: like Jeremy Hunt today for the other side, maybe there's

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Speaker 9: a market era here. Maybe people just went into this

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Speaker 9: trade too fast, went too far with it, got over excited.

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Speaker 9: It always happens. But I think actually what we've seen

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Speaker 9: is that in many ways the policy is being fairly consistent.

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Speaker 9: Maybe the communication was a little over exuberant at times,

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Speaker 9: but I know in the UK at least, we've got

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Speaker 9: plenty of people, we've got a completely divided committee, so

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Speaker 9: maybe people just went too far with their bets.

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