Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin Dogs Money Market Rap. What we talk about the biggest moves of the markets this week and what is driving them. I'm Maren Zumset, Web Editor at Large with Bloomberg UK Wealth, and.
I'm joined Stevig, senior reporter of Bloomberg and author of the Money Distilled newsletter.
Okay, well, John, when we talk about what's driving the moves and market this week, I had much doubt there. I will say before we get going that you and I are speaking before President Trump speaks at Davils.
Yes.
So he's been saying a lot of things this week, a lot of social media on the go, a lot of messages, a lot of publishing of other people's messages, a lot going on. But he hasn't actually spoken yet, so there may be some fairly massive market moves when he is finished speaking.
Yeah, and he has been a busy boy this WEEKO. Actually he's not the only thing moving markets. Ess. Actually, Japanese election promises that have been moving markets in quite an extraordinary way. At the star of the way.
It's interesting, isn't it. And you might think looking around the world geopolitically that the most important thing would be the idea that America might annex Greenland against against the will of the rest of the world. But in fact Japanese bond yills have had more impacted.
I think that's it's probably what's starting, isn't then we can talk about Trump because because what happened in Japan is the Japanese bord market yields spiked because the Japanese Prime minister, they has called the snap election to show up her power, clearly hasn't spoken to trees amazing, hasn't.
Seen what happens with elections elsewhere. But anyway we go, and.
Of course you need to bribe the electorate whenever you're going to go for an election. And one of the hard particular choice has been to say, we'll look for the next two years, we're going to knock off the equivalent you know, Japanese vat the sales tax on food, so it's currently eight percent to zero percent. The thing is, obviously Japan has got a massive kind of date to GDP ratio and markets are sort of going, well, wait a minute, how are you going to pay for this?
And she's sort of saying, well, we're not going to have to issue more points to pay for it, but she doesn't actually said how they will pay for it. And the other thing is that the opposition parties, no
one's saying, well, that's a really daft idea, that's really expensive. Instead, they're all competing to say make even greater promises, so, well, you'll scrap it for two years, we will scrap it for good or I hope we actually cut the entire V eighty and a half from ten percent to five percent, and so there's this sort of almost arms race.
Yeah. Well, it's interesting, isn't it that the natural state of a democracy is generally inflationary, right, Yeah, yeah, I was reading reading about this the other day. You know that that democracy is naturally inflationary, but the point was
that capitalism is naturally deflationary. Capitalism tends to bring prices of stuff down over time, and so there's a conant tension across all types of capitalist democracies between the democracy side, which is inflationary, and the capitalist side, which is deflationary. And that deflationary side has been winning in Japan for a long time. Yeah, but now the naturally inflationary side of a democratic society is rising to before.
Yeah, and that is you know, that's really freaking people out because you know, by by other standards I supposed to Japanese inflation isn't that high or certainly not compared to what we've got used to. I mean, that is actually an interesting point because I think the problem with any form rule actually is that if you're if your economy stops functioning properly, then you your way to keep the vested interests and the people happy is always inflationary.
Ancient Rome was not a democracy, but it's still kind of destroyed itself through currency debasement and hyperinflation. So I don't I like to defend democracy. There are too many people who are against it at the moment, and I'm a bit kind of worried about that.
Everybody in the studio here is pro democracy with the producer. Yeah, we're all good, So.
You can leave that. Yeah, so may the Japanese point you'll spiked, Like the forty years went above four percent
for the first time ever. I mean, okay, they were only I should In two thousand and seven, Japanese ten years went above two percent, which we haven't seen for decades, and it kind of spell over into the rest of the market as well, and so you know, it's just another reminder of the you know, bondiel trajetary political risk premia, and that all obviously Greenland feeds into that, the kind of chaos, if you like, feeds into that.
Rising bondy els in Japan affect the rest of the world, right, Yes, they push up bondials everywhere a little bit, and also create the risk that capital that has long been flowing out of Japan looking for high yells both back into Japan because you can get the yield there, and that pulled capital of all of our economies and could have as yet unknown effects.
Yeah, definitely. I mean, in August twenty twenty four there was a big kind of surprise crash in the market, and that was driven by this same thing, basically the reversal of the yen carry trade. And one thing that's interesting I know that. I mean, I think we both get the BCA research. I remember the chap they're pointing out that basically the mag seven stocks had kind of moved in Tangent where I think it was basically the yen. Yeah, and so one of the big trades that Japanese investors.
Basically the Japanese money going for sas a lot of that has been invested in MAG seven kind of big US stocks. So probably the US market is the place to kind of watch for any reaction because a lot of people are now saying, well, actually Japanese government bonds look good valuing there because the yields are much higher than they were. If you buy any then, particularly if you think the en going to appreciate, then actually trying
not a bad place to buy g GPS. And so once that sort of happens, or enough people think it's going to happen, then yeah, you might see a whole lod of the money sucked out of the U S stop marketing back in the Japanese government.
I mean, I think give it on your Meg seven point. I think it's worth noticing that the nurserk is down on the air already.
Yeah yeah, down one point.
Yeah, quite big fool yesterday.
So yeah maybe well yeah, well, I think it's interesting because people again sort of blame that well, the story is that this is all because you know, Trump is going to you know, saper rattling over greenline. Notice, but actually it is probably get more to do with the tec tonic plates shifting because of the kind of you know, what's happening in the boind market exactly.
I mean, there is this conversation going on in Europe going or we can retaliate because you know, Europe has a trillion dollars worth of bonds and equities and we're going to divest and we're going to going to that. And then there is a suggestion that this dynamic is is already happening, which I suspect it isn't. Although we would expect a constant rebalancing away from the US, wouldn't We look here and the US market hitting kind of seventeen percent or sixty seven point of the global index.
I suspect that peaked at the end of last year. Yes, the rebalancing will be fairly consistent for the next decade.
Definitely, I mean I think that, you know, I mean, that's all this all helps with the rest of the world catch up story to the US, which should have happened anyway, because it's kind of crazy that so much global capital as in the US is way more than it always represents sensible diversification apart from anything else. So definitely mean, obviously Trump is a catalyst for that, but it's a move that has been on the cards for
a long time. And none of that is to defend you know, Trump's specific actions or a specific style one way or the other.
But you don't have to that, you know how everybody every conversation we have with them, with everybody, but anyone who says anything about anything to do with Rum, they have to preface it was saying I'm not defending but exactly.
But you know boys cream, Yeah exactly. So I think that's I think that's one thing we can actually quite comfortably say on Wednesday before Trump stands up. Has been a big driver on PLOYM well, continue to be a big driver, not just this week. And then there's Gold. Yeah, God, it's just kind of bond calls John Silver and Silver, I mean don't even don't even go. And I mean Silver's like when sniffing doesn't the one hundred dollars announced Now, I never thought i'd see that.
I'm back excited we were when I went through fifty, Yes, and we can leave it. When I went through seventy, I thought, what are we going to do when it goes through a hundred. Why don't I own any is my main question. Yeah, big coin gold.
We've got gold. I've got some gold, Okay, thank goodness, goodness. I kind of talked to it all this time, and we have been talking.
About gold and so for a long time. So I do hope that readers went and had a a little look at their portfolio. And of course now it's impossible to say what will happen next with gold and so over the basement, trade, geopolitics going nuts or canggoriz, things.
Happening one thing, and I texted you. But this morning, like said, Mark Canny, gave a speech, and Mark Canny is probably almost the epitome of davorce Man amongst politicians, I think, and he was saying essentially that okay, everyone forget that the old rules based orders is dead. And I do not know what nature of contry and indicator that is, but I feel that it's a It represents a peak of something, you know, answers on the postcard from any license, but.
It probably represents the final turning point for economies back inwards, where they start re industrializing, start really focusing on energy, security, on security, on all these things that we've been talking about for ages, and if you look at the investment implications of that, just screams commodity super psycho.
Oh mean it does, say, because if everyone needs to build their own stock pails up having run them down, because we all bought into what we're now told was a potentk in village of you know, can winter banes and sawder panels and everyone's lovey dovey to each other, and anyone who objected to that was an idiot.
But right now, Trump's administration said at Dabors yesterday, I think what is up with Europe wanting to hit at zero by twenty thirty when they don't make any batteries. Yeah, so if you want that, you're going to need to build an awful lot of battery factories, or buy a lot.
Of oil, or buy a lot of oil or right cool north Sea by cool, we still get plenty of coll and Brenon.
Okay, it's part of getting too old fashioned for comfort, John Ald is the idea of money flowing out of the US and rebalancing of assets around the world. It
has got to be good for the UK. Right We're still what the third largest stock market in the world, still over three percent of global equity market capitalization right here in London, biggest stock market in Europe, etc. And of course the FOTSI one one hundred last year was the best performing asset, the fourth best performing asset globally
in dollar terms. So if you're looking to move money out of the US, you might think to yourself, well, do you know the Footy one hundred doesn't look too bad, particularly given all those minus and all that old fashioned stuff that nobody ever wanted before they may now want. And the rally last year is very concentrated, A large part of the gains came from very few stocks, lots of scope for that broaden out, lots of scope for it even to drop down below the Footze one hundred.
So while obviously all markets are off this week so far, it does seem that is going to be rebalancing out of the US into other markets. The UK, while we are still saddled with it with a government that doesn't quite get it, may do really well.
Yeah, I'd absolutely agree. I mean, you're right, if you're going to diversify the biggest stock market, the first place you look is the next couple of ones down on the MSc High Global you know, track cal point and yeah, the UK is there in Japan's they are basically and interestingly, both of them have got relatively weak currencies compared to their history, so anyone who is an overseas investor can be looking at that and saying, well, I say I
make a bump from the currency as well. So yeah, no, I think that I think the UK market in general is probably in good shape for the year ahead.
Yeah, and I say that we have a government that doesn't quite get it, but I think actually they're all beginning to get it. You know. There were some reforms announced the beginning of this week to listing rules, etcetera, and make it easier for retail investors to participate in ips and secondary listings, so that there is movement here.
There is good and actually and I think it's good. I mean the stuff about kind of points being more open to retail investors as well. So from from that point of view, I do think somebody gets somewhere, And the main reason they keep it quiet is because they know the core voter base is futurely suspicious to capitalism and anything that makes it easier. But so those are good things, and yeah, I mean it's weird, but yes, I think you can probably be quite upbeat on UK markets outlook for this year.
Certainly anything else we should add, keep a very close eye on Japan, keep it on Trump, watch Greenland, and pretty much everything that we've been talking about here for some time is coming to fruition. Not necessarily in the way that one would have liked.
Yeah, but at least it's good for the investments that we thought it would be good for.
That's true, silver Linings, John silver Linings, thanks for listening to this week's Maren Talks Money Debrief. If you like a show, rate review, and subscribe whereever you listen to podcasts, also be short follow me and John on ex or Twitter at marinas w and John Underscore step Back. The episodes were produced by some Asadi production support and sound designed by Moses and Questions and comments on this show
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