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The Capital Ideas Podcast now has a

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Subscribe wherever you get your podcasts. American

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Funds Distributors, Inc. This

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is the Bloomberg Daybreak Europe Podcast,

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available every morning on Apple, Spotify,

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or wherever you listen. It's Wednesday,

0:23

the 17th of April in London.

0:25

I'm Stephen Carroll. And I'm Lizzie

0:27

Burden. Coming up today, UK inflation drops,

0:29

but not as much as expected as

0:32

traders trim their bets on BOE cuts.

0:34

The Fed's Jerome Powell concedes that rate

0:36

cuts will need to be delayed due

0:38

to persistently high inflation. And Jamie

0:40

Dimon goes all in on AI.

0:43

Speaking exclusively to Bloomberg, JP

0:45

Morgan's CEO makes the case for

0:47

it transforming banking, but admits it

0:49

will replace jobs. Let's start with

0:51

a roundup of our top stories. UK

0:54

inflation slowed less than expected last month

0:56

as falling food prices were partially offset

0:58

by the cost of fuel. CPI

1:01

rose 3.2% in

1:03

March compared with a year earlier. And

1:05

while the figure was lower than the

1:07

February reading, it was still a fraction

1:09

higher than economists had forecast. Headline inflation

1:11

has fallen sharply from a peak above

1:13

11%, with a further

1:15

fall toward the 2% expected this

1:18

month on the back of falling energy prices. Today's

1:20

data comes just hours after the Bank

1:22

of England Governor Andrew Bailey said Britain

1:25

is on a different inflation path to

1:27

the United States. The comments imply the

1:29

BOE might cut interest rates before the

1:31

Fed. Bailey says US inflation is being

1:33

led by demand, unlike the situation in

1:35

the UK. I think the dynamics of

1:38

inflation are rather different between Europe, I

1:40

mean Europe geographically now, and the

1:42

US. We're still seeing the extension

1:45

of the process of coming

1:47

out of the big supply shocks that we

1:50

had, the impact of the war, the impact of

1:52

coming out of Covid. Bailey

1:54

was speaking at the IMF Spring meetings in

1:56

Washington. In its latest economic outlook, the fund

1:58

predicted AI could... boost the size of the

2:01

UK economy by 16% in

2:03

the first 10 years of adoption higher than most

2:05

other countries. Also speaking stateside, the

2:08

Chancellor Jeremy Hunt says the prospect of interest

2:10

rate cuts could lift the mood of voters,

2:12

on their view of the Conservatives, ahead of

2:14

a possible UK general election. He told Bloomberg

2:17

the economy will be in a better place

2:19

in the months ahead. That

2:21

situation we were in 18 months ago

2:24

with inflation at 11.1%, that is well and truly behind

2:28

us. We think we have very strong

2:30

growth prospects. The feel-good factor as interest

2:33

rates start to come down, as people

2:35

start to feel higher real disposable incomes,

2:38

will be stronger in people's minds come

2:41

the early autumn. Hunt's

2:43

comments back up speculation that the government is

2:46

planning to hold an election in the autumn. Markets

2:48

are currently pricing in a first reduction in the

2:50

BOE's 5.25% rate in

2:53

November. Coming

2:55

next to the Federal Reserve Chair Jerome

2:58

Powell, who says policy makers will probably

3:00

have to wait longer than previously anticipated

3:02

to cut interest rates. His comments come

3:05

after three months of surprisingly high inflation

3:07

readings and jobs data that suggest the

3:09

US economy remains resilient. Speaking during a

3:11

panel discussion in Washington, Powell said rate

3:14

setters need to see more evidence that

3:16

the pace of price rises is cooling.

3:19

So we've said at the FOMC that we'll

3:21

need greater confidence that inflation is moving sustainably

3:24

toward 2% or it would

3:26

be appropriate to ease policy. We

3:28

took that cautious approach and sought

3:31

that greater confidence so as not to

3:33

overreact to the string of low

3:35

inflation readings that we had in the second half of

3:37

last year. Powell's

3:39

remarks represent a shift in his message.

3:42

Policy makers narrowly penciled in three interest

3:44

rate cuts in forecasts published last month,

3:46

but investors are now betting on just

3:48

one to two cuts this year. Meanwhile

3:50

the European Central Bank President Christine Lagarde has

3:53

doubled down on the message she gave last

3:55

week that the bank is on a firm

3:57

path to a first rate cut in June.

4:00

She told CNBC that as long as shocks

4:02

don't derail the slowdown in eurozone

4:04

inflation, it will be time to

4:06

moderate the restrictive stamps in reasonably

4:08

short order. The guard wouldn't comment

4:11

on how many cuts in borrowing costs are

4:13

likely to materialise in the coming months. Speaking

4:15

in Washington, she also highlighted that the

4:18

German economy may be starting to recover

4:20

after being rocked by a series of

4:22

shocks in recent years. The

4:24

Dutch tech firm ASML was hit by a

4:26

slump in demand for its advanced chip makers,

4:29

with the bookings missing estimates. Europe's most valuable

4:31

firm in the space reported 3.6 billion

4:34

euros worth of orders in the first quarter

4:36

of the year, shares down 3.7% this morning

4:41

just as we go into the second hour

4:43

of cash trading. The company has been hit

4:45

by weakness in demand from clients in Taiwan

4:47

and the US. ASML expects weaker than expected

4:49

sales in the second quarter before demand starts

4:52

to pick up. Jamie Dimon has

4:54

told Bloomberg that artificial intelligence will transform

4:56

banking but it will also lead to

4:58

job losses. The JP Morgan CEO's comments

5:01

come after he devoted a chunk of

5:03

his annual shareholder letter to the importance

5:05

of AI for the Wall Street Giants

5:08

business and for society at

5:10

large, likening its impact to that of

5:12

the steam engine. Here's what Dimon told Emily

5:14

Chang on the latest episode of The Circuit.

5:17

The way to think about it for us

5:20

is every single process, so errors, trading, hedging,

5:22

research, every app, every database, you're going to

5:24

be applying AI. So it might be as

5:26

a copilot, it might be to replace humans.

5:28

AI is doing all the equity hedging for

5:31

us for the most part. It's idea generation,

5:33

it's largely like as models, it's note taking

5:35

while you're talking to someone and the model's

5:37

taking notes and may actually say to you

5:39

that here's the thing of interest, decline my

5:42

business, all error, all customer service, it's a

5:44

little bit of everything. But it

5:46

is going to replace some jobs. Of course,

5:48

yeah. But folks, people have to take a

5:50

deep breath, OK? Technology's always replaced jobs. Your

5:52

children are going to live through 100 and

5:54

not have cancer because of technology. And literally,

5:56

they'll probably be working three and a half

5:58

days a week. You

6:01

can watch that full wide-ranging interview with

6:03

Jamie Dimon on the latest episode of

6:05

The Circuit with Emily Chang on Bloomberg

6:07

Originals available on the app or YouTube

6:09

or as a podcast. The US has

6:11

had to place sanctions on Iran's

6:14

drone program after the country's attack

6:16

on Israel. According to the White

6:18

House National Security Advisor Jake Sullivan,

6:20

Washington is coordinating a comprehensive response

6:22

alongside G7 countries. US Treasury Secretary

6:24

Janet Yellen says the measures will

6:26

come into play shortly. I

6:29

fully expect that we will

6:31

take additional sanctions action against

6:33

Iran in the coming days.

6:37

We don't preview our

6:39

sanctions tools but

6:41

in discussions I've had all

6:44

options to disrupt terrorist

6:47

financing of Iran continue

6:49

to be on the table. Janet

6:53

Yellen speaking there. The US will also announce

6:55

sanctions against entities supporting the Islamic Revolutionary Guard

6:58

Corps and Iran's defence ministry and expect allies

7:00

to follow. In that moment we'll bring you

7:02

more on the rate re-pricing after today's UK

7:04

inflation data as well as what top central

7:07

bankers have been saying at the IMF and

7:09

World Bank spring meetings in Washington. Another story

7:11

that caught a eye this morning. I don't

7:13

know if you've seen the pictures on social

7:16

media of the flooding in Dubai. Well of

7:18

course Stephen if I haven't told you already

7:20

I've been in Dubai recently and

7:22

I just didn't believe it that you

7:24

could get hailstorms there. One occurred as

7:26

I was mid camel riding lesson in

7:28

fact but it's because of this thing

7:31

called cloud seeding which honestly I thought

7:33

was a myth when they first told

7:35

me about it but it's because of

7:37

the water security issues in the region

7:39

and so whenever you have

7:41

they try to coax more

7:44

rain from clouds essentially. They

7:46

put natural salts like potassium

7:48

chloride I've been researching. And

7:52

they put it when there are clouds

7:55

to improve the rainfall and it's been

7:57

dubbed the rains of goodness by Dubai's

7:59

media. your office. But by the looks of

8:01

the videos on social media, I think you

8:03

can be the judge of that. Yeah, I

8:06

mean flights disrupted, school shafts, people told to

8:08

work from home as well, pretty dramatic rainfall

8:10

in Dubai. But really interesting to get some

8:13

of the context as to why the rain is perhaps Join

8:21

Capital Group CEO Mike Gitlin for a

8:23

new monthly edition of the Capital Ideas

8:25

Podcast. It's your look inside one of

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the world's largest asset managers. Subscribe wherever

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metaverse impact. Managing editor for FX and Rates,

8:51

Rachel Evans with us in the studio

8:53

to pass it all. Rachel,

8:55

thanks for being with us. Let's start

8:58

with the Fed. How significant is the

9:00

shift in J-PAL's language on the rate

9:02

path? I think it's pretty

9:04

significant indeed. And we obviously had

9:07

the dot plot that came out at

9:09

the Fed's meeting in March suggesting that we're

9:11

going to see three cuts by the Fed

9:13

this year, of course, subject

9:15

to the data. And Powell has basically come out

9:17

and said, yeah, that data is not looking so

9:20

good. And that really casts a

9:22

pull over that outlook for rates.

9:25

At the moment, markets are seeing about 40

9:27

basis points of cuts by year end. So

9:29

that would equate to one full

9:31

cut and maybe a chance of another.

9:33

And I think that kind of really

9:35

tells you just sort of where things

9:37

are headed. There's been a lot of

9:39

Fed speak recently away

9:42

from Powell suggesting that one,

9:44

two cuts might be more appropriate than three. So I

9:46

think that's going to be a very interesting conversation

9:48

amongst the Federal Reserve officials when

9:50

they next meet in early May. Yeah,

9:52

indeed. And of course, we're hearing plenty from those

9:54

central bankers at the IMF and World Bank spring

9:56

meetings as well. Bloomberg's Lizzie Meekins with us in

9:59

the studio this to help

10:01

us look into the UK inflation numbers, which is

10:03

another piece of this puzzle too. Lucy, good morning

10:05

to you. Just talk us through the headlines from

10:07

these inflation numbers. It does seem to

10:10

have been a bit of a surprise

10:12

on some points. It's not all

10:14

awful, but at the end of the day, in

10:17

this estimate, people are a little disappointed by

10:19

that and that's led to a fairly dramatic

10:21

re-pricing of rate cut bets. So

10:23

now people are expecting just one 25 basis

10:25

point cut this year. A few

10:28

weeks ago we were seeing two to three. A second

10:31

one is now a bit of a tointoc. Tointoc?

10:34

Tointoc. So it's

10:36

a bit of a change. People are a bit

10:39

disappointed, but as I say, it could have been

10:41

worse. Yeah. And for the

10:43

markets, Rachel, the big point here

10:45

is partly the divergence between European

10:47

interest rates and American interest rates,

10:49

the ECB and the Bank of England. What

10:51

was the big next data point to watch

10:53

in this debate? Well, I

10:55

mean, we've kind of got a bit of a

10:57

lull on the US data front. I think we

11:00

have GDP coming out Thursday, PCE Friday. Those are

11:02

going to be things that people really want

11:04

to watch as we sort of head

11:06

towards the next big line in the sound,

11:08

which is really going to be that Fed meeting

11:10

on May 1. That's going

11:12

to be the thing that people are listening

11:14

for and it's really the commentary heading into

11:17

that about exactly what that data is telling

11:19

people. We've now seen CPI in the US.

11:21

We've now seen non-farm payrolls in the US,

11:23

both showing that the economy is running really

11:26

hot than forecast. So GDP will

11:28

give us another read on that. PCE

11:31

will also give us some kind of sense of that too.

11:33

But really it's going to come down to what the

11:35

Fed says on May 1. That is really going to

11:37

be the best guide for the market on where they're headed.

11:41

Lucy, we've also been listening to the

11:43

conversation that Andrew Bailey was having while

11:45

he was in Washington about who goes

11:47

first. Is it a really big deal

11:49

that he suggested the UK could cut

11:51

before the US? Yes, I think

11:54

so. And I think where he's saying it is

11:56

important too. These big

11:58

meetings are so fascinating because they... They

12:01

are talking all the time. I don't, you

12:03

know, I've seen Central Bankers names pop up

12:05

on other Central Bankers phones. They do talk

12:07

all the time. But when they're actually in the

12:09

same room and they're talking about

12:12

divergence, I think that is so interesting. It's

12:14

a really big message from Bailey, particularly

12:17

when he's got quite a divided committee

12:19

at the moment. We've got

12:21

people like Megan Green, who will be speaking later, and

12:25

also Jonathan Haskell is speaking later. So we're gonna watch out

12:27

for those. But they've both been very recently

12:29

voting for hikes. So

12:32

yes, I think one, it's important, but two

12:34

also where wasn't really important. Yeah,

12:37

I mean, it is interesting to think about Andrew

12:40

Bailey's saying that really the BOE

12:42

has got its own mind, it could go first.

12:46

But I wonder whether that's actually going

12:48

to happen, Rachel. From what you're seeing,

12:50

from what you're hearing, is it just

12:52

that they could or that they will? I

12:55

mean, time will tell on that. I think

12:58

it's probably more likely that Europe diverges than

13:00

the UK when it comes to who

13:02

can cut first. Although Andrew Bailey was very keen

13:04

to put it out when he said Europe, he

13:07

was referring... Yeah, definitely. Yeah, he did that, which

13:09

I actually was silently applauding, frankly, because it's one

13:11

of my massive bugbears, as people suggested the UK

13:13

is somehow no longer part of Europe. Exactly, this

13:15

is floating island. But no, yes, I mean, the

13:17

prospect of the ECB cutting first, I think

13:20

is more real than the BOE managing

13:22

to do that. I mean, when you

13:24

look in the market, currently, the expectations

13:26

amongst traders for the Fed cutting and

13:28

for the Bank of England cutting, it's both

13:30

November as the first time a cut is fully

13:33

priced into the market. There is a chance they

13:35

go earlier, but that's the first time it's fully

13:37

priced. Whereas for the ECB, we're looking much earlier,

13:39

we're looking at sort of July kind of time,

13:42

June, July. So I think when

13:44

you're kind of thinking about that divergence, like, Lagarde

13:46

has been very clear that she will diverge

13:48

from the US if deemed appropriate.

13:50

Bailey is trying to follow a similar line

13:52

and flagging that there are different issues in

13:54

the UK versus in the US as it

13:56

relates to inflation. But these hotter inflation reports

13:59

have got to... give central bankers pause. It's not

14:01

long ago that we were at 11% in the UK.

14:05

Rachel, I wonder, we were talking to Mark

14:07

Cudmore earlier from our Markets Live team and

14:09

he was saying his expectation now or his

14:11

view is there won't be any cuts at

14:13

all from the Federal Reserve this year. How

14:15

much of a re-pricing could there still be

14:18

in markets if we see rate-batch shifting even

14:20

further? Yeah, I think you saw

14:22

a shift in yields even yesterday on the

14:24

Powell comments, the two year going through 5%.

14:27

That's pretty significant. It wasn't that

14:29

long ago that we were talking

14:32

about yields heading back

14:34

down, heading towards 3% and

14:36

now we're back approaching the cycle peaks

14:39

that we saw in October last year in

14:41

the 5% area. We've

14:43

still got a distance to go for the

14:47

10-year, the benchmark. I

14:49

think at the moment, given that we do have

14:51

40 basis points of cuts priced for the year,

14:54

if that were to go away, that could

14:56

really send yields significantly higher. Of course, you've

14:58

got to remember investors came into this year

15:00

expecting lots of cuts, six cuts

15:02

and yields to fall significantly.

15:05

This is a paint trade for a lot of

15:07

people at this point. Yeah, and

15:09

it was outlandish at one point that

15:11

Larry Summers was suggesting there was a

15:13

meaningful chance there would be no rate

15:15

cuts this year and now that just

15:17

seems an even more likely prospect. But

15:19

Lucy, just to end with you, where

15:21

you had Powell speaking yesterday, where you've

15:23

got this likelihood maybe of no cuts

15:25

from the Fed this year and three

15:27

hot inflation prints out of the US,

15:30

at what point is it just going to be acknowledged that

15:32

there's been a policy error? Or,

15:35

to put the other side, having already been accused

15:37

of sounding like Jeremy Hunt today, to the other side,

15:39

maybe there's a market error here. Maybe

15:41

people just went into this trade too

15:43

fast, went too far with it, got

15:46

overexcited, it always happens. But

15:48

I think actually what we've seen is that

15:51

in many ways the policy is

15:53

being fairly consistent. Maybe the communication

15:55

was a little over exuberant at

15:57

times, but in the UK at

15:59

least. We've got plenty of people. We've got

16:01

a completely divided committee. So maybe

16:03

people just went too far with their bet.

16:06

This is Bloomberg Daybreak Europe, your morning

16:08

brief on the stories making news from

16:10

London to Wall Street and beyond. Look

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1130. I'm Caroline Heptker.

16:33

And I'm Stephen Carroll. Join us again tomorrow

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morning for all the news you need to

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start your day, right here on Bloomberg Daybreak

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