Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to the Merton Talks Money Market rap, where we
Speaker 2: talk about the biggest moves in markets this week and
Speaker 2: what's driving them. I'm joined Stebick, senior reporter and author
Speaker 2: of the Money Distilled newsletter. Mern's off and holiday for
Speaker 2: a few weeks, so I've invited show regular Marcus Ashworth,
Speaker 2: Bloomberg Opinion colmist in Markets Guru to join me in
Speaker 2: the studio. Nice to have you back, Marcus said.
Speaker 1: Now you haven't got stripefa Yeah, always a pleasure, never.
Speaker 2: Right, So away, let's talk about what's been happening this
Speaker 2: week and at the weekend we have a deal in
Speaker 2: my old stomping ground of Girvin on the Scottish coast,
Speaker 2: the Scottish Riviera.
Speaker 1: Yes, it's been very amazing watching people work out where
Speaker 1: is that.
Speaker 2: There's a big rock in the sea called Elsa Craig
Speaker 2: and it's a very very beautiful segment of you come over,
Speaker 2: assuming that it's not raining, which it never isn't. But anyway,
Speaker 2: so I said, Trump and the EU signed a deal, a.
Speaker 1: Deal for Yeah.
Speaker 2: Yeah, what's your take because I'm looking at it and
Speaker 2: the idea is that so they basically get the same
Speaker 2: deal as Japan fifteen percent across the board and everything
Speaker 2: the EU sells enter the US and basically nothing from
Speaker 2: the other side. And this is one reason that all
Speaker 2: everyone in the EU is feeling a little bit aggrieved,
Speaker 2: a little bit humiliated. But is that is that the reaction.
Speaker 1: I'm going to take, for a change a controversial view
Speaker 1: on this. I actually think that EU have done a
Speaker 1: lot better than they give them themselves any credit for,
Speaker 1: because it's all a lot of politics internally, and sure
Speaker 1: this isn't optimal. However, if you look at the so
Speaker 1: called great deal that Starmer pulled off the UK at
Speaker 1: ten percent, an extra five percent isn't that much more
Speaker 1: considering the situation where the UK actually has essentially is
Speaker 1: running a trade surplus with the US. They are not
Speaker 1: in the bad books, certainly on goods anyway. Let's leave
Speaker 1: services out this out for a moment. But the EU
Speaker 1: is the largest importer you know, into the US which
Speaker 1: exported in the US. Part of me in the sense
Speaker 1: that they are the biggest problem as far as Trump
Speaker 1: would like us to see it. Therefore, and also there's
Speaker 1: a lot of bad blood over verious different approaches to
Speaker 1: strom ashes with the Ukraine and all manner of stuff
Speaker 1: that clearly Trump has had problems with the Europe, so
Speaker 1: in some senses it's shown that he's wanting to do
Speaker 1: a deal. And of course the promises on both energy
Speaker 1: and further investments into the US are pretty open ended
Speaker 1: in arbitry. But it's a gesture of faith and it's
Speaker 1: a warm, fuzzy feeling. Sure they might have liked to
Speaker 1: have got particularly wine and spirits nailed down, and they've
Speaker 1: still got ongoing problems in steel. But the auto situation
Speaker 1: is bad, but not terrible. And Mertz's German chancell was
Speaker 1: correct to say that this isn't you know. Clearly growth
Speaker 1: is going to be hit very hard, which I cannot understand. Therefore,
Speaker 1: while the European central banks seem to think they can
Speaker 1: hold rate to two percent, but that's to the side
Speaker 1: for the moment, but they will have to cut more
Speaker 1: because this will be bad for the European economy. It's
Speaker 1: just potentially manageable and they will be able to negotiate
Speaker 1: through this and ongoing. This is a process. This is
Speaker 1: not but like you know, brexit breaksit is none events
Speaker 1: breaxit is a process, and it's likewise, these trade deals
Speaker 1: are going to be something which will be ongoing for
Speaker 1: the rest of our long, hopefully unhappy lives. John, We'll
Speaker 1: be talking about these subjects because it's a new new
Speaker 1: thing and it's not going away.
Speaker 2: Well, the one thing I wanted to talk about is
Speaker 2: the boy is the the poppers of the tardiffs, because
Speaker 2: one thing that I don't think people have talked about
Speaker 2: enough is, I mean, the US is going to make
Speaker 2: something like three hundred billion extra tax from that this
Speaker 2: year from the tallis as far there's someone of the
Speaker 2: numbers I've seen thrown around.
Speaker 1: In theory the volume stay up, which they won't.
Speaker 2: But yeah, yeah, absolutely, yeah, but you're still talking about
Speaker 2: that is something like five percent of the tax take
Speaker 2: currently and like it's the creivalent that Rachel reeves finding
Speaker 2: something like sexty billion down the back of the.
Speaker 1: For our pensions. I mean, you know, yeah, I'm just wondering.
Speaker 2: This sort of feels as if the reconfiguration of how
Speaker 2: the US taxes you know, the rest of the world and.
Speaker 1: People both agree on this essentially, And I think this
Speaker 1: is what's been unamazed at the commentariat refuses to go
Speaker 1: on this. But you know, to my mind, what Trump
Speaker 1: is trying to do is change the US corporate tax cones,
Speaker 1: specifically from without. He cannot change it through Congress. He
Speaker 1: doesn't have the ability to get it through. He's got
Speaker 1: his big beautiful bill through and that is a pretty
Speaker 1: meaningful change for a couple of ways. And obviously it
Speaker 1: locks in the tax code where corporates are desperate to
Speaker 1: keep it and rather having it rise again as would
Speaker 1: have done under Kamala Arras and so he's fulfilled his
Speaker 1: side of the bargain. But the reality what he's trying
Speaker 1: to do is be elected not say him forever, but
Speaker 1: Maga forever by essentially being able to offer a huge
Speaker 1: income tax cut up to one hundred and fifty thousand
Speaker 1: when it may be funded by corporates. This is bringing
Speaker 1: back on shore US corporate revenue. And he's having to
Speaker 1: do it by changing the rest of the world rather
Speaker 1: than changing the US domestic tax code and indeed, say
Speaker 1: they're sales tax into a say a vat tax. So
Speaker 1: he is doing this and this is why. You know,
Speaker 1: one thing we haven't gone in the European deal with
Speaker 1: the US is the pharmaceuticals which Ireland knows is coming
Speaker 1: down the pipe. It's going to rightly probably change the
Speaker 1: dynamic in how so many particularly thus over seven hundred
Speaker 1: multinationals based in Ireland and they are having a fine
Speaker 1: time of it all paying toively minimal tax. And I
Speaker 1: think that's what Trump is really after. He's going to
Speaker 1: do it carefully and slowly. It is Irish popular base.
Speaker 1: At the same time he needs to make sure that
Speaker 1: this is all workable for the likes of Di Lily
Speaker 1: and Bristol Mars, et cetera, et cetera. But you know,
Speaker 1: there is a reckoning coming there on how much tax
Speaker 1: they are keeping off shore and how much work going
Speaker 1: back on shore and indeed what the pharmaceutical production will be.
Speaker 1: And it's that's the same for steel, and that's the
Speaker 1: same some sensus for autos.
Speaker 2: See, I've got to see. I think this is where
Speaker 2: Trump is winning. So he's winning and he's really underrated
Speaker 2: because he's really impoison some massive stalth taxes here and
Speaker 2: being applouded for being you know, for being there.
Speaker 1: The big mistake was in two thousand and one China
Speaker 1: was allowed in the World Trade Organization and exploited it.
Speaker 1: Ever since and I believe the Germans and the French
Speaker 1: to large degree have enabled that, and it's been quite
Speaker 1: a useful technique for them to sell a lot of
Speaker 1: stuff into China. One thing you must look at on
Speaker 1: all these things is the euro to the Yuan exchange rate.
Speaker 1: But that tells you much more. The euro is record high.
Speaker 1: It's causing Europe a lot of pain on both sides.
Speaker 1: It has to choose whether it's in bed with the
Speaker 1: States or it's going to, you know, somehow do a
Speaker 1: deal with China. I don't think either on the option
Speaker 1: they've chosen the least worse option, which is doing a
Speaker 1: sort of placemaker deal with the US, because they are
Speaker 1: the dumping ground potentially for China. If they can't Chinese
Speaker 1: can't sell goods into the States such a tariff, they're
Speaker 1: going to sell them into Europe. So there is an
Speaker 1: awful lot going on within Europe as far as realization
Speaker 1: that they need to help themselves spend a lot more
Speaker 1: on defense and a lot more infrastructure. That has yet
Speaker 1: to transpire. A lot of promises we yet to see it.
Speaker 1: But at least they walked through the ring of fire.
Speaker 1: They can come out the other side, and they'll still
Speaker 1: be alive a little bit singed, but maybe they can
Speaker 1: do a better deal, slowly but surely. But they are
Speaker 1: not out of the game by putting retalitory tariffs on
Speaker 1: the US. They could they will have fallen into the
Speaker 1: trap where they've been shown to be the one that
Speaker 1: that example of Hopefully that or may not be China,
Speaker 1: but it's certainly not going to be the EU. And
Speaker 1: they can they can move on and over a period
Speaker 1: of time, if they do deals and do the right thing,
Speaker 1: as far as Trump can see, you'll find these the
Speaker 1: tariffs will melt away.
Speaker 2: I think, yeah, no, that makes a lot of sense.
Speaker 2: Toning are we from kind of transatlantic a fields and
Speaker 2: back to or in little Aland this week we've heard
Speaker 2: the other thing that's been happening is Rechel Reeves and
Speaker 2: Andrew Bailey at the Bank of England have had a
Speaker 2: bit of a spy or allegedly allegedly allegedly well, this.
Speaker 1: Is over not over monetary policy, which I've written about before,
Speaker 1: which is clearly that Bailey past others have fallen out
Speaker 1: with Reeves's economic strategy and do not believe that the
Speaker 1: tax risers and variety of other different things have gone
Speaker 1: through since April have helped the economy or a good
Speaker 1: good thing that is.
Speaker 2: A reasonable point of view.
Speaker 1: I could possibly come you think that, John, But yeah,
Speaker 1: I mean other people seem to do.
Speaker 2: I needs to get half of it through.
Speaker 1: The spending bits seems to come well, but the tax
Speaker 1: rises somehow seem to come through. Anyways. This is a
Speaker 1: separate matter where she's under a lot of pressure which
Speaker 1: she seems to be recognizing that she needs to help
Speaker 1: the city, the financial industry, and one of the key
Speaker 1: things is obviously Revolute, which is a proper challenger bank,
Speaker 1: not like the sort of normal ones which haven't really
Speaker 1: challenged anything. But this is a fintech revolution of Revolute,
Speaker 1: which you know will be a big challenge to the
Speaker 1: major high street banks over time. And it should and
Speaker 1: could list in the UK, And we missed out on
Speaker 1: Shean maybe for the best, but we would and should
Speaker 1: really have a homegrown monster like Revolute should be listing
Speaker 1: in London but is now allegedly looking at listing in
Speaker 1: the US.
Speaker 2: Now.
Speaker 1: A lot of this is performative, you know, Staff perhaps
Speaker 1: at the same time is looking potentially to buy a
Speaker 1: US bank to get the license the key thing and
Speaker 1: banking license in the States, because we in the UK
Speaker 1: will not give Revolute a banking license despite it being
Speaker 1: a vast in the number of customers anyway presence, and
Speaker 1: there's lots of further hoops. Rightly so, and I think
Speaker 1: what Bailey has said, Look, don't just lean on the Treasury,
Speaker 1: lean on the Crudential Regulatory Authority, smash heads together and
Speaker 1: get us the way through a banking license for Revolute,
Speaker 1: because they knock on consequences are bigger, more profound for
Speaker 1: the existing infrastructure of banks. But more importantly, knaf off Gobba.
Speaker 1: This is our this is our patch. You know. We
Speaker 1: don't want the Treasury of the government leaning on telling
Speaker 1: what the Independent Bank of England financial regulator is allowed
Speaker 1: to do. And it does it. It's any sweet time.
Speaker 1: There is a point there, a possibly a valid one,
Speaker 1: but you can see for once reason may well have
Speaker 1: a valid rationale that the regulators which he's been stamping on,
Speaker 1: you know, fairly brusquely with CMA and changing the head
Speaker 1: of that and a few other clearly measures on the
Speaker 1: Financial Conduct Authority. I've got out the way of a
Speaker 1: bunch of stuff. And there is a message coming through
Speaker 1: from the regulators. We get it, we will get out
Speaker 1: of the way. We are trying to be proactive and
Speaker 1: look at growing business rather than just say no to everything.
Speaker 1: But maybe the banking hasn't quite got the message. But
Speaker 1: certainly I think it's an interesting dynamic that the Bank
Speaker 1: of England governor in both is the two hatsy wears,
Speaker 1: is pushing back against this government, which you wouldn't, necessarily
Speaker 1: being cynical, have expected.
Speaker 2: As fascinating to me that reeves the way that she's
Speaker 2: trying to kind of ignate growth or get growth going
Speaker 2: is to make the deggilt us feel uncomfortable join.
Speaker 1: The dots up. She should have the bank totally on
Speaker 1: board before this happens, not have to have a spat
Speaker 1: with him because he's feeling, you know, you're stretting on
Speaker 1: my turf. So this is where the policy doesn't join up.
Speaker 1: She's lost the room as far as economic policy is concerned,
Speaker 1: and she's at risk of losing whatever but potential sort
Speaker 1: of you know from her prown Sandwich offensive prior to
Speaker 1: the election of like yes, we're goin. We get the message.
Speaker 1: We will help industry, will help business. We will certainly
Speaker 1: help the city and at least she understands it, but
Speaker 1: it's the enactment in power of policy which is not
Speaker 1: necessarily as joined up as one would hope. However, that
Speaker 1: does not in any way perhaps excused what the Bank
Speaker 1: of England governor is doing on himself with regards to his
Speaker 1: wakeful approach to management policy, or indeed he's digging his
Speaker 1: heels on on what I think needs to be resolved.
Speaker 1: I mean, revolute, to my mind, does deserve to get
Speaker 1: the banking license because I will just simply walk away.
Speaker 2: I mean, yeah, I mean there's a fundamental problem with
Speaker 2: the length of team, the stuff takes. I sympathized with
Speaker 2: Leeves's view. The thing that baffles me slately is that
Speaker 2: it's almost like she gnaws what should be happening in
Speaker 2: an ideal world, but we are getting there as something.
Speaker 2: Keep hiding bets and controlling things in trying to Tiewdal
Speaker 2: with s norb and Day all that don't and in
Speaker 2: fact maybe the best thing to be without to just
Speaker 2: scraps some of this sub.
Speaker 1: Optimal well, I think, I mean in some senses, you know,
Speaker 1: she is I think got the right idea behind this
Speaker 1: is just the enactment, as I said, is perhaps still
Speaker 1: a little naive and perhaps a little amateur. But you know, equally,
Speaker 1: I think she has to bang heads together and I'm
Speaker 1: going to give her the benefit of the doubt in
Speaker 1: this one. And I think mister Bailey needs to be
Speaker 1: I understand why he's doing what he's doing. But equally
Speaker 1: this cannot be the excuse always that we do have
Speaker 1: to get real on this stuff. We've lost you in.
Speaker 1: We do not need to be revolute. We need to
Speaker 1: get our act together commercially, because if you look since
Speaker 1: two thousand and eight, the reason why the UK economy
Speaker 1: has got nothing to do with Brexit, you know, it's
Speaker 1: got to do with the fact that the financial industry
Speaker 1: has been severely heavily regulated, probably for good the initial reasons,
Speaker 1: but you look what's happened in the US banking sector
Speaker 1: and the US financial sector, which is leaps and bounds
Speaker 1: done better, and we have made ourselves unnecessarily hampered and
Speaker 1: hamstrung on every single step. We need to be proactive
Speaker 1: and gain otherwise we will lose. We are already losing,
Speaker 1: hopefully not termally, our financial sector, which is the largest
Speaker 1: earner of tax and twelve and a half percent of
Speaker 1: our economy as was and you know, really, you know
Speaker 1: this is this is we want to have a sufficient
Speaker 1: revenue taxes to be able to do all the spending
Speaker 1: plans they want. The easiest and best way is to
Speaker 1: make sure that your financial sector, which is world leading stay.
Speaker 2: Sat Yeah, that makes perfect sense, and then I guess.
Speaker 1: It happened then, yeah, exactly.
Speaker 2: As a boys for moving on from that into a
Speaker 2: kind of related topic that you or about this week,
Speaker 2: you can reckon that we're going to we're going to
Speaker 2: need this growth because the UK construmer is looking very
Speaker 2: fairly timid at the moment.
Speaker 1: Well it's actually held on's held up well. But you know,
Speaker 1: we've had a very nice summer, which is which affects
Speaker 1: dynamics and certain things. That helps some hospitality in some retail,
Speaker 1: it hampers some retail in different ways. And obviously if
Speaker 1: you have a warm autumn, it means people don't spend
Speaker 1: for winter clothing and you have a bad start into
Speaker 1: this sort of golden quarter of the last you know
Speaker 1: where Black Friday is named, you know, the end of
Speaker 1: Thanksgiving for a reason. It's when you know, retailers in
Speaker 1: theory turn profitable, and certainly what they need is the
Speaker 1: consumer to keep on turning up. Three fifths of our economy,
Speaker 1: sixty two percent is consumption, which matches sixty eight percent
Speaker 1: in the States. We are big consumer led economies, the
Speaker 1: UK and US very similar in that way, and we
Speaker 1: need the consumer to stop some saving. But we're seeing
Speaker 1: bank deposits rising, We're seeing the savings rate go up,
Speaker 1: which is a precursor of the paradox of thrift, which
Speaker 1: is in essence, people hold back. They are on sure
Speaker 1: what's going to happen economic policy if we get a
Speaker 1: rinse repeat of last year. And they came into power
Speaker 1: and July the fourth and basically said, right, there's black
Speaker 1: holes everywhere we are going. The world is going to end.
Speaker 1: We are going to we are going to have to
Speaker 1: really do bad things in October budget. It just killed
Speaker 1: the momentum economy, killed confidence, which has not recovered since.
Speaker 1: Obviously all these tax risers came in play in April.
Speaker 1: We are under the threat of the same happening again,
Speaker 1: and that will be really comparing the family, and I
Speaker 1: think would be criminal in the sense of, you know,
Speaker 1: I think rees would would not recover. You know, she's
Speaker 1: managed to hang on more by luck than judgment, but
Speaker 1: she cannot have a repeata what happened last year into
Speaker 1: into the run up into this year's autumn budget. But
Speaker 1: the consumers showing signs and being fearful and are pulling back.
Speaker 1: And there's definitely food inflation, and definitely the minimum wage
Speaker 1: ries and variety of other employer taxes and our national
Speaker 1: insurance contributions is really feeding through. You know, employers are
Speaker 1: feeding price rises into the system which is starting to
Speaker 1: be hit on consumer activity and savior rates going up.
Speaker 1: You know, that's where people pull back. Money setting bankrup
Speaker 1: deposits is not working in the economy, which means growth
Speaker 1: will fall off and they need it. They need it
Speaker 1: to get through you know, as you know, they can't
Speaker 1: cut spend needs. They basically said in this government they
Speaker 1: will not be able to cut back on any of
Speaker 1: the welfare budget unless they have a wholly new approach,
Speaker 1: which you know they'll have to. But the string isn't
Speaker 1: coming together, and I fear that we will have a
Speaker 1: very large pension tax rate and obviously a fiscal drag
Speaker 1: on and income tax bands extended in the October budget.
Speaker 1: And you know, consumers can smell this, and that's why,
Speaker 1: you know, we end up getting the cause and effect
Speaker 1: where all of sudden things get worse before andything's actually
Speaker 1: really happened. But by that stage it's too late. Oh no,
Speaker 1: I wasn't going to ever do this. Well, yeah, you've
Speaker 1: got to tell us upfront, what's you know? Wealth tax,
Speaker 1: for instance, seems to be ruled out, but it hasn't
Speaker 1: been ruled out in a definitive sense. But she can't
Speaker 1: rule it out because he's right about our backbenchers. However,
Speaker 1: something is going to have to give, and I think
Speaker 1: that requires a much more proactive approach on being honest
Speaker 1: with what you going to do and why she's going
Speaker 1: to do it. I think some pension tax reductions, as
Speaker 1: far as the tax relief is concerned, as far as
Speaker 1: the annual amount and on one or two other things,
Speaker 1: can make some sense if it's presented without in a
Speaker 1: coherent way.
Speaker 2: I mean, I suppose it might because it's future pain
Speaker 2: and a funny kind of way make it away with it.
Speaker 2: But I mean, I mean, this is a topic for
Speaker 2: a different podcast, But the problem with reforming pensions tax
Speaker 2: relief is always the under the boone it affects the
Speaker 2: public sector as well, and that's one reason why they've always.
Speaker 1: It never affects the public sector pension. That's the that's
Speaker 1: part of the problem.
Speaker 2: Well, yeah, exactly, But what I mean is if you
Speaker 2: if you do it properly, then you end up having
Speaker 2: increased the contribution.
Speaker 1: They can't they can't do wholesalform because they don't have
Speaker 1: the bandwidth to do it.
Speaker 2: Then they don't reason enough money.
Speaker 1: By the majority. They don't have that. They're going to tinker,
Speaker 1: they're going to cut them some things back. Perhaps Jeremy
Speaker 1: Hault was a little bit too generous on a few
Speaker 1: things prior to the last selection. We all know what
Speaker 1: he really should have done, just reverse his two employee
Speaker 1: national insurance sort of bungs. But equally on some of
Speaker 1: the pension of stuff that he did. Perhaps he was
Speaker 1: too generous. Maybe some of that should have would get
Speaker 1: rowed back. But you know, the reality here is is
Speaker 1: really going back to nineteen ninety seven when Gordon Brown
Speaker 1: did two things which you know, the Bank of England independence,
Speaker 1: everyone seems things a great idea, though the banking I
Speaker 1: don't think has lived up to its task, not in
Speaker 1: recent years particularly, but The other thing he did is
Speaker 1: he cut dividend tax credits and that is still killing
Speaker 1: our pension, you know, and it's killed a financial sector.
Speaker 1: It's the main reason actuarily why you have a very
Speaker 1: low investment in UK equities. You know. These things are
Speaker 1: all course from a under the bonnet, as you said,
Speaker 1: change which you know no one will noticed. And he
Speaker 1: got away with it. But you know, but like selling gold,
Speaker 1: you know when he did, these things come back and
Speaker 1: continue to cause us pain even now.
Speaker 2: Ah, it's a It's good to end on a high note.
Speaker 1: Thanks always happening.
Speaker 2: Yes, thanks for watching, Marcus. I look forward to having
Speaker 2: you back on and actually probably next week because Marnon's
Speaker 2: still on our holidays if you're around for another session
Speaker 2: of holiday exactly see up the workers, That's what I say. Hemy.
Speaker 2: Thanks for listening to this week's Merton Talks Money deprief.
Speaker 2: If you like our show, rate review and subscribe wherever
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Speaker 2: This episode was produced by Summer, Sadie and Moses and
Speaker 2: am special thanks to Marcus Ashworth and questions and comments
Speaker 2: on the show and all our shows are always welcome.
Speaker 2: The show email is Merion Money at bloomberd dot net.