April 17, 2024 • 16 mins
Your morning briefing, the business news you need in just 15 minutes.On today's podcast:
(1) UK inflation slowed less than expected last month as fuel prices crept higher, prompting traders to unwind bets on interest rate cuts.
(2) Bank of England Governor Andrew Bailey hinted that the UK might be able to lower interest rates before the US, saying inflation dynamics in the two economies are diverging.
(3) UK Chancellor of the Exchequer Jeremy Hunt said the prospect of interest rate cuts later this year would lift the mood of voters, hinting that Prime Minister Rishi Sunak won't call a general election until the fall.
(4) Federal Reserve Chair Jerome Powell signaled policymakers will wait longer than previously anticipated to cut interest rates following a series of surprisingly high inflation readings.
(5) Jamie Dimon has told Bloomberg that AI will transform banking, but it will also lead to job losses.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
They say. Is the Bloomberg Daybreak Europe podcast, available every
morning on Apple, Spotify or wherever you listen. It's Wednesday,
the seventeenth of April in London. I'm Stephen Carroll.
Speaker 2 (00:11):
And I'm Lizzie Burden. Coming up today. UK inflation drops,
but not as much as expected, as traders trim their
bets on Boe cuts.
Speaker 1 (00:19):
The Thouds Your Own Pal concedes that ray cuts will
need to be delayed due to persistently high inflation.
Speaker 2 (00:25):
And Jamie Diamond goes all in on AI, speaking exclusively
to Bloomberg. JP Morgan's CEO makes the case for it
transforming banking, but admits it will replace jobs.
Speaker 1 (00:36):
Let's start with a roundup of our top stories.
Speaker 2 (00:38):
UK inflation slowed less than expected last month, as falling
food prices were partially offset by the cost of fuel.
CPI rows three point two percent in March compared with
a year earlier, and while the figure was lower than
the February reading, it was still a fraction higher than
economists had forecast. Headline inflation has fallen sharply from a
peak above eleven percent. The fur further fall toward the
(01:01):
two percent expected this month. On the back of falling
energy prices.
Speaker 1 (01:05):
Today's data comes just hours after the Bank of England
Governor Andrew Bailey said Britain is on a different inflation
path to the United States. The comments imply the BO
we might cut interest rates before the Fed. Bailey says,
US inflation is being led by demand, unlike the situation
in the UK.
Speaker 3 (01:21):
I think the dynamics of inflation are rather different between Europe,
and I mean Europe geographically now and the US. We're
still seeing the extension of the process of coming out
of the big supply shocks that we had, the impact
of the war, the impact of coming out of COVID.
Speaker 1 (01:39):
Bailey was speaking at the IMF Spring meetings in Washington.
In its latest economic outlook, the Fund predicted AI could
boost the size of the UK economy by sixteen percent
in the first ten years of adoption, higher than most
other countries.
Speaker 2 (01:51):
Also, speaking Stateside, the Chancellor, Jeremy Hunt says the prospect
of interest rate cuts could lift the mood of voters
on their view of the Conservatives of a possible UK
general election. He told Blomberg the economy will be in
a better place in the months ahead.
Speaker 4 (02:06):
At that situation, we were in eighteen months ago with
inflation at eleven point one percent, that is well and
truly behind us. We think we have very strong growth prospects,
so a feel good factor as interest rates start to
come down, as people start to feel higher, real disposable
incomes will be stronger in people's minds come the early autumn.
Speaker 2 (02:28):
Hunt's comments back up speculation that the government's planning to
hold an election in the autumn. Markets are currently pricing
in a first production in the BOEES five point two
five percent rate in November.
Speaker 1 (02:40):
Turning next to the Federal Reserve chair Jerome Powell, who
says policymakers will probably have to wait longer than previously
anticipated to cut interest rates. His comments come after three
months of surprisingly high inflation readings and jobs data that
suggests the US economy remains resilient. Speaking during a panel
discussion in Washington, Powell's head rates need to see more
(03:01):
evidence that the pace of price rises is cooling.
Speaker 5 (03:04):
So we've said at the FMC that we'll need greater
confidence that inflation is moving sustainably toward two percent before
it be appropriate to ease policy. You know, we took
that cautious approach and sought that greater confidence so as
not to overreact to the string of low inflation readings
that we had in the second half of last year.
Speaker 1 (03:24):
Palser marks represent a shift in his message. Policymakers narrowly
penciled in three interest rate cuts in forecasts published last month,
but investors in out betting on just one to two
cuts this year.
Speaker 2 (03:35):
Meanwhile, the European Central Bank President Christine Lagarde has doubled
down on the message she gave last week that the
bank is on a firm path to a first rate cut.
In June, she told CNBC that as long as shocks
don't derail the slowdown in Eurozone inflation, it'll be time
to moderate the restrictive stunts in reasonably short order. The
god wouldn't comment on how many cuts in borrowing costs
(03:57):
are likely to materialize in the coming months. Speaking in Washington,
she also highlighted that the German economy may be starting
to recover after being rocked by a series of shocks
in recent years.
Speaker 1 (04:09):
The Dutch tech from ASML was hit by a slump
in demand for its advanced chip makers, with bookings missing estimates.
Europe's most valuable firm in the Space reported three point
six billion euros worth of orders in the first quarter
of the year. Shares down three point seven percent this morning,
just as we go into the second hour of cash trading.
The company's been hit by a weakness and demand from
(04:31):
clients in Taiwan and the US, ASML expecs weaker than
expected sales in the second quarter before demand starts to
pick up.
Speaker 2 (04:38):
Jamie Diamond has told Bloomberg that artificial intelligence will transform banking,
but it will also lead to job losses. The JP
Morgan CEO's comments come after he devoted a chunk of
his annual shareholder letter to the importance of AI for
the Wall Street Giant's business and for society at large,
likening its impact to that of the steam engine. Here's
(04:58):
what Diamond told Emily Chang on the latest episode of
The Circuit.
Speaker 6 (05:02):
But the way to think about for us is every
single process, so errors, trading, hedging, research, every app every database,
you can be applying AI. So it might be as
a copilot, it might be to replace humans. You know,
AI is doing all the equity hedging for us. For
the most part. It's idea generation is large language models.
It's no taking while you're talking to someone and a
(05:23):
whiles taking notes and may actually say to you that,
you know, here's the thing of interest to climb bike
Peterston all error. All customer service is a little bit
of everything.
Speaker 7 (05:30):
But it is going to replace some jobs, of course.
Speaker 6 (05:32):
Yeah, but I look, folks, people have to take a
deep breath. Okay, Technologies always replaced jobs. Your children will
live to one hundred and not have cancer because of technology,
and literally they'll probably be working three and a half
days a week.
Speaker 2 (05:45):
You can watch that full, wide ranging interview with Jamie
Diamond on the latest episode of the Circuit with Emily
Chang on Bloomberg Originals, available on the app or YouTube
or as a podcast.
Speaker 1 (05:55):
The U ask US had to play sanctions on Iran's
drone program after the country's attack on Israel. According to
the White House National Security Advisor Jake Sullivan, Washington is
coordinating a comprehensive response alongside G seven countries. US Treasury
Secretary Janet Yellen says the measures will come into play shortly.
Speaker 7 (06:13):
I fully expect that we will take additional sanctions action
against Iran in the coming days. We don't preview our
sanctions tools, but in discussions. I've had all options to
disrupt terrorist financing of Iran continue to be on the table.
Speaker 1 (06:37):
Janety Allen speaking there, the US will also announce sanctions
against entities supporting the Islamic Revolutionary Guard Corps and Around's
Defense Ministry, and expects allies to follow in.
Speaker 8 (06:47):
At a moment.
Speaker 1 (06:47):
We'll bring you more on the rate repricing after today's
UK inflation data, as well as what top central bankers
have been saying at the IMF and World Bank Spring
meetings in Washington. Another story that caught her eye this morning.
I don't know if you've seen the pictures on social
media of the flooding in Dubai.
Speaker 2 (07:02):
Well, of course, Stephen, if I haven't told your already,
I've been in Dubai recently and I just didn't believe.
Speaker 8 (07:08):
It that you could get hailstorms there.
Speaker 2 (07:11):
One occurred as I was mid camel riding lesson in fact,
but it's because of this thing called cloud seeding, which honestly,
I thought was a myth when they first told me
about it. But it's because of the water security issues
in the region, and so whenever you have they try
to coax more rain from clouds. Essentially, they put natural
(07:32):
salts like potassium chloride. I have been researching, and they
put it when there are clouds to improve the rainfall.
And it's been dubbed the rains of Goodness by Dubai's
media office. But by the looks of the videos on
social media, I think you can be the judge of that.
Speaker 1 (07:49):
Yeah, I mean flights disrupted, schools, shots people tell to
work from home as well. Pretty dramatic rainfall in Dubai,
but really interesting to get the some of the context
as to why the rain is perhaps worse than otherwise
would be given the additions made to that by the
Dubai authorities.
Speaker 2 (08:05):
Yeah, not an active god by any means. But there's
a lot of happening elsewhere on rates markets this morning.
J Parl's hints yesterday on later rate cuts and the
hotter than expected UK inflation print this morning feeding into
all of that. We managing editor for FX and Rates,
Rachel Evans, with us in the studio to pass it all. Rachel,
thanks for being with us. Let's start with the FED.
(08:27):
How significant is the shift in J. Parl's language on
the rate path.
Speaker 8 (08:33):
I think it's pretty significant indeed, and we'd obviously had
the dot plot that came out at the Fed's meeting
in March suggesting that we're going to see three cuts
by the FED this year, of course, subject to the data,
and Power has basically come out and said, yeah, that
data's not looking so good, and that really casts a
pall over that outlook for rates. At the moment, markets
(08:56):
are seeing about forty basis points of cuts by year end,
so that would equate to one full cuts and maybe
a chance of another. And I think that kind of
really tells you just sort of you know where things
are headed. You know, there's been a lot of Fed
speak recently away from Powell, suggesting that one two cuts
might be more appropriate than three. So I think there's
(09:17):
going to be a very interesting conversation amongst the Federal
Reserve officials when they next meet in early May.
Speaker 3 (09:22):
Yeah.
Speaker 1 (09:22):
Indeed, and of course we're hearing plenty from those central
bankers at the IMF and World Bank Spring meetings as well.
Bloomber Theacy meekens with us in studio this morning too
to help us look into the UK inflation numbers, which
is another piece of this puzzle too. Lucy, good morning
to you just took us through the headlines from these
inflation numbers. It does seem to have been a bit
of a surprise. On some points, it's.
Speaker 9 (09:43):
Not all awful, but at the end of the day
in missed estimates, people are a little disappointed by that,
and that's led to a fairly dramatic repricing of rate
cut bets. So now people are expecting just one twenty
five basis point cut this year. A few weeks ago
we were seeing two to three a second one is
now a bit of a toin coss coin, toss coin
(10:04):
and toss so it's a bit of a change. People
are a bit disappointed, but as I say, it could
have been worse.
Speaker 2 (10:11):
Yeah, And for the market's Rachel, the big point here
is partly the divergence between European interest rates and American
interest rates, the ECB and the Bank of England. What's
the big next data point to watch in this debate?
Speaker 8 (10:24):
Well, I mean we've kind of got a lull on
the US data front. I think we have GDP coming
out Thursday, PCE Friday. Those are going to be things
that people really want to watch as we sort of
head towards the next big line in the sound, which
is really going to be that FED meeting on May one.
That's going to be the thing that people are are
listening for, and it's really the commentary heading into that
(10:46):
about exactly what that data is telling people. We've now
seen CPI in the US, We've now seen non farm
payrolls in the US, both showing that the economy is
running really hotter than forecast. So GDP will give us
another read on that will also give us some kind
of sense of that too. But really it's going to
come down to what the says are on May first.
(11:06):
That is really going to be the best guide for
the market on where they're headed.
Speaker 4 (11:10):
Lucy.
Speaker 1 (11:11):
We've also been listening to the conversation that Andrew Bailey
was having while he was in Washington about who goes first.
Is it a really big deal that he suggested the
UK could cup before the US.
Speaker 9 (11:23):
Yes, I think so, and I think where he's saying
it is important too. These big meetings are so fascinating
because they are I mean, they are talking all the time.
I don't you know. I've seen central bankers' names pop
up on other central banker's phones. They do talk all
the time, but when they're actually in the same room
and they're talking about divergence. I think that is so
(11:43):
interesting and it's a really big message from Bailey, particularly
when he's got quite a divided committee at the moment.
We've got people like Meghan Green who will be speaking later,
and also Jonathan Haskell is speaking later, so we're going
to watch it for those But they've both been very
recently voting for hikes. So yes, I think one it's important,
(12:03):
but to also wear what's really important.
Speaker 2 (12:07):
Yeah, I mean it is interesting to think about the
Andrew Bailey's saying that really the BOE has got its
own mind, it could go first. But I wonder whether
that's actually going to happen. Rachel, from what you're seeing,
from what you're hearing, is it just that they could
or that they will?
Speaker 8 (12:25):
I mean time will tell on that. I think it's
probably more likely that Europe diverges than the UK and
when it comes to who can cut first.
Speaker 1 (12:33):
Although Andrew Bailey was very keen to protest and he
says Europe he was refu Yeah, he did that, which
I actually was silently applauding frankly because it's one of
my massive bugbears, as people suggesting the UK is somehow
no longer part of euro exactly.
Speaker 8 (12:45):
This is a floating island. But no, yeah, I mean
the prospect of the ECBE cutting first, I think is
more real than the BOE managing to do that. I mean,
when you look in the market currently that the expectations
amongst traders for the FED cutting and for the Bank
of England cutting, it's both in November as the first
time a cut is fully priced into the market. There
was a chance they go earlier, but that's the first
(13:06):
time it's fully priced, whereas for the ECB we're looking
much earlier. We're looking at sort of July kind of time,
June July. So I think when you're kind of thinking
about that divergence, like Leguard has been very clear that
she will diverge from the US if deemed appropriate, Bailey
is trying to follow a similar line and flagging that
there are different issues in the UK versus in the
US as it relates to inflation. But these hotter inflation
(13:28):
reports have got to give central bankers pause. You know,
it's not long ago that we were at eleven percent
in the UK.
Speaker 1 (13:35):
Rachel I wonder if we were talking to Mark cod
more earlier for my Market's Live team, and he was saying,
you know, his expectation now or his view is as
though there won't be any cuts at off from the
Federal Reserve this year, how much of a repricing could
there still be in markets if we see rate bets
shifting even further.
Speaker 8 (13:50):
Yeah, I mean I think you saw, you know, shift
in yields even yesterday on the Pale comments. You know,
the two year going through five percent. That's pretty significant.
You know, it wasn't that long ago that you know,
we were talking about sort of yields heading back down,
you know, heading towards three percent, and now we're back
kind of approaching sort of the cycle peaks that we
saw in October last year in kind of the five
(14:11):
percent area. You know, we still got a distance to go,
you know, for kind of the tenure of the benchmark.
And I think, you know, at the moment, given that
we do have forty basis points of cuts price for
the year, if that were to go away, that could
really send yields significantly high. And of course, you know,
you've got to remember investors came into this year expecting
lots of cuts, six cuts, and yields to fall significantly,
(14:35):
So this is a pain trade for a lot of
people at this point.
Speaker 2 (14:38):
Yeah, and it was kind of outlandish at one point
that Larry Summers was suggesting there was a meaningful chance
there would be no rate cuts this year, and now
that just seems an even more likely prospect. But Lucy,
just to end with you where you had Peal speaking yesterday,
where you've got this likelihood maybe of no cuts from
the third this year and three hot inflation prints out
(14:58):
of the US, at what point is it just going
to be acknowledged that there's been a policy error.
Speaker 9 (15:04):
Or at the other side having already been accused discerning
like Jeremy Hunt today for the other side, maybe there's
a market era here. Maybe people just went into this
trade too fast, went too far with it, got over excited.
It always happens. But I think actually what we've seen
is that in many ways the policy is being fairly consistent.
Maybe the communication was a little over exuberant at times,
(15:28):
but I know in the UK at least, we've got
plenty of people, we've got a completely divided committee, so
maybe people just went too far with their bets.
Speaker 1 (15:36):
This is Bloomberg Daybreak Europe. You're morning brief on the
stories making news from London to Wall Street and beyond.
Speaker 10 (15:42):
Look for us on your podcast feed every morning, on Apple, Spotify,
and anywhere else you get your podcasts.
Speaker 1 (15:48):
You can also listen live each morning on London Dab Radio,
the Bloomberg Business app, and Bloomberg dot Com.
Speaker 10 (15:54):
Our flagship New York station, is also available on your
Amazon Alexa devices. Just say Alexa Play Bloomberg eleven thirty.
I'm Caroline Hepka and.
Speaker 1 (16:03):
I'm Stephen Carol. Join us again tomorrow morning for all
the news you need to start your day right here
on Bloomberg Daybreak Europe
They say. Is the Bloomberg Daybreak Europe podcast, available every
morning on Apple, Spotify or wherever you listen. It's Wednesday,
the seventeenth of April in London. I'm Stephen Carroll.
Speaker 2 (00:11):
And I'm Lizzie Burden. Coming up today. UK inflation drops,
but not as much as expected, as traders trim their
bets on Boe cuts.
Speaker 1 (00:19):
The Thouds Your Own Pal concedes that ray cuts will
need to be delayed due to persistently high inflation.
Speaker 2 (00:25):
And Jamie Diamond goes all in on AI, speaking exclusively
to Bloomberg. JP Morgan's CEO makes the case for it
transforming banking, but admits it will replace jobs.
Speaker 1 (00:36):
Let's start with a roundup of our top stories.
Speaker 2 (00:38):
UK inflation slowed less than expected last month, as falling
food prices were partially offset by the cost of fuel.
CPI rows three point two percent in March compared with
a year earlier, and while the figure was lower than
the February reading, it was still a fraction higher than
economists had forecast. Headline inflation has fallen sharply from a
peak above eleven percent. The fur further fall toward the
(01:01):
two percent expected this month. On the back of falling
energy prices.
Speaker 1 (01:05):
Today's data comes just hours after the Bank of England
Governor Andrew Bailey said Britain is on a different inflation
path to the United States. The comments imply the BO
we might cut interest rates before the Fed. Bailey says,
US inflation is being led by demand, unlike the situation
in the UK.
Speaker 3 (01:21):
I think the dynamics of inflation are rather different between Europe,
and I mean Europe geographically now and the US. We're
still seeing the extension of the process of coming out
of the big supply shocks that we had, the impact
of the war, the impact of coming out of COVID.
Speaker 1 (01:39):
Bailey was speaking at the IMF Spring meetings in Washington.
In its latest economic outlook, the Fund predicted AI could
boost the size of the UK economy by sixteen percent
in the first ten years of adoption, higher than most
other countries.
Speaker 2 (01:51):
Also, speaking Stateside, the Chancellor, Jeremy Hunt says the prospect
of interest rate cuts could lift the mood of voters
on their view of the Conservatives of a possible UK
general election. He told Blomberg the economy will be in
a better place in the months ahead.
Speaker 4 (02:06):
At that situation, we were in eighteen months ago with
inflation at eleven point one percent, that is well and
truly behind us. We think we have very strong growth prospects,
so a feel good factor as interest rates start to
come down, as people start to feel higher, real disposable
incomes will be stronger in people's minds come the early autumn.
Speaker 2 (02:28):
Hunt's comments back up speculation that the government's planning to
hold an election in the autumn. Markets are currently pricing
in a first production in the BOEES five point two
five percent rate in November.
Speaker 1 (02:40):
Turning next to the Federal Reserve chair Jerome Powell, who
says policymakers will probably have to wait longer than previously
anticipated to cut interest rates. His comments come after three
months of surprisingly high inflation readings and jobs data that
suggests the US economy remains resilient. Speaking during a panel
discussion in Washington, Powell's head rates need to see more
(03:01):
evidence that the pace of price rises is cooling.
Speaker 5 (03:04):
So we've said at the FMC that we'll need greater
confidence that inflation is moving sustainably toward two percent before
it be appropriate to ease policy. You know, we took
that cautious approach and sought that greater confidence so as
not to overreact to the string of low inflation readings
that we had in the second half of last year.
Speaker 1 (03:24):
Palser marks represent a shift in his message. Policymakers narrowly
penciled in three interest rate cuts in forecasts published last month,
but investors in out betting on just one to two
cuts this year.
Speaker 2 (03:35):
Meanwhile, the European Central Bank President Christine Lagarde has doubled
down on the message she gave last week that the
bank is on a firm path to a first rate cut.
In June, she told CNBC that as long as shocks
don't derail the slowdown in Eurozone inflation, it'll be time
to moderate the restrictive stunts in reasonably short order. The
god wouldn't comment on how many cuts in borrowing costs
(03:57):
are likely to materialize in the coming months. Speaking in Washington,
she also highlighted that the German economy may be starting
to recover after being rocked by a series of shocks
in recent years.
Speaker 1 (04:09):
The Dutch tech from ASML was hit by a slump
in demand for its advanced chip makers, with bookings missing estimates.
Europe's most valuable firm in the Space reported three point
six billion euros worth of orders in the first quarter
of the year. Shares down three point seven percent this morning,
just as we go into the second hour of cash trading.
The company's been hit by a weakness and demand from
(04:31):
clients in Taiwan and the US, ASML expecs weaker than
expected sales in the second quarter before demand starts to
pick up.
Speaker 2 (04:38):
Jamie Diamond has told Bloomberg that artificial intelligence will transform banking,
but it will also lead to job losses. The JP
Morgan CEO's comments come after he devoted a chunk of
his annual shareholder letter to the importance of AI for
the Wall Street Giant's business and for society at large,
likening its impact to that of the steam engine. Here's
(04:58):
what Diamond told Emily Chang on the latest episode of
The Circuit.
Speaker 6 (05:02):
But the way to think about for us is every
single process, so errors, trading, hedging, research, every app every database,
you can be applying AI. So it might be as
a copilot, it might be to replace humans. You know,
AI is doing all the equity hedging for us. For
the most part. It's idea generation is large language models.
It's no taking while you're talking to someone and a
(05:23):
whiles taking notes and may actually say to you that,
you know, here's the thing of interest to climb bike
Peterston all error. All customer service is a little bit
of everything.
Speaker 7 (05:30):
But it is going to replace some jobs, of course.
Speaker 6 (05:32):
Yeah, but I look, folks, people have to take a
deep breath. Okay, Technologies always replaced jobs. Your children will
live to one hundred and not have cancer because of technology,
and literally they'll probably be working three and a half
days a week.
Speaker 2 (05:45):
You can watch that full, wide ranging interview with Jamie
Diamond on the latest episode of the Circuit with Emily
Chang on Bloomberg Originals, available on the app or YouTube
or as a podcast.
Speaker 1 (05:55):
The U ask US had to play sanctions on Iran's
drone program after the country's attack on Israel. According to
the White House National Security Advisor Jake Sullivan, Washington is
coordinating a comprehensive response alongside G seven countries. US Treasury
Secretary Janet Yellen says the measures will come into play shortly.
Speaker 7 (06:13):
I fully expect that we will take additional sanctions action
against Iran in the coming days. We don't preview our
sanctions tools, but in discussions. I've had all options to
disrupt terrorist financing of Iran continue to be on the table.
Speaker 1 (06:37):
Janety Allen speaking there, the US will also announce sanctions
against entities supporting the Islamic Revolutionary Guard Corps and Around's
Defense Ministry, and expects allies to follow in.
Speaker 8 (06:47):
At a moment.
Speaker 1 (06:47):
We'll bring you more on the rate repricing after today's
UK inflation data, as well as what top central bankers
have been saying at the IMF and World Bank Spring
meetings in Washington. Another story that caught her eye this morning.
I don't know if you've seen the pictures on social
media of the flooding in Dubai.
Speaker 2 (07:02):
Well, of course, Stephen, if I haven't told your already,
I've been in Dubai recently and I just didn't believe.
Speaker 8 (07:08):
It that you could get hailstorms there.
Speaker 2 (07:11):
One occurred as I was mid camel riding lesson in fact,
but it's because of this thing called cloud seeding, which honestly,
I thought was a myth when they first told me
about it. But it's because of the water security issues
in the region, and so whenever you have they try
to coax more rain from clouds. Essentially, they put natural
(07:32):
salts like potassium chloride. I have been researching, and they
put it when there are clouds to improve the rainfall.
And it's been dubbed the rains of Goodness by Dubai's
media office. But by the looks of the videos on
social media, I think you can be the judge of that.
Speaker 1 (07:49):
Yeah, I mean flights disrupted, schools, shots people tell to
work from home as well. Pretty dramatic rainfall in Dubai,
but really interesting to get the some of the context
as to why the rain is perhaps worse than otherwise
would be given the additions made to that by the
Dubai authorities.
Speaker 2 (08:05):
Yeah, not an active god by any means. But there's
a lot of happening elsewhere on rates markets this morning.
J Parl's hints yesterday on later rate cuts and the
hotter than expected UK inflation print this morning feeding into
all of that. We managing editor for FX and Rates,
Rachel Evans, with us in the studio to pass it all. Rachel,
thanks for being with us. Let's start with the FED.
(08:27):
How significant is the shift in J. Parl's language on
the rate path.
Speaker 8 (08:33):
I think it's pretty significant indeed, and we'd obviously had
the dot plot that came out at the Fed's meeting
in March suggesting that we're going to see three cuts
by the FED this year, of course, subject to the data,
and Power has basically come out and said, yeah, that
data's not looking so good, and that really casts a
pall over that outlook for rates. At the moment, markets
(08:56):
are seeing about forty basis points of cuts by year end,
so that would equate to one full cuts and maybe
a chance of another. And I think that kind of
really tells you just sort of you know where things
are headed. You know, there's been a lot of Fed
speak recently away from Powell, suggesting that one two cuts
might be more appropriate than three. So I think there's
(09:17):
going to be a very interesting conversation amongst the Federal
Reserve officials when they next meet in early May.
Speaker 3 (09:22):
Yeah.
Speaker 1 (09:22):
Indeed, and of course we're hearing plenty from those central
bankers at the IMF and World Bank Spring meetings as well.
Bloomber Theacy meekens with us in studio this morning too
to help us look into the UK inflation numbers, which
is another piece of this puzzle too. Lucy, good morning
to you just took us through the headlines from these
inflation numbers. It does seem to have been a bit
of a surprise. On some points, it's.
Speaker 9 (09:43):
Not all awful, but at the end of the day
in missed estimates, people are a little disappointed by that,
and that's led to a fairly dramatic repricing of rate
cut bets. So now people are expecting just one twenty
five basis point cut this year. A few weeks ago
we were seeing two to three a second one is
now a bit of a toin coss coin, toss coin
(10:04):
and toss so it's a bit of a change. People
are a bit disappointed, but as I say, it could
have been worse.
Speaker 2 (10:11):
Yeah, And for the market's Rachel, the big point here
is partly the divergence between European interest rates and American
interest rates, the ECB and the Bank of England. What's
the big next data point to watch in this debate?
Speaker 8 (10:24):
Well, I mean we've kind of got a lull on
the US data front. I think we have GDP coming
out Thursday, PCE Friday. Those are going to be things
that people really want to watch as we sort of
head towards the next big line in the sound, which
is really going to be that FED meeting on May one.
That's going to be the thing that people are are
listening for, and it's really the commentary heading into that
(10:46):
about exactly what that data is telling people. We've now
seen CPI in the US, We've now seen non farm
payrolls in the US, both showing that the economy is
running really hotter than forecast. So GDP will give us
another read on that will also give us some kind
of sense of that too. But really it's going to
come down to what the says are on May first.
(11:06):
That is really going to be the best guide for
the market on where they're headed.
Speaker 4 (11:10):
Lucy.
Speaker 1 (11:11):
We've also been listening to the conversation that Andrew Bailey
was having while he was in Washington about who goes first.
Is it a really big deal that he suggested the
UK could cup before the US.
Speaker 9 (11:23):
Yes, I think so, and I think where he's saying
it is important too. These big meetings are so fascinating
because they are I mean, they are talking all the time.
I don't you know. I've seen central bankers' names pop
up on other central banker's phones. They do talk all
the time, but when they're actually in the same room
and they're talking about divergence. I think that is so
(11:43):
interesting and it's a really big message from Bailey, particularly
when he's got quite a divided committee at the moment.
We've got people like Meghan Green who will be speaking later,
and also Jonathan Haskell is speaking later, so we're going
to watch it for those But they've both been very
recently voting for hikes. So yes, I think one it's important,
(12:03):
but to also wear what's really important.
Speaker 2 (12:07):
Yeah, I mean it is interesting to think about the
Andrew Bailey's saying that really the BOE has got its
own mind, it could go first. But I wonder whether
that's actually going to happen. Rachel, from what you're seeing,
from what you're hearing, is it just that they could
or that they will?
Speaker 8 (12:25):
I mean time will tell on that. I think it's
probably more likely that Europe diverges than the UK and
when it comes to who can cut first.
Speaker 1 (12:33):
Although Andrew Bailey was very keen to protest and he
says Europe he was refu Yeah, he did that, which
I actually was silently applauding frankly because it's one of
my massive bugbears, as people suggesting the UK is somehow
no longer part of euro exactly.
Speaker 8 (12:45):
This is a floating island. But no, yeah, I mean
the prospect of the ECBE cutting first, I think is
more real than the BOE managing to do that. I mean,
when you look in the market currently that the expectations
amongst traders for the FED cutting and for the Bank
of England cutting, it's both in November as the first
time a cut is fully priced into the market. There
was a chance they go earlier, but that's the first
(13:06):
time it's fully priced, whereas for the ECB we're looking
much earlier. We're looking at sort of July kind of time,
June July. So I think when you're kind of thinking
about that divergence, like Leguard has been very clear that
she will diverge from the US if deemed appropriate, Bailey
is trying to follow a similar line and flagging that
there are different issues in the UK versus in the
US as it relates to inflation. But these hotter inflation
(13:28):
reports have got to give central bankers pause. You know,
it's not long ago that we were at eleven percent
in the UK.
Speaker 1 (13:35):
Rachel I wonder if we were talking to Mark cod
more earlier for my Market's Live team, and he was saying,
you know, his expectation now or his view is as
though there won't be any cuts at off from the
Federal Reserve this year, how much of a repricing could
there still be in markets if we see rate bets
shifting even further.
Speaker 8 (13:50):
Yeah, I mean I think you saw, you know, shift
in yields even yesterday on the Pale comments. You know,
the two year going through five percent. That's pretty significant.
You know, it wasn't that long ago that you know,
we were talking about sort of yields heading back down,
you know, heading towards three percent, and now we're back
kind of approaching sort of the cycle peaks that we
saw in October last year in kind of the five
(14:11):
percent area. You know, we still got a distance to go,
you know, for kind of the tenure of the benchmark.
And I think, you know, at the moment, given that
we do have forty basis points of cuts price for
the year, if that were to go away, that could
really send yields significantly high. And of course, you know,
you've got to remember investors came into this year expecting
lots of cuts, six cuts, and yields to fall significantly,
(14:35):
So this is a pain trade for a lot of
people at this point.
Speaker 2 (14:38):
Yeah, and it was kind of outlandish at one point
that Larry Summers was suggesting there was a meaningful chance
there would be no rate cuts this year, and now
that just seems an even more likely prospect. But Lucy,
just to end with you where you had Peal speaking yesterday,
where you've got this likelihood maybe of no cuts from
the third this year and three hot inflation prints out
(14:58):
of the US, at what point is it just going
to be acknowledged that there's been a policy error.
Speaker 9 (15:04):
Or at the other side having already been accused discerning
like Jeremy Hunt today for the other side, maybe there's
a market era here. Maybe people just went into this
trade too fast, went too far with it, got over excited.
It always happens. But I think actually what we've seen
is that in many ways the policy is being fairly consistent.
Maybe the communication was a little over exuberant at times,
(15:28):
but I know in the UK at least, we've got
plenty of people, we've got a completely divided committee, so
maybe people just went too far with their bets.
Speaker 1 (15:36):
This is Bloomberg Daybreak Europe. You're morning brief on the
stories making news from London to Wall Street and beyond.
Speaker 10 (15:42):
Look for us on your podcast feed every morning, on Apple, Spotify,
and anywhere else you get your podcasts.
Speaker 1 (15:48):
You can also listen live each morning on London Dab Radio,
the Bloomberg Business app, and Bloomberg dot Com.
Speaker 10 (15:54):
Our flagship New York station, is also available on your
Amazon Alexa devices. Just say Alexa Play Bloomberg eleven thirty.
I'm Caroline Hepka and.
Speaker 1 (16:03):
I'm Stephen Carol. Join us again tomorrow morning for all
the news you need to start your day right here
on Bloomberg Daybreak Europe
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations.
The Nikki Glaser Podcast
Every week comedian and infamous roaster Nikki Glaser provides a fun, fast-paced, and brutally honest look into current pop-culture and her own personal life.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.