0:02

This is the BlueBag Daybacurt podcast,

0:04

available every morning on Apples, Spotify

0:06

or wherever you listen. It's Thursday, the

0:08

eighteenth of April here in London. I'm Caroline

0:10

Hepkin and.

0:11

I'm Stephen Carroll. Coming up today, more

0:13

Federal Reserve policymakers add their voices

0:16

to the growing consensus that progress

0:18

on US inflation has slowed.

0:20

Bank of England Governor Andrew Bailey says

0:22

that Britain now faces less of

0:24

an inflation risk than America.

0:27

Plus swinging the acts again, UBS

0:29

gets set to make more job cuts as

0:31

part of its ongoing Credit Sueese integration.

0:34

Let's start with a roundup of our top stories.

0:36

Federal Reserve policymakers are increasingly

0:39

making the case to hold off on cutting

0:41

rates. On Tuesday, Charger own pals

0:43

that he needs to see more evidence that the pace

0:46

of price rises is cooling. Now

0:48

he's been joined by Federal Reserve Governor

0:50

Michelle Bowman, speaking at an event in Washington.

0:53

She too conceded a lack of

0:55

recent progress.

0:57

What we've seen over the past first

0:59

few months of twenty

1:01

twenty four, anyway, is that progress

1:03

on inflation has slowed, and

1:06

I expect maybe it's even stalled at

1:09

this point.

1:10

Michelle Bowman's comments were echoed to by

1:12

the Bank of Cleveland President Lorettamester,

1:14

speaking at a separate event, She said the central Bank

1:16

shouldn't be in a hurry to cut The

1:18

shift in tone from rate setters comes after

1:21

three months of surprisingly high inflation

1:23

readings and jobs data suggesting

1:25

the US economy remains resilient.

1:29

The UK and Europe are facing less

1:31

of an inflation risks than the US.

1:33

That's according to the Bank of England Governor Andrew

1:36

Bailey, whose remarks suggests that the UK

1:38

will cut rates before the FED. UK

1:40

inflation came in stronger than expected

1:43

at three point two percent in March, but

1:45

Bailey says that he expects price rises

1:47

to be significantly cooler next

1:49

month.

1:50

We're in the position where we'ressueing those processes of

1:52

this inflation. I expect that next

1:54

month's number will show quite a strong drop

1:56

because we have a particularly unique

1:59

energy household energy

2:01

pricing system in the UK.

2:03

Andrew Bailey also agreed with the International

2:06

Monetary Funds analysis suggesting

2:08

that demand is overheating in the US

2:11

but is below potential in the UK

2:13

and the Eurozone selling edged

2:15

down after Bailey's comments.

2:17

Savenian central banker Bosta and Vassler says

2:20

the ECB can't disregard monetary

2:22

policy and inflation in the US

2:25

when making its decisions on interest rates.

2:27

He told Bloomberg that divergence has

2:29

its limits. This is ECB president

2:31

Christina Gowd says the Eurozone economy

2:33

is getting back on track after a year

2:35

of stagnation.

2:37

Growth in Europe has been

2:39

mediocre and has been

2:42

much slower than growth in the United States.

2:44

We haven't had a recession, but it's

2:47

been very slow and

2:49

meager, and in terms

2:51

of where we see Europe going forward, it

2:53

is recovering and we are clearly

2:56

seeing signs of recovery.

2:58

Now, its comments

3:00

Commas. Traders bet the ECB will cut

3:02

interest rates at its next meeting in June.

3:05

Officials are very carefully watching

3:07

euro exchange rates as Federal Reserve

3:09

policymakers signal they will wait longer

3:11

to cut US rates. Traders are pricing

3:13

in eighty basis points of reductions from

3:16

the ECB across this year.

3:18

European Union leaders are pushing

3:20

for a new joint defense and industrial

3:22

strategy at their Bustle summit

3:25

a draft seen by Bloomberg calls for a

3:27

paradigm shift in the face of

3:29

losing their competitive edge to China

3:31

and the US, and wars both

3:33

near and far. The text is yet

3:36

to be agreed, with both euroskeptic

3:38

and frugal countries opposing what

3:40

could amount to the block itself issuing

3:43

hundreds of billions of euros in debt.

3:45

UBS is planning another round of job cuts

3:48

as it continues to trip headcount following

3:50

its rescue of Credit Swee. Bloomberg's team at

3:52

Abayo has the details.

3:54

The emergency takeover of Credit Sweee

3:56

by UBS added around forty five

3:58

thousand people to the combined bank's

4:01

workforce. The bank is aiming

4:03

to save six billion dollars a year

4:05

in staff costs over the coming years, but

4:07

hasn't said how many jobs overall

4:10

will be affected in this latest

4:12

round of job cuts. Sources have told

4:14

Bloomberg that more than one hundred employees

4:17

at the firm's global investment bank will

4:19

go. Whilst exact timings

4:21

aren't final, it's thought the changes

4:23

could take place in the coming weeks. In

4:25

London. Tewa Ada Bio Bloomberg Radio.

4:29

Here in the UK, Chancer Jeremy Hunter says

4:31

that consumers shouldn't be made to

4:33

pay for Thameswater's mistakes. It's

4:36

the most direct public comment from the top

4:38

of government so far on the fate

4:40

of Britain's largest utility. James

4:42

Wilcock has more Now, the

4:45

question.

4:45

Hasn't changed since Thames Water's owner

4:47

first went into default. Who is

4:50

going to pay for its debts? The

4:52

chance that gave a clear answer overnight. It shouldn't

4:54

be customers, but its shareholders

4:57

called Thames uninvestible and

4:59

they refuse to put in more money too. As

5:02

the standoff continues, Bloomberg has

5:04

learned hedge funds have started shortening other

5:06

UK water utilities and their debt.

5:09

It's assigned something Britain's water problem

5:11

could get far worse before it gets better

5:14

in London. James Wilcock Bloomberg Radio.

5:16

Now, in a moment, we'll bring you the latest on what

5:18

central bankers have been saying about

5:20

inflation and interest rates. Plus

5:23

we'll look ahead to today's EU leaders

5:25

summit. But another story that caught

5:27

it arrived this morning. If you're in the

5:29

market for a luxury purchase,

5:31

well who's not in the market for that? Apparently

5:34

Japan is the place to go.

5:36

And I've just been, as I said, dripping

5:38

in Chanel here in the radio student this morning.

5:40

No, not quite. But this is to do with the sharp fall in

5:42

the en combined with the number of premium

5:44

brands that haven't yet adjusted their prices to reflect

5:47

the change, which means that there's an opportunity

5:49

to get these luxury goods at a discount.

5:52

A Tagua Carrera chronograph watch

5:54

in Tokyo sells the equivalent of just over five thousand

5:56

US dollars after the ten percent duty

5:58

free discount, which is around thirteen hundred

6:01

dollars cheaper than it would cost if you buy

6:03

it in New York. So our colleagues Claire

6:05

Valentine and Lisa who have been reporting that

6:07

the savings are bringing buyers from around the

6:09

world to Japan, with some

6:11

eager to resell their luxury goods then

6:13

for a profit when they get home. Now,

6:16

the experts in this field say that essentially

6:18

luxury brands will catch up, so it's a closing

6:21

window because they don't want price arbitrage

6:23

between different countries as well. So there's a whole

6:25

list of the things that you can buy in Japan

6:27

at the moment at a disc und versus where you'd buy

6:29

them.

6:29

I almost that you've skipped over the whole fantastic

6:32

pitchannel. Well, the fantastic trip

6:34

to Japan. Highlight of Japan. I know you've read

6:36

the food.

6:36

Really yeah, everything I ate was fantastic,

6:39

amazing.

6:40

There you go, So giving you some inspiration

6:42

for your travel set. And let's think about central

6:45

banking though, shall we next? A divergence

6:47

has emerged among the world's top central bankers

6:50

over their view of where inflation is going

6:52

and they might be able and when they might be able

6:54

to cut interest rates. We've been hearing

6:57

from the FED, the ECB, the Bank of England policymakers

6:59

during events linked to the IMF and the World Bank Spring

7:01

meetings at Washington, a whole plethora

7:03

of voices. Really Tony's this morning, but

7:06

by tv Anka pretty good to fall more

7:08

on this. Firstly, on the FED,

7:10

we've seen other FMC members like

7:12

Mesta starting to echo your own powers

7:15

signals on inflation, so a bit of catch

7:17

up by other speakers. Interest

7:19

rate cuts might basically come

7:21

later. How a market seeing these

7:24

messages.

7:24

They're running with it, really and if you look

7:27

kind of market pricing you have no cuts

7:29

priced now officially for twenty

7:31

twenty five at least those or sees me twenty twenty four

7:33

until twenty twenty five. That seems to

7:35

be where the markets are pricing in simply

7:37

because you have this massive, kind

7:39

of almost dark period in the back

7:41

half of the year where because of the election

7:44

risk on both sides.

7:44

Of the Atlantic.

7:45

By the way, you are going to see a little bit

7:47

of pushback in terms of whether or not you can use

7:49

ratecuts or imply

7:52

ratecuts as late as September as what people are saying.

7:54

But again, it's not just about that opening

7:57

ratecut. You have to kind of follow them up with consecutive

7:59

ones. So that's why it's being pushed back not only

8:01

to December, but even further out, given

8:03

that they're waiting for those inflationary dynamics

8:05

and because the data has come in hot three

8:08

data points, I think we can say is they're to make

8:10

a trend. And that's kind of the argument that a lot

8:12

of these central bankers are saying.

8:14

So Lorettamester not really say anything new,

8:17

but kind of really harping on the fact that there

8:19

is no hurry and there is no rush, and

8:21

therefore she does ultimately

8:23

still see that an interest rate cut could

8:25

be on the docket.

8:26

Just not yet, not yet.

8:28

Indeed, how difficult has

8:31

Jerome Powell and colleagues made

8:33

it for other central bankers though, because

8:35

although they love to say that they don't watch

8:37

the Fed, they do in some ways they

8:40

do.

8:41

And it's tricky because traditionally

8:45

the Federal Reserve has kind of been the central banker

8:47

to the world naturally, and they were

8:50

a little bit late to hiking rates

8:52

relative to some of their peers, even their G ten

8:54

peers. For example, you saw the

8:57

BOE of course front run on the Federal Reserve on that front.

8:59

You saw the Royal Bank Reserve Bank of

9:01

New Zealands use meet the RBA as well,

9:03

all front running the FEN terms of hikes.

9:06

But they all may potentially

9:08

not do that in terms of cuts, although you are seeing

9:10

that in say the Swiss National Bank, for example, already

9:12

a cut there, and that already had caused

9:14

so much ripple effects in the fact that the Swiss front

9:17

and round the ACB as well. So

9:19

I think at the crux of the question is

9:21

do you start to see the same growth dynamics in the

9:23

entire world, And that's really where

9:26

the divergence comes from this idea that the United

9:28

States a lot that grows. A lot of that inflationary push

9:30

is one of growth, whereas the UK and other

9:32

parts of the world as well, some of it is more commodity exposed,

9:34

some of it is more housing exposed, and

9:37

some of them is kind of still a wage story.

9:39

There are a lot of places in the world, including the

9:41

UK, where real wages haven't caught up and

9:43

affordability is a bigger issue than it is in the States.

9:45

Yeah.

9:45

Absolutely, Andrew Bailey making that

9:48

very point, insisting the inflation dynamics

9:50

in the UK a very different to the US,

9:52

which is pretty interesting. There's also

9:55

optimism to from Christine Legarde. Her

9:57

key message focusing on the Arizone

9:59

Economy Act. She looking brighter,

10:01

saying, you know, we

10:03

we didn't go into recession

10:06

and so that you're looking a

10:08

bit stronger.

10:09

It is, and look, when you've looked at some of

10:11

the data points and the economic data as well,

10:13

look at the periphery because the traditional

10:16

kind of a weak spots are sore spots

10:18

of the European economy. I'm thinking of Italy,

10:20

Spain, Greece, et cetera.

10:22

Those are your outperformers.

10:23

This time around, you're really just seeing kind of more

10:25

weakness in Germany and that's kind of bringing

10:27

up the question, the age old question, which is as

10:29

the ECB cater to the entire year zone or

10:31

just Germany, and if you do

10:33

actually have over look at the data point, it is much much

10:35

stronger. This is where fiscal deficits become a bigger

10:37

issue. And I think France is a really great example

10:40

of what you're seeing there because the spending is

10:42

starting to become far more than anticipated

10:45

and that's where starting to seem you are you're

10:47

seeing more issues in terms of markets

10:49

pricing in particular. But Christine le Guard, to her

10:52

credit, is looking at the periphery, looking at the traditional

10:54

problem spots and saying, oh, well, things aren't looking

10:56

that bad there, are we also

10:58

in a hurry.

11:00

Interesting to see in her comments as well,

11:02

this idea that although she points to the

11:04

single mando to the ECB being price stability,

11:07

that the exchange rate is something

11:09

that they take into account in terms

11:11

of how it will impact inflation as well. So it brings

11:13

us back to this question of central bankers watching

11:16

each other in this too. Chriati Gupta thank you very

11:18

much for talking as through the latest of what we've proad from

11:20

those central bankers at the IMF and

11:22

World Bank Spring meetings in Washington.

11:24

Well, let's stick with europe weak

11:27

growth, the fallout from Russia's war in Ukraine,

11:29

and inertia about a capital

11:32

markets union are some of the key issues

11:34

on the agenda as EU leaders

11:36

meet in Brussels today. It comes

11:39

as a special report from the former Italian

11:41

Prime Minister Errico Letta recommends

11:43

integrating the European energy market,

11:46

consolidating the telecoms industry,

11:48

and also this idea of joint boring

11:50

to finance defense spending.

11:53

Bloomberg's Oliver Kruk joins us

11:55

now from Brussels for more on

11:57

the summit. Ollie, thank you so much

11:59

for being with us. There does

12:01

seem to be real concern in

12:03

Europe, you know, about its competitiveness,

12:06

about its defense spending. Letters

12:09

report is also quite forceful.

12:11

What are the key points of his recommendations.

12:15

Yeah, it's really a single market report. It's one hundred

12:17

and forty seven pages and it really goes

12:19

into a lot of detail on a number of issues,

12:21

and you've enumerated some of them, but really

12:23

I think that one where you might have the most consensus

12:26

is this question of defense spending. Everyone

12:28

knows in Europe you need to get that spending up.

12:30

The question is how do you pay for it. The question

12:32

of joint debt is really the main question.

12:35

I think for many people in Europe. There is potentially

12:38

there is potentially some room to make progress on

12:40

this, or of course some of the nations that historically

12:42

have been a joint debt averse

12:45

that are still standing in the way

12:47

of that.

12:47

But I think that there is a little bit more wiggle room on.

12:49

This, particularly on this reality of the new defense

12:51

reality of Europe. There's also this question of the

12:53

Capital Markets Union. We've heard about it for about

12:56

a decade. Will there be sort of more uniform

12:58

financing rules, ability for capital

13:01

to move across Europe? This is one It's seen as

13:03

one of the main catalysts not just for defense spending,

13:05

but for attracting spending across all the spec

13:08

sectors in Europe. There's also about energy

13:10

market integration, telecoms consolidation.

13:12

You know, they're talking about their thirty two carriers at

13:14

least across Europe.

13:15

The United States has two.

13:16

These are all breeding all kinds of inefficiencies

13:18

within the European market alive.

13:21

One of the expectations around progress being

13:23

made at this particular meeting on advancing

13:25

in any of those issues.

13:27

So it's interesting about the competitiveness issue,

13:30

Stephen, is that it's a lot easier to put tariffs

13:32

on Chinese goods than it is to look in the mirror

13:34

and say, hey, we have a competition problem.

13:36

And you know, the other former prime Italian

13:39

Prime Minister who is also in charge of this is Mario

13:41

Dragi, who gave a speech this week that was frankly

13:44

very stark, but he was talking about a reimagining

13:46

of Europe that has to be on the same scale

13:49

as when it was founded seventy years

13:51

ago with the Steel and Coal Accord

13:53

that really made it, brought it into being. And unfortunately

13:56

for Europe, this is exactly the kind of thing

13:58

that they're really bad at, right, A massive issue,

14:00

very difficult political negotiations, but no

14:03

immediate urgency.

14:04

Right.

14:04

So you have some of the issues.

14:06

Like the Capital Markets Union, where will that be

14:08

supervised from this is one of the main contentious

14:10

issues.

14:10

You know, will it be in France, will it be in Paris?

14:13

Perhaps not in the other points Steven, and this is something

14:15

that I'm sure you're watching very closely. All of

14:17

these recommendations call for a bigger,

14:19

more centralized Europe, a Europe that acts more

14:22

like a nation than an arrangement of nations, and

14:24

that may not be the most popular view, particularly

14:26

light of the polls going into the election.

14:29

Yeah. Also, these European leaders

14:31

have been discussing, you know, the defense

14:34

issues and the wars that we're seeing in the world,

14:36

the Middle East, the concerns around Iran. On

14:39

defense, what is the new goal

14:41

for weapons production, for spending

14:43

in Europe. How quickly is that changing.

14:45

What's the sense of that at this gathering.

14:48

Yeah, well, it depends who you ask, Right. We hear a

14:50

lot of rhetoric from the politicians. But I was

14:52

at a defense summit yesterday where I spoke to

14:54

the CEOs of sab and Kongsburg, you

14:56

know, the two sort of Nordic giants of

14:59

defense here and in Europe,

15:01

and really their point was that, listen, we are

15:03

willing to ramp up capacity, we've already started

15:05

it, but we need two things. We need one long

15:08

term stable order flow from the governments.

15:10

And there's been a lot of talk if they do not have all

15:12

the orders they need to justify

15:15

the kind of ramp up that's required. And two they

15:17

need investment in financing, and they're not waiting

15:19

for a capital markets union.

15:20

They say, you need to go for the lower hanging fruit.

15:23

The European Investment Bank rules need to change

15:25

so that that institution can invest

15:27

into defense, and they need those long term commitments

15:29

so that they can start ramping up production for a historically

15:32

very low volume industry that needs

15:34

to suddenly turn out extremely high volume.

15:37

This is Bloomberg Daybreak Europe, your morning

15:39

brief on the stories making news from London

15:41

to Wall Street and beyond.

15:43

Look for us on your podcast feed every

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