Global business news twenty four hours a day. If Bloomberg dot Com the radio plus Globo lact and on your radio. This is a Bloomberg Business Flash from Bloomberg World Headquarters. I'm Katherine Cowdery. A third day of gains on Wall Street. Markets are showing further signs of stabilizing after wide swings in the wake of Britain's decision to leave the European Union.
Consumer staple shares are leading the way, as Hershey rallies her She's been up as much as twenty one percent after report that Mondale International made a takeover bid for the chocolate maker. Trading and its shares has been halted pending an announcement. The SMP Utilities Index is traded at a record high today. We took the markets every fifteen minutes throughout the trading day. DAL Industrial Average is up two hundred sixteen points one percent at seventeen thousand, nine
hundred ten. SMP five Funded up twenty five points one point two percent at two thousand ninety five. The NAZDAC is up forty nine points, a gain of one percent. It's trading at eight. West Texas Intermedia Crude oil down sixty eight cents of barrel one toe sparckled down five dollars announced at and the tenure treasury is up ten thirty seconds with the yield of one point for eight percent.
And that's a Bloomberg business flash. You're listening to taking Stock with Kathleen Hayes and Pim Fox on Bloomberg Radio. Political uncertainty, a recession perhaps baked in the cake. Now, that's all that's going on in the UK, and more since the vote last week to leave the European Union joining us now to look at what's next for that economy, what it means for the British pound. Is Carl Weinberg,
chief economist managing director at High Frequency Economics. So Carl, first of all, let's get right into Mark Kearney's speech today. He suggested very clearly that the Bank of England is ready to cut its key rate this summer. UH some are already saying they'll be two rate cuts, one of one in July one in August. And he also said, well,
let's start with the rate part. In my view, and I'm not pre judging the views of other independent members of the NPC, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer. Carl, what do you what do you what do you make
of this? Was this a surprise? Well, um, yes and no. And first of all, any time Mark Arney talks about cutting rates is a surprise because if you look at his career, both in Canada and the UK, it's always been you know, rates have been too low for too long, they have to go higher, And of course with that comes to the caveat that he's never actually hiped rates on those threats, so that when he talks about easing, you have to take a deep breath and you know,
wonder how much of this is you know, conditioning us for expectations rather than actually prepared to do something. I think, in terms of the mechanics the way it works, he laid out in his speech pretty clearly a plan, which is they're going to talk about it in July, but they've got to come up with new forecasts and new options for August. So I think that maybe they made disappoint markets in July, but probably will ease in August.
One thing to keep in mind about all of this is that in order to justify a cut in interest rates, they have to have some forecast that tells them that the inflation target is going to be violated, and to make that forecast they need some idea about a policy setting, and policy, as we all know, is extremely up in the air right now without even a prime minister to
make it, let alone a Parliament to approve it. So I think that waiting until August will give them a chance to come up with some plausible scenarios and some crude expectations for policies so they can justify a change in rates. I think it's going to be August. Carl explained to us why this um this certainty or you know, some amount of data suggesting that the inflation target will
be violated. Presumably then to the downside is necessary because again in the latest Bloomberg survey done by a Bloomberg intelligence team in London, of the economist survey to see a recession over the next couple of years, they're evenly divided between this year and next. Only twenty nine percent are saying a recession at off. There's a recession on
the horizon. Isn't that enough justification for a re cut? Well, the Bank of England, like the FED, has a mandate and its mandates are to support the unemployment objectives of the government, and primary UH mandate is to hit the inflation target, which is two percent year over year increase
in CPI. So UH most importantly he has to be focused on the inflation number, and by saying he's going to ease, he's saying he has a premonition that we're going to see the inflation rate actually drop substantially further than it has already. Headline CPI is around zero. Core CPI is around one in a fraction percent in the UK, so that have to be a substantial flowdown and substantial
increase in splack. That's all good, is a back of an envelope calculation, but to be the basis for justifying and easing of monetary conditions, he's going to have to show that in a forecast in the Bank's inflation report. This is a very well established process that they don't work on the basis and back of the envelope, and I think kinds of statements they act on the basis of model based forecasts and other kinds of formal forecasting techniques.
So they're going to have to run this through their model and make their models show them that there's going to be an inflation undershoot, or at least a good likelihood thereof, and they need more input from the policy. So I had to be able to do that. What does this mean for the pounds sterling down against the dollar after Mark Kearney suggested that rate cuts are a very strong possibility anyway, And of course this pound sterlings tumbled since Paul's closed. Yeah. Well, what he's done is
he's indicated what we used to call instead days. And I know you remember this, Kathleen, a bias towards easings. You know, this is a statement of his personal buyo is at least to it easy. And the market has taken that as a promise of lower rates to come, and they are doing what they've been told to do, which is discounting that bias as being a premonition of what's going to happen. I'm not saying that he can't
do this. I suspect he probably will, but he's just not going to be able to do it between now and the MPC meeting in July. UM. As far as the markets, though, the market is always right and the market believes that there's a rate high coming soon, and whether as soon as July or August, it's changes the spread, it lowers the attractiveness of the UK assets even more to foreign investors, and that's going to mean the cheaper pound. You know. Markets also deferred this morning on selling off
after the current account numbers came out. But the current account numbers have been just appalling. And we've been warning readers of high frequency Economics for a long time that a Sterling crisis is a potential outcome of running a current account deficit as big as seven percent of GDP, and the numbers we saw this morning were that order
of magnitude and not getting any better. So I think there are a lot of reasons for Stirling to cheapen, and that Carney's statement today probably catalyzed some of that thinking, maybe a little bit firmer on the side of all right, Carl Weinberg, thank you so very much for so eloquently summing up the uh the forces that are facing Mark Harney. He's head of the Bank of England. As he looks at the possibility his own bank forecast a deep recession
if this Brexit vote goes through. So Carl putting out though, that he's a couple of hurdles to cross, and one of them, of course, is inflation. Where that is looking when the bank offing gets to July. I'm Kathleen Hayes. This is taking Stock. My co host Pim Fox on vacation this week, and this is Bloomberg. A week from tomorrow, the United States Labor Department will re releasing its jobs report.
In the meantime, we're gonna look at some of the big indicators of the labor market as the Fed considers its next rate move coming up. This is Bloomberg.