Bloomberg Audio Studios, podcasts, radio news. This is the Blueberg Day BAC podcast, available every morning on Apple, Spotify or wherever you listen. It's Thursday, the nineteenth of September in London.
I'm Caroline HEPK and.
I'm Stephen Carroll. Coming up today is the first cut, the deepest. The Fed ops for fifty as it delivers its first rate reduction in more than four years.
Israel diverts troops to its border with Lebanon as a second wave of communication devices explodes.
Plus, we have exclusive reporting on the global shadow network transporting sanctioned Russian gas.
Let's start with a roundup of our top stories.
The Federal Reserve has cut its benchmark lending rate for the first time in four years. Policymakers voted to lower the rate by fifty basis points as they shift focus to concerns over the strength of the US economy and jobs market. Speaking after the announcement, Federal Reserve Charger Own Powell used his press conference to push back against the notion that the oversized cut was to make up for lost time.
A broad set of indicators suggests that conditions in the labor market are now less tight than just before the pandemic in twenty nineteen. The labor market is not a source of elevated inflationary pressures. I do not think that anyone should look at this and say, oh, this is the new pace. You know, you have to have to think about it in terms of the base case. Of course, what happens will happen. If the labor market were to slow unexpectedly, then we have the ability to react to that.
We have greater confidence now that inflation is moving down to two percent, But at the same time, our plan is that we will be at two percent.
Despite Pile's positive spin at multiple moments during his press conference, the half point cut was not a unanimous decision. Michelle Bowman cost a vote in favor of a smaller quarter point cut, the first descent by a fat governor since two thousand and five.
The decision to opt for a half point cut led traders to rampop bets on the pace of US ray reductions. The market is now pricing in around sixty five basis points of easing at the fed's two remaining meetings this year. That's despite officials forecasting just fifty points of further cuts in twenty twenty four, Bloomberg Intelligence is Chief Interest Rates trash is are a Jersey says he expects the Fed to stick to that pace, but it's what happens after that which is more significant.
When you think about November and December's meeting, you know, they made it pretty clear that unless something significantly changes with the trends in the economy and inflation, that you're likely to see, you know, modest cuts going forward, so you know, twenty five basis points over the next couple of meetings. But I think that's less important to me.
What I was focused on was what they said they were, where they said they were going to ultimately, and where they think they're going to even with the economy not hitting into a recession, is all the way down to under three percent on the FED funds.
Rate Bloomberg Intelligence Chief Interest Rates trashes are a Jersey, referring there to the fomc's median forecast for the end of twenty twenty six for rates to be just below two point nine percent. The move caps months of uncertainty over the timing and scale of the Fed's first rate cut. Now the focus shifts to the pace of reductions ahead well, the Bank.
Of England doesn't focused today as it announces its decision on rate. It's thought of the patient approach to reversing the most aggressive policy tightening in decades will be maintained. Our UK correspondent Lizzie Burden has more.
It's decision day on thread Needle Street, but economists and investors are expecting policymakers to stick to the status quo, holding the benchmark rate at five percent. However, wages are increasing on a faster Bank of England cutting cycle ahead after invation readings came in lower than Central Bank forecasts. In July and August, Attential will be focused on Governor Andrew Bailey for hints that borrowing costs could be lowered again in November after committee members voted narrowly to end
their sixteen year high last month. Traders are also awaiting news on the speed of quantitative tightening, a decision which could prove pivotal for new Chancellor Rachel Reeves's October budget. Will have full coverage of the announcement to do at twelve pm London time on Bloomberg in London, Lizziebird and Bloomberg Radio.
Now to other news Israel has declared a new phase in its regional war with Islamist groups. The country's defense minister, you Have Gallant, also said that troops would be diverted to the Lebanese board up, where Israel has been exchanging rocket far with HESB militants. His comments come after exploding telecommunications devices in Lebanon killed twenty six people over two days and wounded more than three thousand, according to Lebanon's
Health ministry. Lebanon's government has blamed Israel for the attack. The U S Secretary of State Anthony Blincoln says that the US had nothing to do with the assault.
The United States did not know about, nor was it involved in these incidents, and we're still gathering the infram and gathering the facts. Broadly speaking, we've been very clear and we remain very clear about the importance of all parties avoiding any steps that could further escalate the conflict.
Anthony Blincoln, US Secty of State speaking, The shift in Israeli military operations to the north of the country has spoked fears of a wider war. As the US tries to calm the situation.
European car sales dropped by sixteen and a half percent last month, with over seven hundred and fifty seven hundred and fifty five thousand sales. Total deliveries were dragged down by Germany and France as sales of electric vehicles cratered. EV sales dropped by sixty nine percent in August to just over twenty seven thousand. The UK was the only major market where EV sales rose, gaining ten point eight percent.
The data comes from the European Automobile Manufacturers Association, the Industry Group, which is now calling for urgent action from the US European Commission ahead of twenty twenty five emissions targets that could potentially cast billions of euros and fines.
Leading think tanks are calling for more ambitious reforms from the UK government. The Resolution Foundation says that Prime Minister Kirstarma is only halfway towards his target of making Britain the fastest growing economy in the G seven.
Bloomberg's James Orcock has more.
Slow growth, mysteriously poor productivity, and a contagion of worklessness. The problems of the British economy have been well charted, but now there's a flurry of policy solutions which think tanks and lobbyists are trying to get the new government to look at the Resolution Foundations say, on top of everything Labour has done so far, it needs to get its workers' reforms right, create better trade relations with the EU, and step up investment if it wants to achieve its
growth pledges. On the investment side, the left leaning think tank has an unlikely ally in the City of London thinks the UK could attract as much as seven point seven billion pounds more investment by twenty thirty if it did a better job of attracting foreign sovereign wealth in London. James Wilcock Bloomberg Radier.
Turning next to the United States and the chair of the Security and Exchange Commission, says the way markets are using AI risks heartbreak. Gary Gensler is warning that too many traders are relying on the same models, potentially causing a next future market meltdown. He compared it to the movie.
Her Like Scarlett Johansson, was that romantic interest in her and then when she went offline, all eighty three hundred and sixteen of her romantic partners were heartbroken. I don't want that to happen in the financial sector.
Gensler added that he thought automation was still a good thing overall. The SEC made a proposal last year to require brokers and investment advisors to mitigate conflicts of interest in their use of AI tools that might put their interests before clients at a moment. Will bring you more on the FED decision plus are exclusive reporting on the
Shadow fleet of ships exporting Russian gas. But first, another story that caught our eye this morning, how AI is bringing back dead celebrities and they're making millions from it. This is our colleague Mea Dowkins has been writing about how the estates of the likes of James Dean, Judy Garland, and Burt Reynolds, among others, have signed up to an AI voice cloning startup called eleven Labs, which can use their iconic tones to narrate books or other materials.
Yeah, I think this is I mean, we've seen some of this, haven't we, especially in London.
Abb of Voyage.
I went to see that, of course, which is kind of a hologram image.
As an eldest version to cod Yes.
Exactly, that's coming soon.
So me did a really nice piece of kind of deep dive into this about the financial implications, it's quite complicated, actually.
It's kind of and look, there are some in the industry who say it's a great thing and points to the que amounds money can Others aren't so convinced, and she's spoken to both sides on this as well. She spoke to one industry player who talked about this being a trend a kin to the nft fad as well as somebody to think about that. Of course, there are ethical concerns involved her as well, and you mentioned Abba Voyage.
She spoke to the co producer of that show as well, saying that AI can't replace the emotional connection that people have to arts. There are limits to this as well, but it's a fascinating read on Bloomberg dot com and on the terminal.
Okay, good stuff.
Let's think about then, the Fed's decision, now, shall we to cut interest rates by fifty basis points? Will change your own Pal says that future moves will be based on how the US economy performs in the months ahead. And let's bring in bloom Big Opinion columist Daniel Moss, who joins us now for more on this Good morning.
Daniel in the end.
What message you think Powell actually sent with this cut and then the press conference afterwards, this jumbo cut in the end.
Well, I'm not so sure we should call it jumbo. Don't forget when the head was was hiking, it did a couple of seventy five basis point moves in the other direction. That was jumbo. I think the message that were sent today was if we were perceived to be late as inflation was climbing, we're not going to be lacking for forcefulness as unemployment begins to rise. Now, you know, it's all very well for j. Powell to say it is press conference, Oh, don't take this as a future sign.
Don't take this as like meaning that we're going to do fifty to fifty to fifty to fifty. That's fine, But he would know that by starting with fifty, which the Fed rarely does absent a crisis, and this is not a crisis, he is laying down a marker for expectations. Does really a sense he's trying to have.
It both ways?
Well, I mean, what do you make of how the markets are interpreting that? Than the pricing in about sixty five basis points are further easing this year. What does it tad That's about why the fad goes for the rest of the air.
It tells you that there's a couple more cuts coming. But you know, look, this can oscillate based on data and based on commentary. Don't forget It's like, only five business days ago the consensus was that fifty would be a stretch. Yet by the time that press release came at two o'clock yesterday afternoon, people had coalesced around fifty, So things can changed, and emphasized his data dependent on all the rest of it. But look, there's a marker
being laid down here. We're going to respond forcefully to signs of emerging softness in the labor market. And by the way, inflation heading toward two percent gives us the flexibility to do so. It was interesting, he added, just by way almost of clearing his throat at the end of his sense. Of course, you know we still think we'll get to two.
Yes, which is interesting of itself, where the new normal post pandemic actually is. What did you make of a descending vote from Michelle Bowman?
Is that significant?
Well, you know, when I first saw it, Central banking geeks like me. You know, I got pretty surprised about that because I'm always asking people when was the last time a FED governor dissented, and prior to yesterday, the answer, of course was two thousand and five John Olsen in the aftermath of Hurricane Katrina. So this was interesting from a geeky perspective. Then again, when you look at it closely, it's not like Michelle Bowman favored no cut at all.
She was dessenting on the size of the cut, not the cut per se. The other thing I would say is when it comes to monetary policy, she's not particularly influential. I believe her background is as a community banker. Community bankers have a lot of clout in DC. Congress always likes to see a community banker on the foe. See. I think the vote that Paw really wanted for fifty and that he got was Chris Wall.
What about looking ahead? We've got a decision from the Bank of England today, We've got the Bank of Japan tomorrow. How much will policymakers in London and in Tokyo be eyeing the fad decision?
Well, again, we're at that point. Everyone will say, well, you know, we don't just follow the FED. You know, we act in our own domestic situation. Da da da da da da da. But they're all responding to the same trends. And I would put the Bank of England in that category. I mean, the Bank of Japan is
the outlier in this whole conversation. What's going to be very interesting is whether the Governor Kazuo Waider can back the hawkishness that he exhibited back in August with language like this on Friday, or does he you know, is he perceived to be walking away? You know, my colleague garaud Ready and I have written that one of his weaknesses is as a longtime academic figure, we'll answer questions on their merits, and sometimes it seems like he's given
giving secondary thought to the message he seeks to convey. Well, that's a very interesting point. No, no, no, it's not necessarily a signal. But this is the danger for Wader. He was forceful with hawkishness in August. You know which Wader shows up Friday.
Okay, we shall wait that interesting question. Daniel, thank you so much for your time this morning. A big opinion that columnist Daniel Moss. Then, as we think about that fifty basis point rate card. So we had the vote. It was eleven to one, of course, to reduce the rates to arrange now of four point seventy five to five percent after the FED of course held for.
More than a year.
And in terms of the projections, you've got ten out of nineteen officials favoring lowering rates by at least an additional half point over the next two meetings.
So that's ahead.
Yeah, of course, plenty to read more from Daniel and as colleagues are Bloomberg dot Com, Forward, Slash Opinion. I would also point and John Othis's referenced and his piece just out this morning as well as Bimberg Opinion has a FED day soundtrack and there's a Spotify playlist that you can click through on his piece. The first song on the list, the first cut, is the deepest. Let's
go to a different story now. This morning some exclusive Bloomberg reporting on how Russia's weaving a global web of shell companies to create a shadow fleet to export liquefied natural gas. This is an effort to circumvent US energy sanctions over the Russian invasion of Ukraine. We've got Bloomberg Stephens Staptinski with us for more. It leads our team of energy reporters in Agist even great to have you on. We've reported previously on the shadow fleet of ships carrying
Russian oil. This investigation looked at the way Russia's exporting LNG from its Arctic terminal that only opened last December. How are they doing it?
Yeah, I mean the LNG dark fleet is much smaller than Russian the Russian one which is so far when you some calculations show that they've a met hundreds of billions of dollars with that trade for liquefied natural gas, it's a little bit more challenging. Unlike the oil industry, where there are thousands over seven thousand vessels available, so it's easier to hide your movement and buy old and smaller ships. The LNG industry liquified natural gas is much smaller.
It has only seven over a little bit over seven hundred ships, and it's a very specialized trade, so you can't just bring it to any old port. You have to bring it to a specialized LNG export terminal or import terminal. So through our reporting we discovered that a company in Dubai we're not exactly shared the relation with Russia. But this company started amassing vessels in March twenty twenty
four to help Russia essentially export the fuel. The fuel was finally exported with one of these ships in August. A picture satellite pictures confirmed it was the first of August. The vessel called Pie was faking its AIS location, so that ship tracking data showed that it was in the barns.
See.
Okay, so who's buying this leng what are the known risks about this?
So through our investigation we found that the Russian government has been putting pressure on Arctic Energy two to get exports out of the facility. Because of the sanctions from the United States last year, they weren't able to get their icebreaker ships and they were also struggling to find buyers and to this day they still do struggle to find buyers. So because of that, they were looking at waves to get the fuel out. That's why the dark
Fleet was developed. And I think it's important for Putin as well. He's looked at this project, which has been hit by sanctions, as a sort of prestige project. If they're able to get these exports out of the facility, then it shows that Western sanction aren't effective against Moscow's
trade of fossil fuels. So this has gotten Putin's personal stamp of approval to get it through and through our According to people with knowledge of the strategy, there is pressure from Russian officials to get the shipments out.
What about the counter efforts to is this? Surely the US must be looking at the circumvention and thinking about how to combats.
Precisely so, the shadow fleet of vessels were accumulated over the last few months, and the first shipment was in early August. In quick succession, there were three more shipments. All three of the vessels were faking their location when they picked up the energy from the Arctic Energy to facility, but later in August the US slap sanctions on all three of the ships. There was another instance where one of the sanctioned vessel transferred the energy through a ship
to ship transfer onto a vessel that hadn't been sanctioned yet. Basically, less than two weeks later, do you sanction that ship as well? So US is taking unprecedently fast steps to make sure that any way they can put pressure on the development or further development of the Dark fleet, and
so they're throwing sanctions on very quickly. By doing so, you're also deterring potential buyers, because if you're a company somewhere looking to potentially purchase the fuel, would you risk counter sanctions from the United States if they see that you're involved in this trade.
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Mm hmm