Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin Talks Money Market Rap. What are we talk about the biggest moves in the markets this weekend?
What is driving them? I am Maren Sunset Web as you're at large with Bloomberg UK Wells.
And I'm joined steering senior report and author of the Money Distilled Newslater.
Morning John Man, Morning John. I think it's morning John. I'm not even sure anymore whether this is a truth.
Day or not a truth day, but well beas I just look at what was Hampton in the market, and the oil praise today is up, so it must be our war O day.
It's a war on day, not a war on day.
Okay, So here is the question? Then, is this just where we are now? We're now in We're not in an extreme crisis mode when it comes to war, not in a constant let's or bomb each other mode. We're in a constant mini crisis no one knows quite what's going on, rolling mode, which is totally different.
I suppose that's one way to the state of permanent kind of hubbubs, a.
Permanent hubbub, but not necessarily a state of permanent war. Yeah.
I mean, well, I guess what was the problem here is that every one wants an off ramp, but the two sides can't agree or in satisfactory or ramp.
Yes, but that rather suggests that we're on a very very very long, super messy off ramp. Everyone wants both sides kind no one really wants to keep going. Iran doesn't really get one to get too much more involved with irritating someone who's unpredictable, so provocative, et cetera. And Trump is a bit nervous about taking anything further in case they also PYPA really does get very severe.
So everyone kind of wants the offer. They almost to agree to everything.
But so we are on one, just a slightly abnormal one, and somehow markets have to work around that. But if markets are supposed to look at the look to the long term, maybe markets are right about kind of ignoring at all if we are on an elongated, long off.
Rep I think that's a little bit too upbeat, I think, John.
I'm trying to make this podcast more upbeat.
Don't know.
People love a bit of doom and gloom. No, I think that Actually I was looking at kind of markets this week, so the UK, particularly in some of them those was there was a couple of kind of significant sort of offit warnings, and mine was from Chris Nicholson, which is a host builder, and basically last month they said it looked as if things were faint and near the end of last mind so the war had been you know, running for about our minds and they said
it's basically okay, you don't need to worry. And then this Mondic came out with a trading update. They basically said, well, actually, no, things have actually turned down quite a bit and now we're going to he doesn't look as if we're going to sell any land this year. And also, you know, our profit's going to be much lower than we expected because we're gonna have to kind of rain everything in. And the share price felt something like thirty five percent
in the day. And then you have big consumers Goods group wreck Ad beenkerser. They came out their share price has been fallen since February, but on the day they fell by an our five percent because you know, they said that the disruption the Middle East is our sales l like for like sales much lower than they expected. And I think what this kind of drives home is that the market is now at the point where it can't really put a price on stuff until it starts
to see the impact coming through. And I think that's the problem we sort of set there, and it's so reflexive. It's like, we look at the prices, we say, well, the market's not reacting, so it can't be that bad. But but the market is waiting to get data from the real world because it's kind of like, well, you know, how do we know what's going to happen next? There
is no way you put a praace on it. So I think we're just going to keep seeing this As the bad data feeds through, maybe some of the kind of impacts that we thought we were going to see earlier on will start to happen because they basically you need a can approve it moment, particularly because everyone's got conditioned.
This is very different to how I think we've thought of markets in the past. We thought of markets as being a predictive machine to a degree. You know, not everything is priced in always, of course it isn't there ridiculous idea, but quite often you say, well, you know, markets a pretty clever and they're pricing a lot of stuff in an advance, and now you're suggesting there's this different environment and the market is not pricing things in.
It's waiting till things actually happen. It's not predictive, it's reactive to reality.
Well, I guess it ties with this overall thing that, you know, whatever. The kind of the twenty tens were like the long duration decade, but it basically time didn't matter, and that was partly tied up with interest rates. We know, the kind of far future. If you were going to make a load of money in the far future, that was worth as much as making a load of money tomorrow.
So you bought the companies that were going to make a load of money in the far future because the future seemed predictable, because I think the predictability horizon of the world generally has shrunk to like massively. So it's a kind of short duration world. And that's also reflected in the market's sense of visibility if you want to
get high fluting about it. Otherwise you could just say nobody knows what's going to happen next, particularly whenever you know trum poor Theranians can turn around and say something completely different from day to day, so I just think the markets. It's rational that the market's discounting ability has shrunk massively.
I want to talk briefly about the UK and that you know, we've been very positive on the UK stock market but very negative on the UK economy, and I remain pretty negative on the UK economy, in fact, very negative on the UK economy. But there have been some very sort of slightly positive things happening right, mildly stronger than expected GDP growth in February, or that we only half care about that because that was February before the war.
A slight fall in UK unemployment that again wasn't ad per expected, although you could argue that that's simply to do with people just going, well, they give up.
I give up. Now we're going to get a job, so I give up. And there's also a very interesting.
Conversation to be had around that, whether that's to do with effectively the UK being on the edge of a recession, or whether it's to do with AI.
I suspect the former, but I know a lot of other people think I think the other.
And the final thing that has happened additionally out this week is there's some news of the UK budget deficit is slightly lower than you might have expected at a three year low and again, and that sounds good, but it's worth remembering that we still do have a will been great deficit, and the debt is still building, and that that fall in borrowing is presumably connected to the sharp rise in taxes, which may still have a laver of reaction over the next few years. You know, you
get when you put up taxes. Initially you normally get a revenue bounce, but then people are just their behavior and that revenue bounce mildly disappears anyway. Nonetheless, nonetheless, if you wanted to, you could have a go dragging dragging some sparkle out of these three things.
You can.
And I mean, I.
Actually think the underlying strength of the UK economy is better than most people had thought, and have thought that for a while. And I do think the biggest problem the UK has is the head went from bad governance
and it's been like that for a long time. It's not just labor's fault, but of certainly kind of raised it to you know that as bad as the previous law at least, and so you know, we've got I mean, if you look at the PMS came out today, so their snapshots activity and services and manufacturing industries much much better than expected. And these are for April, and partly that's probably you know, companies kind of stalking up ahead knowing that things are going pear shaped in the Middle East.
But the point is that none of these economic figures by themselves or the certainly not taken together a point in the economy that is in like massive distress. But the I mean, the sentiment indicators are just off the chaps bad. You know, there was that we saw a nip Sauce consumer confidence reading yesterday that shows that people are gloomy than they were ahead of two thousand and eight and in nineteen seventy nine of all times. So there's a there's a bit of a weird disconnect, which
I think is probably driven by people hating inflation. I think I think inflation is probably the big drivery most people misery, because everyone feels poor and feels that they're being ripped off and doesn't see things getting any better. But yeah, the underlying economy is not too bad. I think the big risk is that if interest rates stay where they are or even go up a bit because of you know, they kind of energy crisis that we're
probably facing. Then that will knock a lot of that on its head, particularly things like the housing market and the wealth effect from that such as I mean.
This is I was going to say, people hate inflation, but one thing that's really really difficult is general inflation combined with falling house prices.
That's very hot. A lot of Britt's tough gig.
Well, yeah, and you see all these news stories in the papers at the moment, but people saying, oh, I can't sell my you know, X, y Z house for this price, and obviously these solutions will cut the price.
The problem is people spent so long. Yeah, but people spent so long thinking that how is what the X And the other thing is when you look at the prices from when they bottom, and this goes back to what we talked about the other day, they haven't actually made any money in real tails, even if they get to sell them for the prices that they can't sell them for. So I think people are waken up to what is actually quite a big hall in their household psychological balance sheet.
Yes, yeah, so it is interesting and I've got we've got an interview coming out with Andy heldin soon and when I who used to be the economist at Bank of England. And one of the things that we talk about in that is something that we've talked about and I think with Russell Napier and other people previously, which is about her actually household balance shees but house ord
balance sheets are in really good, really good shape. You know, the UK household sectors really deleveraged over the last decade and you know, were they to feel confident, a lot a lot of good economic stuff could happen in the UK, but they really really don't.
Okay, So that's that bit of misery. So so much for facts for that.
John Plea's well briefly to talk about this business of pinsion mandation and this idea that pension funds could be forced to invest in particular areas of interest to the government and that there's been some changes there and has loads this.
Week, Yeah, thankfully. So basically so we know the Mantion House Accord was like a voluntary agreement with seventeen of the biggest pension providers in the UK to stick ten percent of DC pensions into private assets and five percent of those had to be in the UK. Now, okay, let's park whether that's a stupid well, it is a
stupid idea, but let's part that. So the Government in the Pensions Bill, rather than saying okay, well, these guys have agreed to do this, that's fine, they're stuck in this clause which basically says that if they don't do it, we can force them to do it. And not only can we force them to do what they've said they do in the Mansion House agreement, we can force it is completely uncapped. We can tell them to invest in anything at all. The House of Lords thankfully kicked that
back and said, no chance, that's not happening. The Government came back and said, well, okay, we will just be able to mandate basically to the limits of what the Mansion House thing says, so ten percent and private assets. And last night the House of Lords voted against that
again and pinged it back to them. And so now basically unless the Government kind of backs down on those, chances are reasonable that actually the whole Pensions Bill will collapse, you know, or rather it won't get through in this parliamentary session. And the thing is, the Pensions industry is not especially happy about that because they actually like a lot of the other changes, which you can't go through here.
But but the point is, you know, I don't know, I'm kind of grateful for the House of Lords here. It's nice to see that someone's at least attempting to defend, you know, our freedom to invest in what we feel we should be investing in, rather than having it dictated.
To I didn't know you were usually anti the hazard Lords.
Well, I'm not. I'm actually quite pro the House towards It's one of these things that walks a lot a bit of in practice than it does in theory.
Absolutely, and it's worked very well for many, many hundreds of years, which maybe leave it alone.
Anyway, that's not our area.
We are not political at all.
Yeah, we are not political. On the subject of pensions.
We were talking the other day, you and I about NEST, the publicly backed pension fund that thirteen and a half fourteen million people have their utenoal pensions in, and how we're not.
One hundred percent impressed, and you're writing about this week. But also there was a letter this.
Week that went from the regulated the pension funds warning them that they need to keep an eye on their liquidity, and also that they will face or could face, huge costs if they sell their private assets. And I thought that was very interesting. Costs, right, costs, by which we partly mean actual costs defensive sell private stuff, but by which we also mean losses.
Yeah, yeah, selling us a discount. It's almost it's almost like these people who think, well, I can't sell my house for the stated nave, like, well, that's because it's not worth the stated nav There was a really good paper actually from a kind of ascent manager that I saw in ft Alphavil the other day, Sona Asset Management, and they sort of did a very good breakdown of private credit and its history and why it's kind of
running into trouble just now. And I think that the begg Is takeaway from it was not so much that private credit's going to cause something like two thousand and eight or even that is not a valid asset class. You know, it will still exist in the future, much like junk points still exist. Even alow they did a big blow up at the start of their career.
Just asking for helpe mel John.
But their point was they're going to go through such a long period of poor performance. And I think this really gets to why like we don't really or at least if it is in your pension funds, you want to know about it, and probably ideally you don't want in your pension fund because now he's probably not the time to be getting into this stuff. And again it's just comes back to what we said on the podcast the
other day. People need to just take responsibility for knowing what's in their pension because otherwise, you know, no one else is going to do it for you.
That's going to do it for them at this point. Yeah, okay, let's send you something optimistic.
And the sun's.
Might be with you.
See through your window. That's quite right out there.
Sorry, take it back, sun is shining with me as well. That's a bad thing. They've got the sunshining all right, brilliant.
So just let me say to everybody that if you want to know more about the miseries of the UK economy and and.
Some of the things that are great about it and reasons to be.
Optimistic, don't listen to me and John, but do listen to our podcast out on Monday with Andy Haldane, because he comes up with a lot of things that will make you think. But likely this is going to be okay, although John, you and I believe that's some major policy changes and the UK is in a great place. Without those major policy changes, things are going to be tough, but there's so much going on underneath all the misery that the future could be bright if only we had a competent government.
Thanks for listening to this week's Merrin Talok's Money Debrief. If you like, or share, rate, review, and subscribe whereever you listen to podcasts.
Also, if you're sure, to follow me in John on ex or Twitter at marinis w and John Undersclotch Stepe. This episode was produced by some Mesadi production and support and sound design by Moses and Questions of comments on this show and all our shows are always welcome. Our show email is Marin Money at Bloomberg dot net