Bloomberg Audio Studios, Podcasts, radio News.
Welcome to the Meryon Talks Money News round Up, where we talk about the biggest moves in the markets this week and what's driving them. I'm joined Stebic, senior editor at Bloomberg and author of the multi award winning Money This the newsletter, enjoining me as usual in Mern's absence as friend of the show, Marcus Ashworth. Marcus is a
Bloomberg opinion columnist with a deep expertise. It says here in European markets, but I would spend that to bond markets and markets generally, and yes, as would be all always a regular contributor, so yeah, no, nice to have you back, Marcus.
My pleasure that.
It's siically been quite a hectic week this week already and it's only Thursday morning.
Well, we do have obviously shot moves in things that you've been going anything, but app finally we realize that they can actually also stop going up and even go down a bit.
I SA this was interesting because just before when they you're the Piso last week, basically seeing that they can the debate.
In the trade I think was the exact words.
Yeah, you said the abasement tree was basically made up? Story? Is that reasonable?
Well, I mean there's obviously there's some foundation. Like anything, there's always some some semblance of truth in the fact that governments do need to learn how to cut spending or certainly reduce the increase in it. But to try and extrapolate that across that the dollar is over and that the only thing you can have is crypto and indeed gold I thought was just a little bit too much for me. This was a great trade, which is everyone since seem to think it was a momentum trade
and would only ever continue going up. And we just found that limit of you know, it's still doing extremely well and that will continue to do very well, but just need a bit of a health correction.
So yeah, I bet, yeah, breather at least. Yeah, it has been looking quite toppy.
Right above, you know. So it's gone up so far so fast that it literally and there isn't any real reason, I think, for it to be quite so sustainable. But you know, there we go nice to see things like silver and palladium and platinum and mine all the mining stops finally catch up. But fine enough, that's when that happens. You know that, but I certainly think gold has got some validity. And the thing is people don't really sell gold, that really want the whole gold. They keep on holding it.
Central banks and individuals alike. Having said that, there was clearly some far too much leverage and reto momentum going in it, and that just needed a bit of a health check. So I'm probably healthier for it.
Yeah, And I'll be interesting to see how that continues, because well, the other thing that I don't know what I mean again, I'm sure you've noticed this, but maybe in the last month or so, there's been a real ton in the boind market. It's going to go on from being, you know whatever, higher yields to a sort of sense that maybe yields are high enough now that attractive plate inflation is coming down.
You look at ten year gilts, they're fifty basic points off the highs. You look at two year gilts, they're ninety basis points off. But this is driven principally by J. Powell perhaps realizing that there is actually some reason to lean on the employment side of his mandate and can
cut rates. I expect them on Wednesday to do two things, One which is lower again by twenty five base points and more importantly stop all forms of constituted tight This is the Federals just to be a part of me to make that clear, which and I think they will do the same again and cutting in December. There's a risk they might do fifty base points on these point. But let's say they're cut by fifty base points by the end of this year. That's going to put a
lot of pressure on Andrew Bailey and co. Who are would be then fifty base points above the FED and SEED not just doing constantive tightning, but active and passive. So I think there will be some pressure on them to do something about that. And that's really reflected now and two or three bits of data, principally labor market data is showing that pay expectations and pay pay levels are off siteing to come down, and principally the private sector.
They don't think it's keeping up ironically public sector bonuses, but let's not go into that for now. The point is is that what they need to see and they do want to see is private sector always levels down to around three three and a half yea, which is starting to happen and quite clearly so, and then we had CPI which was really look at three point eight percent. People I think, oh, what's a big fuss because it
was three percent the previous month. But the key thing is we expect to go to four, possibly even higher, and that was going to be probably a peak. The fact that we've seen probably quite clear signs a little bit brave here that we've seen the top of inflation in the UK. That means in October we're going to see a bunch of stuff coming off, particularly on energy prices. That just the way the basis works, So we truly get zero point two off next month anyway, that's just
the energy effect. It's quite possible in the budget of November twenty sixth that rage Relie finally learns a lesson that she needs to get out of the way of the Bank of England and stop doing stuff which pushes inflation up. Eg. Minimum wage rises, civil service pay arises, and of course national insurance on employers, which has really contributed to a lot of food inflation because it's the cost of delivery of food, not the underlying commodity stuff
that's been driving it up. That's rippled throughout the economy. But the point is that she can get. Perhaps one of latest things maybe make mister millerband happy, is that they reduce the the AT level on energy five percent down a zero. It's a complete con and we're all just being tricked by it, but it will lower inflation quite noticeably, which means we should be down to below three percent into the two and a halfs by the
early part of next year. Could mean the bank could cut as early as decemah one bank is calling for November bold but in order too now starting the call for December, and I think certainly by February they like doing on their quarterly things. I don't think they'll move in November their quarterly meeting, but they will certainly tea things possibly in December for a cut in February.
I mean the tricky thing is, I mean, I think that's a really good point for Rachel Reeves and she's going to want to do what she can to avoid the annual April bumping inflation, which is basically yeah. I mean Simon for angel over at Pine has been making this point for a while. The UK, well, the UK standout the outlier status is basically all based on that indexation moment in every April where the kind of places go up and then that kind of represent for the days that the year.
Really did this year, and that's that's going to take a while of filter through. But we do pay the banking and there's lots of them to work and see through these things. So yes, that they know everyone says, oh they can't, they can't cut because inflation is going well in the US, they can And I think the
US leads, and I think banking will follow. I won't want to leave too much for gaps, so I expect and hope that some of the dats come through, which is actually quite worrying on the economy on that side. But certainly that inflation is probably we've seen the worst of it.
Yeah, and maybe again, it'll be interesting to see what Rachel Reevesen does because presumably that will also rule out or rather focus on inflation, will rule out some of the things that have been talked about, like equalizing VAT up the way. She's not going to put VAT up on anything because that would push prices higher.
Presumably Parrington's stare when you mentioned things like this, I certainly hope not.
Yes, you don't give any ideas. Okay, let's let's partner that I mean, and the other big thing this week, which I feel this always goes slightly under reported because you know what I mean, Japan is the world's fatal argest economy still and kind of like the one of the most important developed markets. But it just got his new prime minister, who is so seen as an ear to chins well be yeah.
I mean, I think that's slightly over said because she doesn't have anything like the freedom that he did the
verse obviously twice he was Prime minister. But I mean, and the three arrows of the ABE reform were never really fired very well, certainly the last and in the sense of whole overall reform of but there are definitely in the Turkey stock exchange in particular, I've done some really rather rather impressive things, and that I think is it's still I mean, you know, I've long had Japanese stocks that have lived there, and you know, injying Japanese
who's in convertible bonds for many years. I definitely, you know, still believe and I think there is a lot of reform to come through and that stock market will continue probably to rise better than most, so I don't I still believe in it. I just don't think necessarily we should expect too much. This is Japan, after all, and she's not going to be allowed to do too much. But certainly she's going to talk talk, and that's at
least optimistic. And I think that the mank Japan will probably raise it in straights at some point, but they're
not in a rush. Absolutely not the right because I still don't think they feel rightly so that the whole deflation real aspect of many decades has gone away from Japan and it can quite easily reassert So in that sense we will get slightly higher rates stadly going to get high on you is probably over time, but this is all normalization, ever so slowly taking ages, but it should, I hope, continue to see some economic strength and indeed have reflected in the stock market Japan.
Yea thought it's on in because obviously the neck and the topics have both cartes. Be any thoughts from the yen because obviously we're tom primali uki in vestas here, so you're buying in poones. A lot of your kind of gains are being kind of dented at least by this week.
You can't hand it obviously. But the point here is, yeah, then it's a tricky what record. It could go either way really quite very quickly, and everyone's aware of that. At the moment. It's sort of held quite sort of carefully versus the dollars. Certainly, I don't think sterning is going to be desper well the next two or three months because outline and well, yeah in straights and as to the economy is it's starting to turn it a
little bit as well. But in the end terms, look as far as I as I see, I think, you know, the end could and should weaken. But you know, it really does have one of those things. When it trends, it trends very quickly, and the rest of the time that they do try to keep it boxed in. And I suspect the bank pan will be very careful to do as much as they can, and then the Minister find us as well to keep it that way.
Oh yeah, I suppose that one phase three is a dollar that's quite I mean what I means, who much week I can it comfortably get before they start to what are you about it?
Well, they're worried about all the time so it can you know, certainly can get down through on six and all that sort stuff. And I just don't know, It's honest answer, I really don't know it can way and anyone tells you they do.
Know.
Again, I think it's probably lots of bad things can happen, so hege half, Yeah, well that's not bad way of
looking at actually exactly. I mean, I think you know, there's certainly there's there's some some optimistly And one thing I would note is that if you're thinking the US dot market is both topping, indeed that domestic US moneys will look at overseas, Japan is a very keen and obvious place for company European bank stocks, a lot of Japanese both tech and other sides that they're they're they're hedge funds, are very own funds that are very familiar
with investing Japan over the years. It's a natural first place for them to go. And I think you're already seeing that a lot of money from me out of the States, where would it go, It would go to Japan, probably one of the top priorities.
Great, Thanks very much, Marcus, seeing your time. As always, thank you for listening to this week's Medelm talks about any debrief. If you like a show, rate review, and subscribe whatever, you listen to podcasts and keep saying questions of comments to Men and Money at Bloomberg dot net and you can also follow me and Marcus or x I'm joined Underscore STEPIC and Marcus is at Marcus Ashworth. This episode was hosted by Me Joined STEPIC that was produced by Moses and and Summer Sadi