Good morning. It's Thursday, the fourteenth of December here in London. This is the Bloomberg Daybreak you at podcast. I'm Caroline Hipki and.
I'm Stephen Carroll. Coming up today.
The Fed holds rate steady and gives the clearest signal yet that the next move will be lower.
The focus shifts to the Bank of England and the ECB to see if they will follow Powell's pivot.
Plus the cat clawback UBS steps up efforts to recoup bonuses from credit sueee to factors.
Let's start with a round up of our top stories.
Federal Reserve policymakers expect seventy five basis points of rate cuts next year, according to their latest dot plot forecast. The pivot comes as the Central Bank opted to hold rates steady at Wednesday's meeting at a range of five and a quarter to five and a half percent Federal Reserve charge your own. Powell and says tightening remains an option if price pressures return, but says the FOMC has also begun discussing when to ease.
The question of when will it become appropriate to begin dialing back the amount of policy restraint in place that begins to come into view and is clearly a topic of discussion now in the world and also a discussion for US at our meeting today.
Powell used his press conference to emphasize the rate cut projections are not a pre set plan, and one inflation has come down, it's still too high. The prospect of easing policy drove an extended overnight rally and treasuries with ten year yields by falling below four percent for the first time since August.
The Fed's rhetorical pivot has led to a surge in stocks, bonds, and currencies and one of the biggest post meeting rallies in recent memory. Virtually no corner of financial markets has been left out of the cross asset advance. Global shares have spiked hard, front end treasuries have posted their biggest day since March, and currencies of surge against the dollar. Jeff Rosenberg, black Rock Systemic Multi Strategy fund portfolio manager says that he expects that to continue.
There are some vulnerabilities, but the message and the concern. No one's looking at the vulnerabilities. They're looking at the validation, and so with that validation, this Polish sentiment can go on for a while until we get a new round of economic data, and until then, I think the message is pretty clear that the FED is more than willing to see an easy in financial conditions won't step in the way of that.
As Blackrocks Jeff Rosenberg hinted, there there is no guarantee that the rally will last, but markets have piled into rate cut wages numerous times over the past two years, only then to be caught flat footed when the Fed didn't change tack.
Turning to the Bank of England, markets have fully priced in one hundred basis points of rate cuts from the MPC next year. Soft GDP data drove those bats higher. Bloomberg's senior UK economist Dan Hansen says UK growth in October was weaker than all the analysts had expected.
It sort of be all economist expectations in terms of how negative it was.
I mean, I think the thing that struck me.
Though, when I opened the release, was how broad based the weakness was.
The broad picture.
The broad takeaway is that services, manufacturing, and construction all fell and you've got weakness across the board.
Blombergs down Hanson, adding as while the economic weakness is extremely unlikely to affect the rate decision itself, it may lead to a more dovish split among policy makers well.
Today's European Central Bank decision is also being watched for how forcefully policymakers push back against bets on interest rate cuts. The former ECB president Jean Claude Triche thinks that Christine Legarde and others could cut rates before the FED in.
The US for many reasons. We have still a level of core inflation, for instance, that is now significantly superior to gore inflation in Europe four point two instead of three point six. It's not absurd to think that the first decrees of rates could be in Europe instead of in the US.
Charc Claude Triche, adding that markets who are still overdoing bits that the ECB will reduce rates as early as March.
China's economy also seems to be losing momentum. High frequency data suggests industrial output figures due will be worse than pre COVID levels, and the economic weakness will trigger calls for stimulus to meet President She's five percent growth goal for next year.
Now, to some politics, a drive to impeach the US president is now formally authorized. In a vote on Wednesday, Republicans in the US House elected to escalate a probe into Joe Biden that has been underway for several months. Speaking on the House floor yesterday, the Minority Leader Hakim Jeffries pointed to former President Donald Trump as a key influence on proceedings.
We are here today on the House floor wasting time and taxpayer dollars on an illegitimate impeachment inquiry because Donald Trump, the puppet master, has directed extreme maga Republicans to launch a political hit job.
New York Democrat Hakim Jeffries also questioned the legitimacy of the inquiry. The investigation focuses on the finances of the first family, particularly the present sun hunter. Biden himself denounced the inquiry as quote a baseless attack.
UBS has stepped up an effort to recoup hundreds of millions of dollars in cash bonuses that credit sweee paid to retain deal makers before the Landers collapse, the story from Bloomberg's Charlie Pallace.
According to those sources and documents seen by Bloomberg, UBS has contacted hundreds of bankers and offered some multi year payment plans amid efforts to clawback a chunk of the one point two billion Swiss franks in restricted cash bonuses known internally as upfront cash awards. The document show the bank's outside law firms are reaching out to staffers who voluntarily left the firm and threatening legal action if the
required amounts are not delivered. In New York Charlie Pellette Bloomberg Radio.
In a moment, we'll get more in today's Central Bank decisions, but first, as we're thinking about the Bank of England's decision today, interesting to see the latest data on the UK property markets. Property surveyors the most optimistic they've been on future house sales in almost two years. This is mortgage rates have just come off their peak. Now haven't dropped dramatically, but certainly have come down from the high levels.
The average five year mortgage rate now down closer to five percent from a peak of six point one percent in July. So it does look like this slow puncture is still happening in the market, but perhaps we're turning to more of a stabilization than perhaps the bigger falls we had been expecting.
Yeah, it's hard, isn't it? To come out with new superlatives all the time. But this is quite extraordinary in terms of the whiplash in financial markets. You know, there were some even you thought there were going to be there was going to be a big crash and the housing market at the start of the year. I mean it was an outlie of you. But now much more stabilization as we come to the end of the year than many had thought.
Yeah.
Indeed these the lates sigures in the Royal Institution of Chartered Surveyors. But I would also note our colleagues reporting on the high end country home market fast becoming part of the nation's property slumper home and luxury country destinations less likely to sell above a tasking price than a home in London's most affluent discus districts. And that's the first time that's happened since twenty fifteen. Okay, case Caroline, you were thinking about investing in a country place.
And there was a moment in the pandemic, there really was, But no, that moment has passed. I suspect. Right, Let's talk about the FED. The pivot is real from the steepest rate increases in decades to contain surging inflation to your own power and his colleagues issued for Coast showing a series of cuts would be likely next year. Joining us now to discuss Sploomberg opinion columnist Daniel Moss. Daniel, great to have you with us on the program this morning.
So the Fed pivots at the door. Seventy five basis points potentially of cards, no US recession. This is surely an early Christmas presence for the markets.
Well, the Christmas present actually began before one of the clips you played earlier. His comment about having discussed how they might begin to cut came in response to a question. There was a real tell though, in his introductory statement when Powell said, for the first time, or rather he characterized the current level of interest rates for the first time certainly that I've heard as been quote well into restrictive territory. Now what's the significance of the Well, it
means they can kind of have it both ways. They can cut and still say they're in restrictive territory. If at current levels they are well into restrictive terrors and things flowed from there once the Q and A began. But yes, your remark about no recession. Now he was at Paines Jay Poweller. So he wasn't declaring victory, but gosh, some of the way he framed the economics of twenty twenty three, sure sounded like he was feeling pretty satisfied. So it's all but a declaration of victory. He noted
how much inflation had come down. He didn't think the US is in recession now. He also observed that around about a year ago, many people forecast there would be one no sign of it yet, according to him, so you know, it's not mission accomplished, but it's I could have had a worse holiday.
Maybe it's slight bit of I told you so as well, coming from Jerome Powell.
If we look at the market reaction.
Daniel two, we're looking at the ten year yields below four percent for the first time since August.
Should we be thinking about this for next year?
Jeffrey Gundlax call for tenure yields and the low three percent range by next year.
Well, I would say, what is most important is the direction. So remember last year in twenty twenty two, I believe it was when the ten year yield breached four percent, and the other direction was like, oh my god, the world's going to hell. Well, okay, now we've just breached four percent a little bit on the other side, and it's happy days of here again. So you know, context can sometimes be missing in very exciting moments like this.
You know.
J Powell also flagged you know what's going to be one of the real debates as we get into twenty four, which is really, you know, how much has changed. He was asked whether the neutral rate of interest, after everything we've been through in the past couple of years, has changed very much. He sort of almost sounded like some of his academic predecessors Janet Ylen or Ben Bernanky rather than a private equity guy and a lawyer that he is.
He said, well, it's one of the great fascinating historical questions we're going to be debating that this year, which left you know something in my mind along the lines of what maybe we should be doing a column like, maybe not much has really changed at all. Low interest rates could be back, transitory might even be resurrected.
Oh wow, that would be extraordinary.
You know, back back from Elba.
In terms of Pal's commentary in and of itself, do you think that that effectively is acting as a rate cut in markets. I mean again, is this You know we had the conversation going in the other direction too on this one.
You know, when we were previewing this meeting, I suggested that he would probably lean against rate cut speculation because the speculation is already there and he doesn't want markets to be seen to be getting carried away. Well, you know I was off the mark on that one. He just leaned right into it. The clip you played earlier. Initially the question was what makes him so convinced that
their hiking work is done? He explained that they thought it basically was, and then he leant right in without a follow up question, saying, well, then once you can see that, then the next point is, you know when you start thinking about cuts. I'm like, well, okay, all right, he's just leant into it. No point in hiding from it. Pretty impressive actually.
Okay, remember opinion colonomist Daniel Mass, thank you so much for joining us with your thoughts on yesterday's Federal Reserve decision.
Well from the Fed to a pack day to day for central bank decisions in Europe, all of them now with the pressure to pivot themselves towards rate cuts too. Let's bring in Blomberg's chief europe economist Jamie Rush the ECB. First, what can we expect from this final meeting of the year.
Well, I think we're where they're going to be responding to the way the FED has described the outlook, and so I mean the last thing we heard from Leguard was that we wouldn't see any rate cuts for a couple of quarters. Well, Powell said similar things even in the run up to the latest FMC meeting and subsequently
changed his view. So I think it's quite possible that we will see a shift in the restoric at the ECB, but I don't think it will be quite as they'll be quite as willing to fully embrace market pricing for rate cuts early in the years as the FED has been, So I think there'll be a little bit more inertia, but I think that pivot is coming and so we will be probably seeing rate cuts in the first half the year.
We also got new forecast Jamie from the ECB as well. What will you be looking at for.
Well, I think we'll get long term inflation forecasts. They roll forward a year, so that will give us a sense of whether they feel confident that they've the policies, the streets of enough. I mean, they certainly almost will show the inflation is close to two percent at the end of the forecast period, so from their perspective, it will be job done on rate hikes. But again it's that question about when is the rate first rate coming
and then and then how fast will it be? I think that's the next that's the next bone of contention with markets is not just when it will happen, but whether we're looking at one rate cut quarter or whether we're looking at one rate cutter meeting.
In terms of the Bank of England, a huge challenge, high inflation, a stagnant economy, and now one hundred basis points of cuts priced in for the UK next year. Yeah.
So I mean the UK is in a slightly different position for everyone because we seems to have the worst of both worlds in the sense that we had that huge supply shop which pushed inflation up, and then we had that interacting with a very tight labor market the same wage growth above eight percent. So I think it's we're looking at a slightly stickier outlook for the UK.
At the same time, if the global mood music is changing the Bank of Ving is not going to be a me to that, so I think we again we'll be seeing some discussion of the possibility that raycards are coming, and maybe a little bit less of this table mountain nonsense that we've been hearing about for so long.
What about the splitsbeen policymakers, Jamie, Yes.
They'll probably still be slightly divided, and there has been that. There hasn't been unanimity at the banking for a while, so I'll expect that to continue.
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