This is the Bloomberg Daybacurate podcast, available every morning on Apples, Spotify or wherever you listen. It's Wednesday, the seventeenth of April. Here in London. I'm Caroline Hepka and.
I'm Stephen Carroll.
Coming up today, The Fed's Jerome Pell concedes that ratecuts will need to be delayed, as Andrew Bailey signals the Bank of England may be able to move before the US.
The Chancellor Jeremy Hunt tells us that lower boring costs could deliver a feel good factor for UK voters as he hints at a possible autumn election. Let's start with a roundup.
Of our top story, the Federal Reserve Charge your own pals, as policymakers will likely have to wait longer than previously anticipated to cut interest rates. His comments that follow a series of surprisingly high inflation readings and jobs data that suggests the US economy remains resilient. Speaking during a panel discussion in Washington, Pal said rate setters need to see more evidence that the pace of price rises is cooling.
So we've said that the FMC that will need greater confidence that inflation is more sustainably toward two percent before it be appropriate to ease policy. We took that cautious approach and sought that greater confidence so as not to overreact to the string of low inflation readings that we had in the second half of last year.
Pal's remarks represent a shift and his message after a third straight month in which a key measure of inflation exceeded forecasts. Policymakers narrowly penciled in three interest rate cuts and forecasts published last month, but investors are now betting on just one to two cuts this year.
As for the Bank of England Governor Andrew Bailey, he says that Britain is on a different inflation path to the US. The comments imply that the Bank of England might cut into est rates before the FED. Bailey says, the US inflation is being led by demands.
I think the dynamics of inflation are rather different between Europe and I mean you're geographically now and the US. We're still seeing the extension of the process of coming out of the big supply shocks that we had, the impact of the war, the impact of coming out of COVID.
Bailey was speaking at the IMF Spring meetings in Washington, In its latest economic outlook, the IMF predicted that AI could boost the size of the UK economy by sixteen percent in its first ten years of adoption, higher than most other countries.
The chance of Jeremy hunt as the prospect of interest rate CODs could lift the mood of voters and their view of the Conservatives ahead of a general election. He told Bloomberg. The economy will be in a better place in the months ahead.
That situation we were in eighteen months ago with inflation at eleven point one percent.
That is well and truly behind us.
We think we have very strong growth prospects, so a feel good factor as interest rates start to come down, as people start to feel higher, real disposable incomes will be stronger in people's minds come the early autumn.
Hunts Carmen's backup speculation that the government is planning to hold in a in the autumn. Markets are currently pricing in a first reduction in the Bank of England's five and a quarter percent rate in September.
The ECB president Christine Legarde has doubled down on the message that she gave last week that the bank is on a firm path to a first rate cut in June. She told CNBC on Tuesday that as long as shocks don't derail the slowdown in Eurozone inflation, it'll be time to moderate the central Bank's restrictive stance in reasonably short order. Legguard wouldn't comment on how many cuts in borrowing costs
so likely to materialize. Speaking in Washington, Leguard also highlighted that the German economy may be starting to recover after being rocked by a series of shocks in recent years.
Jamie Diamond has told Bloomberg that AI will transform banking, but it will also lead to job losses. The JP Morgan CEO's comments come after he devoted a chunk of his annual shareholder letter to the importance of artificial intelligence for the Wall Street Giants, business and for society at large, likening its impact to that of the steam engine. Here's what Diamond told Emily Chang on the latest episode of The Circus.
But the way to think about for us is every single process, so errors, trading, hedging, research, every app every database, You're going to be applying AI. So it might be as a copilot, it might be to replace humans. You know, AI is doing all the equity hedging for us. For the most part, it's idea generation, it's large language models.
It's no taking while you're talking to someone and while it's taking notes and may actually say to you that, you know, here's the thing of interest to Climbke Peterston all error, all customer service is a little bit of everything.
But it is going to replace some jobs, of course.
Yeah, but I look, folks, people have to take a deep breath. Okay, Technologies always replaced jobs. Your children will live to one hundred and not have cancer because of technology, and literally they'll probably be working three and a half days a week.
And you can watch the full interview with Jamie Diamond on the latest episode of The Circus with Emily Chang on Bloomberg. Original is available on the app or YouTube or as a podcast.
Now to some earnings, growth is stalling below expectations at LVMH's consumers railing spending on high end goods. Organic growth at the company's biggest division, that is its fashion and leather goods unit, fell sixteen percent compared to twenty twenty four. Bloommegg's Opinions luxury writer Andrew Felstad says that circumstances this year are very different.
Now this time last year first quarter twenty three, both of those were in the high teens and they were about double what analysts expected. Now we're up against very strong comparisons because this time last year, China was just reopening, the US was starting to slow, but it hadn't really turned down.
So that was bloombgg's Andrea Felsted speaking there. This is the slowest first quarter for the retailer since twenty sixteen, excluding the twenty twenty COVID period. LVMH's wine and Spirit's divisions struggled with all revenue down twelve percent, while selective retailing performed the best, led by its beauty retailer Sephora.
To some breaking news this aeron, the Dutch equipment maker ASML has reported first quarter bookings that missed expectations. The figure came in at three point six one billion euros versus an expected four point sixty three billion. Other company still sees its total net sales in twenty twenty four to be similar to twenty twenty three. It's also expecting a stronger second half to this year than the first half. This as it confirms its midterm goals as it presented in twenty twenty two.
The United States is set to place sanctions on Iran's drone program after the country's attack on Israel. According to the White House's National Security Advisor Jake Sullivan, Washington is coordinating a comprehensive response alongside G seven countries. The US Sector of State Janet Yellen, says that the measures will come into play shortly.
Fully expect that we will take additional sanctions action against Iran in the coming days. We don't preview our sanctions tools, but in discussions I've fed all options to disrupt terrorist financing of Iran continue to be on the table.
Janet Yellen speaking there. The US will also announce sanctions against entities supporting the Islamic Revolutionary Guard Corps and Iran's Defense Ministry, and expects allies to follow. Now in a moment, we're going to dig into the world's top central bankers who have been talking at the IMF and World Banker meetings in Washington, and the major changes we've seen as a result in markets. Plus also will bring you Blue Begg's interview with the UK Chanceor Jeremy Hunt that in
just a moment. But another story that caughta Have you seen all of the pictures the torrential reign. It's not here in London, it's in Dubai.
Yeah, perhaps unexpected this time of the year, but it's disrupted flights, schools have been shot, traffics and brought to a standstill. In fact, the authorities into the UA recommending people work from home today because it's been such a disruption to the area. But this is after UA authorities carried out a cloud seeding operation on Monday and Tuesday to help create or at least augment the rainfall that was in the clouds. And this is a practice they've
been undertaking since two thousand and two. They basically send planes into the clouds, then plant chemicals and particles into the atmosphere to coax more rain from the clouds. It's meant to try and help with the water security issues in Dubai. Now they've actually the media office actually in the emirate dubbing the downpours rains of goodness, despite the fact that people's homes have been flooded.
So yeah, I saw lots of images of luxury cars being stuck in enormous torrential rain. But yes, it's interesting though that it's actually more about kind of the weather. And yeah, I suppose the infrastructure to buy than anything else that's in part man made.
Yeah, it's certainly very interesting to see the effects that's having on, particularly the airport in Dubaio, which is still warning of some more disruption to come there too.
Okay, it's been a very busy week for central bankers attending the IMF and World Bank meetings in Washington. The Defense jer Own Powell is among them. He has signaled that policymakers will wait longer than previously thought before cutting interest rates. TVNCA pretty good to join this now for more on this. Good to have you with us, Critty. How significant a shift in language is this from Jerome Powell.
This is a pretty big shift of language, specifically when he's kind of admitting that the work isn't fully done on inflation. And this is in contrast to what he said in prior iterations, which is that progress is being made, that these kind of previous hot data prints that we've seen in January or in February in the States are
perhaps one offs. It is he loves to say transitory for example, so he say that this even uptick wasn't something to be concerned about until now, and this is rarely where you're starting to see the bond market really react the comments where he specifically says that it's going to likely take longer for confidence on inflation and that
recent data shows that lack of further progress. As you mentioned, Caroline, this idea here simply that not only is the higher for longer regime still at play, but rate cuts are going to get pushed out further and further. And you've already seen that in the bond market for sixty six on the US ten yure this morning.
Yeah, and indeed the two year push about five percent briefly after these comments as well. I mean, how are markets taking this?
Not well clearly, And one of the concerns here is less about the bond market, which we've kind of have a forming consensus of in the last couple of weeks slash months, that five percent yields are probably going to arrive on at least a ten year benchmark in the US before coming back down to kind of below four percent. That was a big contrarian take last quarter. This quarter seems to be what everyone is kind of growing around. The bigger concern is the ripple effects here, because remember
the FX market has been fairly sanguine. People are positioned long dollar. You haven't yet seen European currencies like the Euro, like the pound really crack and the first kind of line of a fence off this yield move and the ripple effect is showing up in Asian currencies. We're already having speakers come out from the BOJ from the Bank of Korea as well, really concerned about that currency story.
Then you look at the stock market. Our five percent yield not on the two year, but on the tenure going to trigger some sort of sell off in the broader stock market that accelerates the carnage you're already seeing.
Yeah. Meanwhile, other central banks have also been speaking at these meetings and in a way sort of reacting. Andrew Bailey of the Bank of England suggesting that the UK could cut rates before the FED a vote of confidence. Maybe the inflation in the UK and the trajectory here is different and more confident about it in Britain.
It's a careful narrative to play with because and you can hear contestancy in your voice as well. But the resilience and inflation can be viewed in two ways. One can be a result of supply chain shocks, which is not necessarily a healthy part of the economy. The other piece can be consumer resilience. A third piece can be
structural issues within a given economy. You're seeing that in Germany, for example, or there is that persistent inflation, but some of the kind of tackling of it ends up meaning a weaker economic structure. It's a similar story right here in the UK where you do start to see some of the kind of more sticky parts of the economy not being able to digest any sort of persistently higher
for longer story. So rate cuts can be insurance the way that the US is kind of thinking about it as some sort of normalization of rates, or they can be a tool used to provide a little bit of cushion for average consumers. And it kind of feels like the UK is leaning towards the latter rather than the former. And that's why Andrew Bailey's comments should be marked as different than the federal reserves as a poise to the BOE. Did a job all done?
Okay, Christy Gupta, thank you very much for joining us this morning with talking us through some of the central bank comments they're happening at the IMF and World Bank Spring meetings in Washington.
Well, speaking of Washington, of course, we've got a big interview for you this morning. The Chancellor, Jeremy Hunt, has told Bloomberg that interest rate cuts would lift voter's mood ahead of the general election. His comments add to speculation that the Prime Minister won't call a vote until the autumn. Jeremy Hunt has been speaking to Bloombo's Candy Lines in Washington.
I think the big message from today is that the IMF is saying that inflation is going to be one point two percent lower. There are people who are now forecasting inflation will be lower in the UK than in the US or possibly even the Eurozone. And so you know that situation we're in eighteen months ago with inflation at eleven point one percent, that is well and truly
behind us. And if you're looking forward in terms of longer term growth prospects, the IMF today are saying that the UK will grow faster than France, Germany or Italy over the next six years.
So we think we have very strong growth.
Prospects, So you aren't controunded at all about what potentially could happen two parts of the UK economy, like the labor market if policy were to take stay too tight for too much longer, given what you are saying as a downward trajectory in inflation.
Well, obviously in the short term we looked at the Bank of England to get that fine judgment right. But what finance ministers like me can do is much more about the longer term competitiveness.
Of the UK economy.
And we note that the IMF today say there's a whole section about the impact of AI on the UK economy because they recognize that London is now the world's second largest epicenter for AI, R and D after San Francisco, and there's a huge amount happening in our tech economy, which is third only to the US and China globally, and that is really where the big growth in the future is going to come in the UK, and that's where we think makes the very exciting bet for investors.
Well, and your point has taken, Chancellor, that you oversee the fiscal side, not the monetary side. So on the fifth side, you have suggested that an election could happen potentially as soon as October. Should we expect another potential fiscal event between now and then, or have we seen all we're going to see on that front before the votes are cast.
Well, it's certainly the case that, you know, the feel good factor, as interest rates start to come down, as people start to feel higher real disposable incomes, we'll be stronger in people's minds come the early autumn than it
is now. People have been through a very bruising period. Obviously, decisions about election timing are for the Prime Minister, and were we to have an October election, as I've said before, it would be possible to have a fiscal event in September, but we would decide much nearer the time whether that was the right thing to do well.
Of course, you've already delivered a lot fiscally in terms of tax cuts, including personal tax cuts, and yet when you look at polls, obviously the Conservative Party is still running significantly behind Labor I believe by roughly twenty points. What else may need to be done on that front to convince you voters to keep the Conservatives in power? What would you consider doing well?
I'd be very.
Cautious about looking at those polls because, first of all, as we can see from the challenges facing incumbent governments not just in the UK but in the US and Germany, France, the electorate have been through a really difficult period with an energy shock, with high inflation, with a pandemic. But when it comes to a general election, it's a choice about the future. It's not a referendum on how you feel right now, and that becomes a very different decision
in people's minds. And we know in the UK that around a fifth of voters have not yet made up their mind who they're going to vote for, So we think there's all to play for.
And what we're seeing.
Now is much more positive data beginning to come through, very good prospects for the UK going forward, as confirmed by the IMF today, And I think all that means that our strongest argument to the British people is going to be that having turned that corner and want to take any risks going forward that would mean that we don't have that exciting economic growth.
Well, something else the IMF warned about in its report today was around something you've just mentioned, the idea of potentially an energy shock, considering we are still seeing hot wars, not just on the continent of Europe, but of course in the Middle East. We are waiting to see what kind of retaliation we might see from the Israelis after
the Iranian attack over the weekend. How concerned are you about the way in which this conflict may escalate and the ramifications it could have, not just for humanity but for the economy.
Well, I think we all have to be very concerned. But I think we should also take comfort from the fact that the.
Two biggest shocks that.
We've seen in the last few years, the invasion of Ukraine and the attack on Israel, have both been met by a very united response from Western allies, much more united than our opponents were expecting. And I think that what that demonstrates is that when the chips are down, we recognize the seria business of the situation. We work together with our friends and allies, and the relationship between the UK and the US is right at the center of that Western response to the challenges we face.
Given that there are these still ongoing conflicts, would you ever give consideration to raising defense spending or is your focus really primarily on delivering tax cuts, and that has to factor in.
Well.
I think it's possible to do both because tax cuts can help grow the economy. That means you have more resources for really important challenges like security. And what I would say is that you know, the UK recognizes with the biggest spender on defense in Europe, we recognize they're going forward, we're likely to have to spend more. But part of our job is also to persuade other NATO European countries that they need to spend their proper amount.
We can't just depend on the United States to defend Europe.
We need to play our part well.
We've heard certainly a great deal of that messaging in the US as well, where there has been a evolving conversation as for funding for Ukraine, certainly on Capitol Hill in Washington. It does seem that there will be a legislative effort now that could hit the floor this week that involves repot the idea of taking seized Russian assets and using that to fund Ukraine's war effort. That's something the US would like to pursue. Would you like to
see the UK pursue that? Would you pursue? Would you ask your colleagues that you were going to see at the IMF World Bank meetings down in Washington this week to congregate around that idea.
Well, I think it's a very intriguing proposal. I'll be meeting Secretary Yellen in the next couple of days and I'll certainly be talking to her about it and getting some more detail on that. But I think we should be thinking about anything we possibly can to come.
To the support of Ukraine.
This is an absolutely existential battle, not just for Ukraine itself, but for a global order in which you know, since the Second World War, we have largely stopped large countries thinking they can just invade their neighbors and get away with it. And if we were to let Russia get away with invading Ukraine, the ramifications would be huge, not just in Europe but all over the world. So I think this is a proposal we should look at very carefully.
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