Bloomberg Audio Studios, Podcasts, Radio News.
Welcome to the Merton Talks Money Market rap where we talk about the biggest moves in markets this week and what's driving them. I'm join Stebick, senior reporting author of the Money Distilled newsletter. Merion is offer on the slope somewhere hopefully not falling over. So I'm stepping into lead this week's market debrief and with me in the studio is always is Bloomberg Increasingly as always is a Bloomberg
Opinions market sash and a new guests. So from our Marcus Today team, Morwenia Conium, thanks for joining us this week more whena and thank you once again Marcus. Very good of you as always. And I thought, actually we'd start with Morewena because so Morwena goes. You need watch this blog on the Bloomberg website in markets today and this is the basically the ruling market report and more when there's one of the great reporters on there and
has been covered closely this week. So I just wanted to see what's the thing that stood out to you more was the big story this week? More inflation a haha.
Started off on Tuesday when we had labor market data which showed wage growth slowing, the pace of increases slowing a lot more than had been expected. That put the wind and sales of those who are looking for the Bank of England to cut interest rates sooner rather than later, because obviously if wages aren't increasing as fast, then that
suggests that that pressure and inflation is coming down. And we actually saw markets adjusting their bets on interest rate cuts from the Bank of England to fully pricing in at one point for April and over sort of seventy percent chance of that happening as soon as March. What we thought was going to be the really big story was actually inflation data on Wednesday CPI reading, that is the final CPI reading before the March interest rate decision
from the Bank of England. It was expected to show inflation had called, and it did, but the reading was actually in line with expectations. There are a few pockets of things that were slightly higher than we'd have liked to have seen, but it really did solidify that narrative of disinflation. Didn't see a huge change in what traders were expecting from the Bank of England, but it certainly didn't.
Also what had already happened the day before. We've seen the pound therefore coming down this week quite substantially, and that's actually been added to today by policymaker Catherine Mann saying that the inflation was better than she hoped it would be, which suggests that the balance may well be in favor of a rate cut very very soon.
I got this sense, certainly from just the vebes of the last meeting. They basically Andrew Bailey is now looking for an excuse to join the dovish side, and the blank in general is no more freaked out about the employment market than as a bit inflation. I don't know, Marcus, you've been talked about. There's quite a lot recently in the podcast. You think they're behind, don't you completely?
And I think I think they should have cut last week or whatever it was, for every fifth part of me. But I think the reason they didn't was they hadn't prepped it. But I think Bailey was literally needs an excuse not to cut. I think man as we want of saying, would almost go fifty basis points now. She's quite curial. I definitely think Taylor would, and probably so dingerous so I think they will almost certainly cut on
Mars the nineteenth. I think they will cut again, possibly the next meeting, but certainly by June, and I expect a further one later than the year. I've for that, and I think that they've they've got, they missed the boat. They made a policy mistake. I don't know what Hugh pill is on. He thinks indistrates should be higher. So the one to watch is Clailon Bardelli, I think, who is quite hawkish, and she actually moved much more to neutral last time around, so I wouldn't be surprised to
see a seven two vote even for a cut. But yeah, we've got we've got some serious problems and youth unemployment is coming front and center everywhere. I mean, I don't really trust any of the OECD data, however, when it's useful, I'll choose it. And this time around they're actually saying that youth unemployment in the UK has actually risen above
the EU average. That is shocking, and it's not just down to this current government, but this current gol is making it worse, and largely as it's coming from all angles against ractual reason, it's including the ifs are saying that minimum wage rises, and particularly this sort of eighteen year old. You know, by upping minimum wages for eighteen years, it's price to the matter of the jobs market. We all know the graduate situation is pretty poor, but the
eighteen to twenty five bucket is in unnecessary stress. There are lots of medical reasons apparently about it. But I think the government is going to have to and will backtrack on this very soon, I think.
I mean, how do you think that may occur? I mean, do you think they're all because part of those too the shoe see I don't know when is that the minimum wage itself is very high. It's one of the highest in the world relative to the median wage, so it's about sixty six percent, which is the kind of target. But obviously people don't consider that that's much much higher in the northeast of England than it is in London, for example, But that there's also this other issue of them.
Basically there's a lower minimum wage for eighteen year olds than there is for twenty five year olds, but they've started to harmonize that. So basically it's going to cost you almost the same.
And it's much more expensive to hard people anyway. Yeah, and then this is the point that people who are going to be mostly joining will be the younger ones coming in as trainees or whatever you want to call it. But particularly in hospitality, in retail, and even in construction, and those areas are getting killed.
I was going to say the increased national insurance and employers in the budget before last mostly impacted those kind of businesses which have a lot of employees, you know, all of whom they now who may be near at the minimum wage, they're going to have to pay more on that. But also the national insurance contributions going up, and so it seems to be impacting the same group of people.
Well, we're having what's such a strange market. It's not so much people getting fired. Its employers having been sort of holding on to employees' post pandemic, worried they wouldn't be a replacement, are now not hiring. It's it's a lack of hiring which is coming through. And therefore as the youth come through and we'll look for jobs, there aren't the jobs there.
And you know, just an interest because on this, because I do think this is quite interesting, because there's that thing where Okay, so the economy is in a sticky situation, but it feels as though if we get interest rate, it's coming through, and if the government doesn't keep going in the direction is being going in, then there's still a chance to perceive things or ton things that don't make this better this year. I don't know if you would you think, Mawena.
I mean, it's difficult to backtrack on things that they've announced as their planship policies fifteen.
I think let got on new turns.
That's true, but usually after usually before they actually announced them. I mean, it feels like they've announced sorts of things and you turned on them, but usually, you know. I think it's a tricky one. And whether we see you know, waging inflation continuing to sort of come down overall probably also kind of makes the difference as to expectations at the top of the pile. So I don't know whether it's something that they can easily resolve. You can't stop
people kind of progressing through life, graduating. You've got a population that you've got, you've got the employment needs that you have. It's a really tricky one.
I think we haven't had the Employment Rights Bill really yet kick in, and that's another thing which is going to hurt the employment. It makes again much more expensive for employers are going to have to give rights much earlier and don't have the ability to be set to say higher and fire or you know, people don't work out. And then we also have the renter's rights coming through, which is again going to impact on the housing market. So there's a lot of stuff to come through which
could be worse. Having said all that, I'm actually quite optimist on the UK economy despite the best efforts of this government.
Give us the bullish cays then.
What I mean we are seeing bag of England saying zero point nine this year. I think that's too low.
I think we will be in the early mid ones, which saying definitely, oh yeah, absolutely, yeah, you know, I'm all around, but I mean it's it's to my mind, what's impacting is is the shift from the private sector has been hampered by all the things we just mentioned, and the state sector is is still waiting for the big boosts coming through from all the various plans that all the taxes and all the various different measures we spoke about or were designed to raise money's for so
I think the state sector is in rude health in that sense, and we saw the last the last data, the strongest bit was very much government spending. I think that's an ongoing trend. However, this private sector real data, particularly things like purchasing managers surveys, even the British are retail consortiums, sales are actually more optimistic than we thought.
This always the first quarter in the UK. Maybe it's our seasonals in our stats, I don't know, but the first quarter is normally pretty strong and it looks like this first quarter is going to be again quite good. So I'm blast half full.
Well, that's good. And obviously if industry it has come doing hose and market maybe kicks another and it's been really weak for a good couple of years now, I presumably we can get better.
And rents have actually well, the pace of rent increases has been coming down quite substantially, and it's you know in London even you know, we're seeing it sort of the lowest rate inflation I think since the peak in twenty twenty four. You know, it really has come down a lot, and so that helps interest rates coming down may help landlords further. Although I think there's quite a lot of other things that need to be done to help landlords further, to make that a more attractive proposition.
But I think you know you've got certainly some backways, and like you said, the purchasing manager's surveys are indicating increasing confidence. Perhaps now some of that uncertainty from the last budget has passed. I don't think we're necessarily expecting the same kind of drama around the next one. We haven't been talking about it so much this time last year. We were already on it.
The statement last year was was an important thing because they missed. This time around, we're allowed to believe marks. The third I think will be a non event. So yeah, it looks like the headroom. The headroom very boring, ongoing problem, looks for the moment not to be an issue in that that I think is more saying is this.
Bond yields actually coming down as well means that the government does have true money potentially, So that's good for everybody.
We hope it just there would be a lot cheaper it wasn't for the the political milestrom strum ash.
Still thrist into an extent there as much.
I think it's guilts of forty fifty basis points high than they would otherwise be if we weren't worrying about from one day at the next the fate of who will be leading covenment.
Yeah, I know that will be interesting because obviously next week we've got that big buy election and then me we've got more elections and a loll beacon a trap by her points for Kistat up presumably, But I guess we just have to wait and see what happens with that. But there was another big story this week, A massive name in the city, another kind of monsters UK asset was snapped up by foreign bayals. Marcus, what do you make of the shrewder still?
Well, I mean I think ever since Bruno Shoda died and his daughter the only sort of essentially became the most important person to represent the family, it always looked like she wanted to sell. And I think that's clearly what has been shown. It's it's they wanted to sell all of it, and they want to sell all of it for cash, and they found a very interesting buyer. Nuveene is not a very well known name in the in the UK anyway, I wasn't sure it was a
cleaning product at first, but it isn't. It actually very long older company based in Chicago, but it's owned by the Teachers Pension Fund, Insurance and Annuity Association, which is a big thing in the States, you know, and this is this is legacy money, and this is retirement, very safe, secure. But they're actually really smart guys, and I think they've had the strategy for quite some while within what they're doing in the States, from private AIRCUA to private credit
to all sorts of different types of things. But they've realized that the one big missing point they've got was exposure outside of the States. Now, as the dollar we've seen weekend ten percent or so this year, a lot of US money, not just foreigners putting money into US assets, they're going to have to think about, Okay, maybe we hedge your dollar exposure, but also American investors thinking, hang,
do I not need some offshore exposure. It could be emerging markets, could be in commodities, doesn't have to be in Europe, but it could be in Asia. And the one thing that Schroder's got is large exposure. Has got three joint ventures China, India, and Japan, and obviously a huge suite of products in Europe and the UK, and I think it's a very interesting move for them, for teachers and moving to gain you know, extra trillion dollars worth of assets. It's probably cheap of them to buy
an old city name which wanted to sell. Then buying in the States give some better diversification.
So you're sort of seeing this as part of the dollar hedge and story almost.
Yeah, I think it is. I I think, you know, obviously the big black Rocks and Wellington's and Fidelities. I've long been offshore, but a lot of the sort of endowment money and university and all that sort of stuff money in the States, and there's lots and lots and
lots of pension funds haven't much exposure offshore. And this is a very smart move I think for teachers to offer a wide range of products at a cheaper price for them, and it gets some you know, exposure outside the dollar, and obviously their internal client based a lot more options. There will be a lot more I think.
I'm not saying it's time to buy Aberdeen or the rather different companies that there might be in a comparable situation to Schroeders but certainly I think US money managers buying overseas money managers is I think that's what we'll see more of that.
Oh okay, that's interesting because that all sector and the UK has been can out armored, hasn't it. I kind of if it's come back a bet, No, hasn't it. But it's still one of the cheaper bets to see the fund management as management.
Yeah, the AI scare trade of course very well. Yeah, so I mean already, yes, we do have quite a lot of value potentially in new stocks. They are relatively cheap. But there are particularly quite a few sectors which usually would be immune from all the technology hype. I suppose this week were impacted because it's sort of started to seep into areas that had previously been seen as very unexciting, like sort of software information firms and publishers and wealth managers.
So that did take a chunk out of those, but like I said, they have mostly recovered a little bit. Well, it's just because the.
FIRSTY one hundred that was checking the starts from the start of the year and I actually we're up about eight percent this year as the S and PECE flat and I think Japine's the base. It's of a bit twelve percent in stealing terms. But I mean have you been have you been noticing that and noticed because obviously they one hundred has been doing quite well. Was the two fifties still lagging a bit? Any scenes of a chef the med caps or.
Yeah, I mean they have been favored by quite a lot of strategists coming into the year, and I think we are seeing quite a bit of value still to be found in those mid caps. Of course, you look at the Footsy one hundred, you have a lot of effects from the dollar actually because a lot of them earn their earning overseas, particularly in US dollars, so you
have a huge currency effect there. And the Footsy one hundred is also driven by these big international companies which have had a lot of strong drivers this year, like miners. I mean, you know, precious Meussiles have been absolutely through the roof and that's really benefited those companies' defense has
become another theme. So there's more sort of thematic trades I think going on that are helping the Footsy one hundred, which aren't necessarily about being in the UK, Whereas I think when you're yeah, looking at the mid caps, then they are generally undervalued, and we have started to see I suppose sometimes it misses out, but sometimes it's been relatively said.
And even energy, I mean, especially if you get something goes on in the Middle East over the next few days, which is a possibility. You know, the energy is doing better, you know, and that's that's a definite for evaluation of lots of different types of industrials and staples and and you said sort of value. And the old companies that burn profits and pay dividends.
Shall you know, biggest company in the futsy one hundred. You know, you're always in the top three caps change, So that's a big, bigger driver overall success.
Yeah, so old fashioned stocks still doing well. Watch the al praise okay for I mean you were seeing the elttle and you thought that maybe something mate happening around. I won't give you that feeling.
For two reasons. One because if you remember the lead up to the Ukraine or everyone went, oh, yes, he's putting all these he's putting all those troops on the border, but he won't do it, will he Well he did, and he did because there was a sense of momentum.
And I think when you have two sets of aircraft carrier fleets, there is a momentum there whereby you know, you have to think, well, if a deal isn't shown from the ittolers in the Iranian regime fairly soon, which is exactly what Trump wants, and it's gonna be quite hard, I think to resist that sort of momentum. So and I think, to my mind, I cannot see you're on backing down, and therefore I think there will be almost
a yeah, we fall into wall. But I mean I think that's a there's a high chance that this is not backing down. And the more and more munitions have been put in in the zone, it becomes almost sadly self fulfilling.
Okay, well, I think I think when that one will we'll wrap up. We'll see what that pomp show. Well, you see what happens next week. But but it's not. Well, thanks very much for that, Marcus, Thanks very much for weather. Thanks for listening to this week's Merton Talks Money Debrief. If you like our show, rate review, and subscribe wherever you listen to podcasts. Also be sure to follow me and Merin on x slash Twitter, Merrin's at Meren s
W and I'm joined Underscore Step. This episode was produced by Summer Sadi, Production support and sound designed by Aaron Casper. Questions and comments on this show and all our shows are always welcome. Our show email is mereon Money at Bloomberg dot