WEBVTT - Daybreak Weekend: Netflix Earnings, Reeves Speech, Japan Eco 0:00:00.280 --> 0:00:07.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:10.560 --> 0:00:13.080 This is Bloomberg Daybreak Weekend, our global look at the 0:00:13.080 --> 0:00:15.360 top stories in the coming week from our Daybreak anchors 0:00:15.360 --> 0:00:17.680 all around the world. Straight Ahead on the program, the 0:00:17.760 --> 0:00:20.880 latest reads on inflation, what it could mean to the 0:00:20.880 --> 0:00:23.599 Federal Reserve. I'm Tom Busby in New York. 0:00:23.840 --> 0:00:26.200 I'm Caroline Netge here in London, where we're looking ahead 0:00:26.200 --> 0:00:29.680 to the UK Chancellor's key speech to the City of London. 0:00:30.000 --> 0:00:32.560 I'm Doug Krisner, looking ahead at what we may learn 0:00:32.680 --> 0:00:35.600 in the coming week about the impact of US tariffs 0:00:35.840 --> 0:00:37.360 on the Japanese economy. 0:00:38.400 --> 0:00:42.440 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.479 --> 0:00:46.160 eleven three zero, New York, Bloomberg ninety nine to one, Washington, DC, 0:00:46.680 --> 0:00:50.920 Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, 0:00:51.360 --> 0:00:54.560 Sirius XM one twenty one, and around the world on 0:00:54.600 --> 0:00:57.760 Bloomberg Radio, dot Com and the Bloomberg Business App. 0:01:02.640 --> 0:01:04.920 Good day to you. I'm Tom Busby. We begin today's 0:01:04.920 --> 0:01:08.120 program with two fresh readings on inflation. This week, coming 0:01:08.120 --> 0:01:11.560 off a better than forecast June jobs report. What all 0:01:11.640 --> 0:01:15.120 that plus retail sales for June could mean to the Fed. 0:01:15.280 --> 0:01:18.920 For more, we turned to Michael McKee, Bloomberg's International economic 0:01:19.120 --> 0:01:22.200 and policy correspondent. Well, Michael, I want to look back. 0:01:22.280 --> 0:01:24.600 Let's start with that June jobs report just over a 0:01:24.600 --> 0:01:27.200 week ago. What an upside surprise? What does it tell 0:01:27.240 --> 0:01:28.960 you about the labor market? What does it tell you 0:01:29.000 --> 0:01:31.680 about how important it could be to the Fed, to 0:01:31.720 --> 0:01:32.280 the President? 0:01:32.720 --> 0:01:34.920 Well, the upside surprise was in the headline, but when 0:01:34.920 --> 0:01:37.400 you look under the hood, the news wasn't quite as good. 0:01:37.440 --> 0:01:41.039 The unemployment rate did not rise, it fell a little bit, 0:01:41.080 --> 0:01:44.160 but that was because the labor force declined. So that's 0:01:44.200 --> 0:01:47.680 what we call drop an unemployment for the wrong reasons, 0:01:48.760 --> 0:01:50.520 And it does seem to have something to do with 0:01:50.520 --> 0:01:55.320 the President because the number of foreign born workers dropped significantly, 0:01:55.520 --> 0:01:58.800 and long term that could be a problem for the economy. Also, 0:01:59.440 --> 0:02:01.760 what we saw was half of the gain was in 0:02:01.800 --> 0:02:06.960 government employment, and economists are pretty unanimous in suggesting that's 0:02:07.000 --> 0:02:11.080 a seasonal adjustment problem because in June you don't see 0:02:11.160 --> 0:02:14.600 a huge amount of education hiring since school is out, 0:02:14.919 --> 0:02:20.240 and that was what drove it. So we are looking 0:02:20.280 --> 0:02:22.880 at a labor market that is slowing down. 0:02:23.080 --> 0:02:26.760 Would be the conclusion, but not in trouble yet. So 0:02:26.840 --> 0:02:28.600 for the FED, it's kind of a wash. 0:02:28.760 --> 0:02:32.120 Okay, so even Stephen this week though two reads coming 0:02:32.200 --> 0:02:34.639 up for the month of June on inflation. The Consumer 0:02:34.639 --> 0:02:37.920 Price Index out on Tuesday, the Producer Price Index for 0:02:38.000 --> 0:02:41.200 June out on Wednesday. Also retail Sales for June that 0:02:41.240 --> 0:02:42.760 comes out Thursday, another big number. 0:02:42.919 --> 0:02:45.799 It's a big week, and CPI is going to get 0:02:45.880 --> 0:02:49.880 most of the attention because it'll be our broadest picture 0:02:50.000 --> 0:02:53.880 of what the consumer inflation situation is, even if it's 0:02:53.919 --> 0:02:58.480 not the fed's main index for its inflation target, and 0:02:58.560 --> 0:03:01.959 it is expected to rise, and so that should get 0:03:01.960 --> 0:03:05.040 a lot of attention on Wall Street because everybody's been 0:03:05.080 --> 0:03:09.160 waiting for some kind of tariff impact on the price level, 0:03:09.560 --> 0:03:11.760 and so if we see that, people will be a 0:03:11.800 --> 0:03:14.919 little concerned. For the Fed, it might be the producer 0:03:14.960 --> 0:03:18.760 Price Index that's more important in the sense that producer 0:03:18.800 --> 0:03:22.480 prices will tell you what are probably going to be 0:03:22.480 --> 0:03:27.640 a better indication of where underlying tariff inflation pressure is 0:03:27.680 --> 0:03:31.120 coming from, because all the parts that people buy from 0:03:31.240 --> 0:03:35.920 overseas to make other things will start to show up. 0:03:36.120 --> 0:03:41.560 We've had tariffs on steel and aluminum, and that's the 0:03:41.640 --> 0:03:45.040 kind of thing that in theory will show up in 0:03:45.080 --> 0:03:48.760 the producer price index and suggest that we will see 0:03:48.800 --> 0:03:51.720 further consumer price increases down the road. 0:03:51.880 --> 0:03:54.800 Auto parts, lumber all in there too, all in there too. 0:03:55.760 --> 0:03:59.240 And now you mentioned obviously the tariffs. A lot could change. 0:03:59.400 --> 0:04:03.560 Last week we heard President Trump talking about anti American 0:04:03.600 --> 0:04:06.280 bricks nations, a ten percent levy on nations. I mean, 0:04:06.840 --> 0:04:09.480 how bad could it get? Is it all bluster? I mean, 0:04:09.480 --> 0:04:10.280 what do you think? 0:04:10.440 --> 0:04:14.080 Well, so far, it kind of looks like the way 0:04:14.120 --> 0:04:17.080 people are taking it is. Anything could change at any moment, 0:04:17.120 --> 0:04:21.480 because that's been the story of the President's tariff policies. 0:04:21.880 --> 0:04:22.760 But for the. 0:04:22.880 --> 0:04:26.040 Moment, I think what you're going to see is economists 0:04:26.040 --> 0:04:28.680 starting to put pencil to paper when they have some numbers, 0:04:28.760 --> 0:04:33.640 to try to figure out what the effect will be 0:04:33.920 --> 0:04:36.680 on prices and on consumer demand. 0:04:36.720 --> 0:04:39.760 You mentioned retail sales. Retail sales have been. 0:04:39.600 --> 0:04:42.440 Hanging in there at a lower level than they are, 0:04:42.520 --> 0:04:45.680 but if prices go up, then people may stop buying 0:04:45.720 --> 0:04:50.039 some things. So that'll be what the people with the 0:04:50.080 --> 0:04:54.839 Excel spreadsheets are doing. Companies have to figure out what 0:04:56.160 --> 0:04:59.360 they are going to do about supply chains, whether or 0:04:59.400 --> 0:05:04.280 not this means they should invest or not in expansion, 0:05:04.360 --> 0:05:07.839 what they think it's going to mean for their customers, 0:05:08.080 --> 0:05:10.679 so they know whether they're going to have to absorb 0:05:10.760 --> 0:05:13.800 things in their margins and that might have. 0:05:13.760 --> 0:05:15.159 An effect on the stock market. 0:05:15.360 --> 0:05:19.839 So a lot of questions to be answered yet. But 0:05:21.200 --> 0:05:25.640 if we start to get some clarity that we can 0:05:26.200 --> 0:05:29.760 believe in I believe it's not going to change, then 0:05:30.160 --> 0:05:34.120 that is going to give people a chance to start 0:05:34.160 --> 0:05:35.839 figuring out where this all goes. 0:05:36.200 --> 0:05:38.760 Well, I'm sure we'll talk again until then the June 0:05:38.839 --> 0:05:42.320 CPI figure out this Tuesday PPI the following day retail 0:05:42.400 --> 0:05:46.400 sales On Thursday, our thanks to Michael McKee, Bloomberg's International 0:05:46.440 --> 0:05:50.359 Economic and policy correspondent, we turned out to earnings, and 0:05:50.400 --> 0:05:53.200 this week we'll hear from the streaming video giant Netflix 0:05:53.279 --> 0:05:56.359 as it goes deeper into live programming to raise revenue 0:05:56.400 --> 0:05:59.160 and for more on what's behind that push. We're joined 0:05:59.160 --> 0:06:02.240 by Get the Rag and often Bloomberg intelligence analyst on 0:06:02.360 --> 0:06:06.760 US media GITA. Thank you for being here. Although they 0:06:06.800 --> 0:06:09.760 no longer report subscriber numbers, a key metric for Netflix 0:06:09.760 --> 0:06:12.799 as it builds its advertising business. What do you expect 0:06:12.839 --> 0:06:15.040 to see in the latest earnings report out on Thursday. 0:06:15.480 --> 0:06:19.480 Yeah, you're absolutely right. They have stopped reporting subscribers as 0:06:19.520 --> 0:06:22.560 of this year, but the metrics that they want us 0:06:22.600 --> 0:06:25.600 to focus on right now are revenue gains as well 0:06:25.640 --> 0:06:29.560 as operating margin, and they've really been delivering some stellar 0:06:29.640 --> 0:06:32.039 numbers when it comes to both of those metrics. So 0:06:32.080 --> 0:06:34.720 what we're looking for and what they've guided to for 0:06:34.839 --> 0:06:37.600 the second quarter in terms of revenue growth is mid 0:06:37.680 --> 0:06:40.920 teens percentage increases, so about fifteen to fifteen and a 0:06:40.960 --> 0:06:45.640 half percent increase in revenues and a very very strong 0:06:45.720 --> 0:06:51.200 operating margin at thirty three percent. Remember last year was 0:06:51.240 --> 0:06:55.000 absolutely a breakout yere for Netflix. They had six hundred 0:06:55.080 --> 0:06:59.280 basis point expansion in their operating margin, and again they've 0:06:59.320 --> 0:07:02.800 guided to pretty impressive increase for this year as well. 0:07:02.920 --> 0:07:06.680 So you're absolutely right. The focus has really shifted now 0:07:06.720 --> 0:07:10.320 to financial metrics, But that doesn't mean that subscriber growth 0:07:11.040 --> 0:07:14.440 is slowing because they have an absolutely fantastic They had 0:07:14.440 --> 0:07:17.880 a very strong content slate for the second quarter, and 0:07:17.920 --> 0:07:20.480 they continue to put out really good titles and they 0:07:20.520 --> 0:07:23.160 have some really big series that are going to debut 0:07:23.280 --> 0:07:25.480 on their platform through the rest of the year as well. 0:07:26.080 --> 0:07:28.840 Well, it's clear. I mean the share price has almost 0:07:28.880 --> 0:07:31.200 doubled in value in the past twelve months, so they 0:07:31.240 --> 0:07:33.840 are doing everything right. Let's talk about what they have 0:07:33.960 --> 0:07:37.480 done as well as the push into more live programming. 0:07:38.080 --> 0:07:40.840 They've raised prices and that doesn't seem to have heard 0:07:40.880 --> 0:07:42.280 at all either, right. 0:07:43.400 --> 0:07:43.880 Not at all. 0:07:43.920 --> 0:07:47.560 So what Netflix has really done well is they've established 0:07:47.600 --> 0:07:50.880 themselves as a must have platform, so they are the 0:07:51.000 --> 0:07:55.640 go to, kind of default entertainment option out there, which 0:07:55.680 --> 0:07:58.920 gives them a lot of pricing power. They also have 0:07:59.320 --> 0:08:03.320 content is obviously their greatest differentiator. They have a steady 0:08:03.360 --> 0:08:07.200 stream of really popular content on their service. But most 0:08:07.240 --> 0:08:09.760 of all, it's really the user experience. Right, The user 0:08:09.800 --> 0:08:14.400 experience is unparalleled, and that's something that Netflix knows. And 0:08:14.800 --> 0:08:16.840 you know, they're able to raise prices and there has 0:08:16.880 --> 0:08:22.040 been absolutely no backlash or pushback from customers. 0:08:22.040 --> 0:08:24.560 We've seen shown at very very manageable levels. 0:08:24.640 --> 0:08:27.880 So it just gives them more confidence, really emboldens them 0:08:27.920 --> 0:08:30.760 to keep increasing prices at a steady pace even into 0:08:30.800 --> 0:08:31.280 the future. 0:08:31.680 --> 0:08:33.719 Well, let's talk about some of that programming, because they 0:08:33.720 --> 0:08:36.840 have really tried to broaden the lineup to attract new subscribers, 0:08:36.880 --> 0:08:39.720 and it looks like it's working. I mean, the sports, 0:08:39.880 --> 0:08:43.360 there's a WWE, the raw wrestling, UFC matches. We know 0:08:43.400 --> 0:08:46.559 they've been aggressive trying to get Formula one. I mean, 0:08:46.600 --> 0:08:49.360 they are really branching out. And we know in the 0:08:49.400 --> 0:08:52.320 past there's no football games now NFL, but you know 0:08:52.360 --> 0:08:55.000 what worked for them on Christmas Day those two games there, 0:08:55.040 --> 0:08:58.800 those big celebrity boxing matches. I mean, is that the 0:08:58.840 --> 0:09:02.120 future that they see right now? Those live programmings, the 0:09:02.160 --> 0:09:04.840 advertising revenue from that, and are we going to see 0:09:04.840 --> 0:09:05.800 more and more and more of that? 0:09:07.000 --> 0:09:09.760 We're going to see more. There is absolutely no doubt 0:09:09.760 --> 0:09:12.920 about that. You're absolutely right. You bring up the WWE. 0:09:12.920 --> 0:09:16.040 That's been a great source of programming. We see that 0:09:16.160 --> 0:09:19.440 show up in the top ten literally every week, so 0:09:19.480 --> 0:09:22.600 we know that that programming is resonating very well. Again NFL, 0:09:22.720 --> 0:09:24.720 that's something that they tried last year with the Christmas 0:09:24.800 --> 0:09:25.280 Day games. 0:09:25.400 --> 0:09:27.080 They're going to do that again this year. 0:09:27.559 --> 0:09:31.760 They have more of this kind of boxing matches coming up, 0:09:32.000 --> 0:09:35.040 so they're really getting into live programming in a big way. 0:09:35.080 --> 0:09:36.199 And if you think about what the. 0:09:36.160 --> 0:09:39.359 Strategy is here, it's not just to kind of expand 0:09:39.440 --> 0:09:43.319 the entire programming lineup. They're really chasing advertising dollars, and 0:09:43.360 --> 0:09:45.800 we know that they are looking to get at least 0:09:45.840 --> 0:09:50.280 about nine billion dollars in advertising by twenty thirty. That's 0:09:50.679 --> 0:09:54.880 that's a pretty big ask because remember they just introduced advertising. 0:09:54.920 --> 0:09:57.520 It was only about one one and a half billion 0:09:57.559 --> 0:09:59.800 dollars again estimated in twenty twenty four. 0:10:00.000 --> 0:10:01.319 They've got to really scale that up. 0:10:01.400 --> 0:10:05.599 So the idea here is to really capture more consumer 0:10:05.679 --> 0:10:08.079 media usage time, and so they want to get all 0:10:08.120 --> 0:10:09.160 of these different genres. 0:10:09.200 --> 0:10:11.120 Live sports is something that works really well. 0:10:11.720 --> 0:10:15.040 They did a really very different type of deal just 0:10:15.080 --> 0:10:19.200 a few weeks ago in France where they're actually integrating 0:10:19.480 --> 0:10:24.520 content live content, live TV content from TF one. This 0:10:24.559 --> 0:10:27.960 is the first of its kind deal where they're taking 0:10:28.040 --> 0:10:32.040 a live broadcasting live broadcasters programming and actually putting it 0:10:32.120 --> 0:10:34.560 on Netflix. So again here we're you know, we're just 0:10:34.600 --> 0:10:39.240 looking at them experimenting with different strategies, basically just capturing 0:10:39.320 --> 0:10:43.160 more watch time, increasing engagement, reducing seoan. 0:10:43.480 --> 0:10:46.600 Well, they've also done a similar thing with NASA plus 0:10:46.640 --> 0:10:49.560 they're ad free offering from the US Space Agency, and 0:10:50.320 --> 0:10:53.400 they've had talks with Spotify about even more programming, branching 0:10:53.480 --> 0:10:54.800 out beyond sports. 0:10:54.880 --> 0:10:55.080 Right. 0:10:56.040 --> 0:10:59.080 Yeah, again, this goes back to this whole concept of 0:10:59.120 --> 0:11:03.760 retention monetization. How do you keep driving user growth? And 0:11:03.840 --> 0:11:07.360 it looks like they are not afraid of experimenting and 0:11:07.440 --> 0:11:11.439 you know, really trying all kinds of things to scale 0:11:11.480 --> 0:11:13.280 and to become the dominant. 0:11:13.280 --> 0:11:15.320 I mean, they already are the dominant. 0:11:14.880 --> 0:11:17.840 Streaming platform, but it's just basically expanding that dominance and 0:11:17.920 --> 0:11:19.319 really really cementing it. 0:11:19.880 --> 0:11:23.680 And we've seen Squid Games three, a blockbuster for viewership, 0:11:23.679 --> 0:11:26.760 the most watched program in ninety countries, the final season 0:11:26.760 --> 0:11:29.520 of Stranger Things, and coming out in just a couple 0:11:29.559 --> 0:11:31.840 of weeks, the second season of Wednesday. I mean, they've 0:11:31.880 --> 0:11:34.520 got a full lineup of shows too. 0:11:34.640 --> 0:11:35.640 Yeah. 0:11:35.679 --> 0:11:38.920 Absolutely, so, believe it or not, this is the strongest 0:11:39.160 --> 0:11:43.199 six month period ever in the history of Netflix. They 0:11:43.200 --> 0:11:47.000 have never had three of their you know, biggest series ever. 0:11:47.040 --> 0:11:49.440 I mean, remember squid Game is their biggest series ever, 0:11:49.720 --> 0:11:53.040 against Stranger Things, Wednesday. All those three feature in the 0:11:53.040 --> 0:11:56.079 top five of the most watched series in the history 0:11:56.080 --> 0:11:59.080 of Netflix, maybe in the history of any streaming platform. 0:11:59.120 --> 0:12:01.760 And so we ssolutely believe that is going to drive 0:12:01.880 --> 0:12:06.160 extremely strong subscriber growth. Management itself has kind of characterized 0:12:06.160 --> 0:12:08.920 this slate as, you know, a slight embarrassment of riches. 0:12:09.160 --> 0:12:12.000 You know, they've never had so many big series kind 0:12:12.000 --> 0:12:14.520 of come out, and they're absolutely capitalizing on it. So 0:12:14.559 --> 0:12:18.080 remember they are eventizing this whole stranger things. They're breaking 0:12:18.080 --> 0:12:21.120 it out into two parts. One part comes out, you know, 0:12:21.160 --> 0:12:23.960 around Thanksgiving. The second part comes out on Christmas Day, 0:12:24.320 --> 0:12:26.480 So they're really going to capitalize on it and make 0:12:26.559 --> 0:12:29.040 sure that subscriber momentum is maintained. 0:12:29.200 --> 0:12:32.360 Wow Big and getting bigger. Netflix Q two earnings out 0:12:32.400 --> 0:12:35.319 this Thursday after Wall Street's closing. Bell Our thanks to 0:12:35.360 --> 0:12:39.520 Githa raganathin Bloomberg Intelligence analyst on US media and coming 0:12:39.559 --> 0:12:41.480 up on Bloomberg day Break weekend, I'll look ahead to 0:12:41.480 --> 0:12:45.920 a major speech from UK Chancellor Rachel Reeves. I'm Tom Busby, 0:12:46.000 --> 0:12:59.600 and this is Bloomberg. This is Bloomberg day Break weekend, 0:12:59.600 --> 0:13:01.960 our globe look ahead at the top stories for investors 0:13:01.960 --> 0:13:04.440 in the coming week. I'm Tom Busby in New York. 0:13:05.000 --> 0:13:06.960 Up later in our program, we look ahead to several 0:13:07.040 --> 0:13:10.560 key data points for the Japanese economy. But first UK 0:13:10.679 --> 0:13:13.520 Chancellor Rachel Reeves do to deliver her next major speech 0:13:13.640 --> 0:13:17.119 to City of London at Mansion House on July fifteenth. 0:13:17.400 --> 0:13:20.800 She's expected to lay out the government's growth and competitiveness 0:13:20.840 --> 0:13:24.560 strategy for financial services. But with pressure from within her 0:13:24.600 --> 0:13:27.199 own party to impose a new Wealth tax in Britain, 0:13:27.559 --> 0:13:30.800 what will Reeves's message be for more, Let's bring in 0:13:30.840 --> 0:13:34.040 Bloomberg daybreak earbanker Caroline Hepger in London. 0:13:34.080 --> 0:13:37.200 Tom Rachel Reeves will face an audience in the city 0:13:37.240 --> 0:13:40.120 who may well be relieved to see her still as 0:13:40.280 --> 0:13:43.240 UK Chancellor. The Labour Party has been in power for 0:13:43.320 --> 0:13:46.079 a year in the UK, it has not yet been 0:13:46.120 --> 0:13:49.800 able to deliver the kind of meaningful growth that avoids 0:13:49.960 --> 0:13:53.840 very difficult tax and spending decisions in the autumn budget. 0:13:54.559 --> 0:13:58.320 Paul Johnson, the outgoing director of the leading think tank, 0:13:58.400 --> 0:14:02.360 the Institute for Fiscals Studies, wrote recently on the subject. 0:14:02.800 --> 0:14:06.720 The Chancellor has to somehow reconcile tax and spending, but 0:14:06.880 --> 0:14:10.800 both her own Labour MPs and the Tory opposition are 0:14:10.880 --> 0:14:15.280 still living in a dream world, according to Johnson. David 0:14:15.320 --> 0:14:19.440 Miles from the independent watchdog the Office for Budget Responsibility 0:14:19.640 --> 0:14:23.400 put the Chancellor's difficulties into context when he spoke to 0:14:23.480 --> 0:14:25.440 us recently on Bloomberg Radio. 0:14:25.880 --> 0:14:28.520 If one kept all the policy settings as they are, 0:14:28.560 --> 0:14:32.960 the generosity of various state pensions being uplifted in line 0:14:32.960 --> 0:14:36.480 with a so called triple lock, and health spending likely 0:14:36.640 --> 0:14:40.720 rising simply to reflect what's likely to happen to demographics. 0:14:40.840 --> 0:14:43.560 And if there's no change in the tax system, in otherwords, 0:14:43.720 --> 0:14:46.120 if nothing changes and you just let the system carry 0:14:46.120 --> 0:14:49.280 on as it is, it looks like it's going to 0:14:49.320 --> 0:14:52.440 generate a stock of debt that that doesn't get under 0:14:52.440 --> 0:14:55.480 control and in the longer run, in anyway, carries on 0:14:55.560 --> 0:14:57.920 going up. The message of our certainly isn't you know 0:14:58.000 --> 0:15:01.400 this specific policy needs to chase angel that specific policy 0:15:01.520 --> 0:15:03.920 is to change. It's just that there are pressures which 0:15:03.960 --> 0:15:07.680 have to be offset over the long run or else 0:15:07.680 --> 0:15:10.680 through on a trajectory which is likely unsustainable. 0:15:11.560 --> 0:15:16.080 So that was the obr's David Miles. But those difficulties 0:15:16.120 --> 0:15:19.880 are still some weeks away. For this Mansion House speech 0:15:19.920 --> 0:15:23.600 will be focus more narrowly on the specifics of the 0:15:23.640 --> 0:15:27.640 financial industry in Britain amid a push in the US 0:15:28.080 --> 0:15:31.960 to power ahead with deregulation, tariffs and tax cuts. 0:15:32.080 --> 0:15:32.240 Well. 0:15:32.320 --> 0:15:35.080 Joining me now is Bloomberg's UK Government reporter Joe Mays 0:15:35.200 --> 0:15:38.400 and Bloomberg opinion columnist Paul J. Davies. Welcome to both 0:15:38.440 --> 0:15:39.760 of you, and thank you for being with me. 0:15:40.400 --> 0:15:40.560 Joe. 0:15:40.640 --> 0:15:43.640 Can we just start by thinking about what we expect 0:15:43.680 --> 0:15:47.080 in terms of tone from Rachel Reeves. Obviously we had 0:15:47.080 --> 0:15:50.320 that moment of tearfulness in the House of Commons quite recently, 0:15:50.760 --> 0:15:53.480 followed by lots of beaming smiles and hugs with the 0:15:53.520 --> 0:15:56.479 Prime Minister. Does Reeves retain her authority? 0:15:56.880 --> 0:15:58.840 I think we can expect the kind of tone which 0:15:58.840 --> 0:16:01.160 you'd normally get from a child, and imagine how speeds, 0:16:01.160 --> 0:16:06.440 which is projecting a positive, grateful attitude towards the city 0:16:06.520 --> 0:16:09.320 for the massive contribution it makes to the tax space, 0:16:09.440 --> 0:16:12.080 to the economy, and then setting out what she's done 0:16:12.120 --> 0:16:13.800 to help them so far and what she plans to 0:16:13.800 --> 0:16:16.040 do to make their lives even better going into the future. 0:16:16.280 --> 0:16:18.240 You're right that it comes against this backdrop of that 0:16:18.320 --> 0:16:20.760 very dramatic moment we had in the House of Commons 0:16:20.800 --> 0:16:23.200 where the pound was moving on these fears that she 0:16:23.280 --> 0:16:25.920 might have resigned or been sacked. Yeah, I think she 0:16:25.960 --> 0:16:29.320 came out of that episode actually strengthened with the city 0:16:29.400 --> 0:16:32.120 and with financial markets because it really showed how markets 0:16:32.160 --> 0:16:34.080 were worried that she was going to be replaced by 0:16:34.080 --> 0:16:37.280 a more left wing alternative and so by staying, and 0:16:37.320 --> 0:16:40.640 you saw the reaction of the pound and guilts rallying 0:16:40.760 --> 0:16:42.880 when she was confirmed she was going to stay. I 0:16:42.920 --> 0:16:45.200 think that shows that investors feel like she is probably 0:16:45.200 --> 0:16:47.760 the safest bets when it comes to labour chance. That's 0:16:47.760 --> 0:16:51.600 her fiscal discipline, commitment to those fiscal rules. So I 0:16:51.640 --> 0:16:55.200 think she'll go into this mansion house feeling somewhat emboldened 0:16:55.200 --> 0:16:58.400 by that episode, and I wanted to show the city 0:16:58.400 --> 0:17:01.520 that she's still informed. She's got plans to make the 0:17:01.520 --> 0:17:02.920 economy grow and. 0:17:02.960 --> 0:17:06.000 Do better, and maybe that that lesson has become evident 0:17:06.040 --> 0:17:09.520 to her own party, within the Parliamentary Labor Party. Maybe 0:17:09.960 --> 0:17:12.199 what do you think she's going to announce then? I mean, 0:17:12.359 --> 0:17:15.360 there are so many rumors already, but let's start by 0:17:15.400 --> 0:17:18.679 thinking about icers, which is a particular investment product in 0:17:18.720 --> 0:17:23.560 the UK. I mean eighteen million people have investments in ers. 0:17:24.200 --> 0:17:26.840 I think this is the most eye catching announcement we're expecting. 0:17:26.960 --> 0:17:31.040 Was this change to the twenty thousand pounds limit that 0:17:31.080 --> 0:17:33.960 you can currently put in a cash icer tax free 0:17:34.000 --> 0:17:36.960 on the interest. We're expecting her to announce a reduction 0:17:37.119 --> 0:17:40.879 in that twenty thousand pounds limit on cash, so that 0:17:40.920 --> 0:17:42.680 you could still have twenty thousand pounds in an ISA, 0:17:42.800 --> 0:17:44.480 but more of it would have to be in equities 0:17:44.480 --> 0:17:46.639 and stocks. I think that's the push she wants to 0:17:46.680 --> 0:17:51.520 make to move more capital into British shares British stocks 0:17:51.600 --> 0:17:53.240 in a bid to get growth going. It's all part 0:17:53.240 --> 0:17:55.800 of that growth message. Now, it wouldn't be without controversy. 0:17:55.840 --> 0:17:57.600 We know that for some people this is something they 0:17:57.680 --> 0:17:59.479 do not like. They like the idea of having kind 0:17:59.520 --> 0:18:03.720 of safe cash as their form of saving, but then 0:18:04.520 --> 0:18:06.920 will be reacted negatively maybe, But I think that's what 0:18:07.000 --> 0:18:08.240 the bigges and Ulsomber are expecting. 0:18:08.440 --> 0:18:11.119 Yeah, and some of the banks and the lenders that 0:18:11.200 --> 0:18:13.840 operate the isers that offer the iceers, you know, have 0:18:13.920 --> 0:18:16.520 also got a stake in this too and have pushed 0:18:16.520 --> 0:18:19.719 back somewhat against maybe some of the changes. Paul, let 0:18:19.760 --> 0:18:21.880 me bring you in at this point. So that's kind 0:18:21.880 --> 0:18:24.840 of setting the tone and maybe the eye catching announcements. 0:18:24.840 --> 0:18:27.800 But obviously the City of London wants the detail, and 0:18:27.960 --> 0:18:32.199 particularly on regulation in terms of maybe the idea of 0:18:32.240 --> 0:18:35.320 scrapping ring fencing rules, which is a rule that dates 0:18:35.359 --> 0:18:39.000 back to the financial crisis. Any thoughts about whether that 0:18:39.080 --> 0:18:41.040 might be part of this mansion house speech. 0:18:41.160 --> 0:18:43.239 Yeah, well, this is one of the key sort of 0:18:43.280 --> 0:18:45.960 I guess, most tangible debates at the moment in regulations. 0:18:46.080 --> 0:18:50.080 And it's pretty interesting because there's a split between Rachel 0:18:50.119 --> 0:18:53.160 Reeves seeming prepared to perhaps ditch it as a way 0:18:53.200 --> 0:18:55.560 of hopefully enhancing growth. Everything that they're trying to do 0:18:55.600 --> 0:18:58.240 is find ways to enhance growth. Bank of England has 0:18:58.280 --> 0:19:02.080 come out against it. Andrew Bailey, governor has said that 0:19:02.119 --> 0:19:04.359 he thinks it should remain, and there's a split in 0:19:04.400 --> 0:19:07.720 the industry as well. So you know, Berkleay's Bank has 0:19:07.760 --> 0:19:11.200 defended it quite strongly and thinks it's very important as 0:19:11.240 --> 0:19:14.000 a way of protecting depositors. I mean, you remember that 0:19:14.080 --> 0:19:18.160 the whole point of this thing is to keep ordinary 0:19:18.240 --> 0:19:24.639 consumers deposits separate from the volatile, exciting, dangerous world of 0:19:24.680 --> 0:19:26.679 investment banking and trading and so on and so forth. 0:19:27.520 --> 0:19:30.280 So Barkley thinks it's important to keep that. Other banks, 0:19:30.280 --> 0:19:33.840 particularly HSBC, thinks it be much better to find a 0:19:33.840 --> 0:19:38.000 way of releasing more of that money for you know, 0:19:38.119 --> 0:19:42.200 growth investment inside the UK and beyond. And they're unhappy 0:19:42.240 --> 0:19:45.679 that big global banks like JP Morgan and Goldman Sachs 0:19:46.119 --> 0:19:49.720 can use their small sort of UK deposit gathering businesses 0:19:50.160 --> 0:19:53.640 Chase UK or Marcus to raise cheap funding, which they're 0:19:53.680 --> 0:19:56.679 then free to use for whatever they want wherever they 0:19:56.680 --> 0:20:01.040 want because they remain below this threshold. I mean, I 0:20:01.080 --> 0:20:03.760 think what we might see ultimately is maybe a compromise 0:20:03.840 --> 0:20:07.280 whereby you know, the banks like HSBC and Barclays get 0:20:07.280 --> 0:20:12.119 to use the first thirty five billion of UK retail deposits, 0:20:12.119 --> 0:20:16.200 which is the threshold for you know, ring fencing your 0:20:16.320 --> 0:20:19.639 UK operations, separating it from investment. Then maybe they'll get 0:20:19.680 --> 0:20:22.240 to use that first thirty five billion in a freer 0:20:22.320 --> 0:20:25.320 way to kind of you know, to put into investment 0:20:25.359 --> 0:20:28.760 banking or some kinds of corporate lending or something more 0:20:28.800 --> 0:20:32.720 growth orientated, and that could satisfy both sides to some degree. 0:20:32.880 --> 0:20:35.359 Yeah, And I think this goes to the argument about 0:20:35.480 --> 0:20:39.520 whether the government's changes all of these tweaks, these small 0:20:39.600 --> 0:20:43.360 incremental tweaks, actually going to add up to something more major. 0:20:43.440 --> 0:20:47.480 And meaningfully change the trajectory when it comes to economic growth, 0:20:47.560 --> 0:20:50.960 or in fact, this focus on financial services. We know 0:20:51.000 --> 0:20:53.920 that financial services is one out of the eight growth 0:20:54.160 --> 0:20:56.880 areas that the government is focused on, but how much 0:20:56.920 --> 0:20:59.320 are they really relying on financial services? It's sort of 0:20:59.359 --> 0:21:01.840 an interesting quat, isn't it, in terms of what other 0:21:02.400 --> 0:21:05.879 maybe smaller banks are concerned about the increase potentially in 0:21:05.920 --> 0:21:09.000 capital requirements for smaller lenders, how big a difference would 0:21:09.040 --> 0:21:09.400 that make. 0:21:09.480 --> 0:21:11.240 Yeah, so, I guess one of the debates around ring 0:21:11.320 --> 0:21:15.400 fencing has been is this is keeping it away of 0:21:15.840 --> 0:21:18.680 restricting competition from smaller banks because it puts a cap 0:21:18.720 --> 0:21:21.719 on their growth to some degree. Those smaller banks like 0:21:21.800 --> 0:21:24.520 you know, Starling or One Savings Bank, they're kind of 0:21:24.600 --> 0:21:28.840 much more worried about these kind of emrel capital requirements 0:21:28.880 --> 0:21:32.040 which kick in sooner and are much more costly, very 0:21:32.119 --> 0:21:34.800 quickly in terms of the amount of capital and and 0:21:34.840 --> 0:21:37.000 sort of you know, loss absorbing debts, which is the 0:21:37.080 --> 0:21:39.879 kind of capital that you have to issue as those banks, 0:21:39.960 --> 0:21:42.119 so they would much rather see a change there, And 0:21:42.160 --> 0:21:43.920