April 18, 2024 • 16 mins
Your morning briefing, the business news you need in just 15 minutes.
On today's podcast:
(1) Bank of England Governor Andrew Bailey said the UK and the rest of Europe are facing less of an inflation threat than the US, opening the prospect of a rate cut for Britain before the Federal Reserve moves.
(2) Federal Reserve Chair Jerome Powell is making life tougher for his peers around the world as the prospect of higher-for-longer US interest rates reduces room for easier policy elsewhere.
(3) Europe's economy is nearing the end of a malaise that's resulted in more than a year of near stagnation, according to European Central Bank President Christine Lagarde.
(4) The European Union's waning clout versus major geopolitical rivals is sounding alarm bells in Europe's capitals, compelling leaders to discuss a radical transformation to boost the bloc's competitiveness in a hostile world.
(5) The world's two great economic rivals, China and the US, will drive much of the increase in global public debt over the next five years, with American spending creating trouble for many other countries by keeping interest rates high, officials at the International Monetary Fund said.
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Episode Transcript
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Speaker 1 (00:02):
This is the BlueBag Daybacurt podcast, available every morning on Apples,
Spotify or wherever you listen. It's Thursday, the eighteenth of
April here in London. I'm Caroline Hepkin and.
Speaker 2 (00:11):
I'm Stephen Carroll. Coming up today, more Federal Reserve policymakers
add their voices to the growing consensus that progress on
US inflation has slowed.
Speaker 1 (00:20):
Bank of England Governor Andrew Bailey says that Britain now
faces less of an inflation risk than America.
Speaker 2 (00:27):
Plus swinging the acts again, UBS gets set to make
more job cuts as part of its ongoing Credit Sueese integration.
Speaker 1 (00:34):
Let's start with a roundup of our top stories.
Speaker 2 (00:36):
Federal Reserve policymakers are increasingly making the case to hold
off on cutting rates. On Tuesday, Charger own pals that
he needs to see more evidence that the pace of
price rises is cooling. Now he's been joined by Federal
Reserve Governor Michelle Bowman, speaking at an event in Washington.
She too conceded a lack of recent progress.
Speaker 3 (00:57):
What we've seen over the past first few months of
twenty twenty four, anyway, is that progress on inflation has slowed,
and I expect maybe it's even stalled at this point.
Speaker 2 (01:10):
Michelle Bowman's comments were echoed to by the Bank of
Cleveland President Lorettamester, speaking at a separate event, She said
the central Bank shouldn't be in a hurry to cut
The shift in tone from rate setters comes after three
months of surprisingly high inflation readings and jobs data suggesting
the US economy remains resilient.
Speaker 1 (01:29):
The UK and Europe are facing less of an inflation
risks than the US. That's according to the Bank of
England Governor Andrew Bailey, whose remarks suggests that the UK
will cut rates before the FED. UK inflation came in
stronger than expected at three point two percent in March,
but Bailey says that he expects price rises to be
significantly cooler next month.
Speaker 4 (01:50):
We're in the position where we'ressueing those processes of this inflation.
I expect that next month's number will show quite a
strong drop because we have a particularly unique energy household
energy pricing system in the UK.
Speaker 1 (02:03):
Andrew Bailey also agreed with the International Monetary Funds analysis
suggesting that demand is overheating in the US but is
below potential in the UK and the Eurozone selling edged
down after Bailey's comments.
Speaker 2 (02:17):
Savenian central banker Bosta and Vassler says the ECB can't
disregard monetary policy and inflation in the US when making
its decisions on interest rates. He told Bloomberg that divergence
has its limits. This is ECB president Christina Gowd says
the Eurozone economy is getting back on track after a
year of stagnation.
Speaker 5 (02:37):
Growth in Europe has been mediocre and has been much
slower than growth in the United States. We haven't had
a recession, but it's been very slow and meager, and
in terms of where we see Europe going forward, it
is recovering and we are clearly seeing signs of recovery.
Speaker 2 (02:58):
Now, its comments Commas. Traders bet the ECB will cut
interest rates at its next meeting in June. Officials are
very carefully watching euro exchange rates as Federal Reserve policymakers
signal they will wait longer to cut US rates. Traders
are pricing in eighty basis points of reductions from the
ECB across this year.
Speaker 1 (03:18):
European Union leaders are pushing for a new joint defense
and industrial strategy at their Bustle summit a draft seen
by Bloomberg calls for a paradigm shift in the face
of losing their competitive edge to China and the US,
and wars both near and far. The text is yet
to be agreed, with both euroskeptic and frugal countries opposing
(03:40):
what could amount to the block itself issuing hundreds of
billions of euros in debt.
Speaker 2 (03:45):
UBS is planning another round of job cuts as it
continues to trip headcount following its rescue of Credit Swee.
Bloomberg's team at Abayo has the details.
Speaker 6 (03:54):
The emergency takeover of Credit Sweee by UBS added around
forty five thousand people to the combined bank's workforce. The
bank is aiming to save six billion dollars a year
in staff costs over the coming years, but hasn't said
how many jobs overall will be affected in this latest
round of job cuts. Sources have told Bloomberg that more
(04:15):
than one hundred employees at the firm's global investment bank
will go. Whilst exact timings aren't final, it's thought the
changes could take place in the coming weeks. In London.
Tewa Ada Bio Bloomberg Radio.
Speaker 1 (04:29):
Here in the UK, Chancer Jeremy Hunter says that consumers
shouldn't be made to pay for Thameswater's mistakes. It's the
most direct public comment from the top of government so
far on the fate of Britain's largest utility. James Wilcock
has more Now, the question.
Speaker 7 (04:45):
Hasn't changed since Thames Water's owner first went into default.
Who is going to pay for its debts? The chance
that gave a clear answer overnight. It shouldn't be customers,
but its shareholders called Thames uninvestible and they refuse to
put in more money too. As the standoff continues, Bloomberg
has learned hedge funds have started shortening other UK water
(05:07):
utilities and their debt. It's assigned something Britain's water problem
could get far worse before it gets better in London.
James Wilcock Bloomberg Radio.
Speaker 1 (05:16):
Now, in a moment, we'll bring you the latest on
what central bankers have been saying about inflation and interest rates.
Plus we'll look ahead to today's EU leaders summit. But
another story that caught it arrived this morning. If you're
in the market for a luxury purchase, well who's not
in the market for that? Apparently Japan is the place
to go.
Speaker 2 (05:36):
And I've just been, as I said, dripping in Chanel
here in the radio student this morning. No, not quite.
But this is to do with the sharp fall in
the en combined with the number of premium brands that
haven't yet adjusted their prices to reflect the change, which
means that there's an opportunity to get these luxury goods
at a discount. A Tagua Carrera chronograph watch in Tokyo
sells the equivalent of just over five thousand US dollars
(05:57):
after the ten percent duty free discount, which is around
thirteen hundred dollars cheaper than it would cost if you
buy it in New York. So our colleagues Claire Valentine
and Lisa who have been reporting that the savings are
bringing buyers from around the world to Japan, with some
eager to resell their luxury goods then for a profit
when they get home. Now, the experts in this field
(06:17):
say that essentially luxury brands will catch up, so it's
a closing window because they don't want price arbitrage between
different countries as well. So there's a whole list of
the things that you can buy in Japan at the
moment at a disc und versus where you'd buy them.
Speaker 1 (06:29):
I almost that you've skipped over the whole fantastic pitchannel. Well,
the fantastic trip to Japan. Highlight of Japan. I know
you've read the food.
Speaker 2 (06:36):
Really yeah, everything I ate was fantastic, amazing.
Speaker 1 (06:40):
There you go, So giving you some inspiration for your
travel set. And let's think about central banking though, shall
we next? A divergence has emerged among the world's top
central bankers over their view of where inflation is going
and they might be able and when they might be
able to cut interest rates. We've been hearing from the FED,
the ECB, the Bank of England policymakers during events linked
(07:00):
to the IMF and the World Bank Spring meetings at Washington,
a whole plethora of voices. Really Tony's this morning, but
by tv Anka pretty good to fall more on this. Firstly,
on the FED, we've seen other FMC members like Mesta
starting to echo your own powers signals on inflation, so
a bit of catch up by other speakers. Interest rate
cuts might basically come later. How a market seeing these messages.
Speaker 8 (07:24):
They're running with it, really and if you look kind
of market pricing you have no cuts priced now officially
for twenty twenty five at least those or sees me
twenty twenty four until twenty twenty five. That seems to
be where the markets are pricing in simply because you
have this massive, kind of almost dark period in the
back half of the year where because of the election
risk on both sides.
Speaker 9 (07:44):
Of the Atlantic.
Speaker 8 (07:45):
By the way, you are going to see a little
bit of pushback in terms of whether or not you
can use ratecuts or imply ratecuts as late as September
as what people are saying. But again, it's not just
about that opening ratecut. You have to kind of follow
them up with consecutive ones. So that's why it's being
pushed back not only to December, but even further out,
given that they're waiting for those inflationary dynamics and because
(08:06):
the data has come in hot three data points, I
think we can say is they're to make a trend.
And that's kind of the argument that a lot of
these central bankers are saying. So Lorettamester not really say
anything new, but kind of really harping on the fact
that there is no hurry and there is no rush,
and therefore she does ultimately still see that an interest
rate cut could be on the docket.
Speaker 2 (08:26):
Just not yet, not yet. Indeed, how difficult has Jerome
Powell and colleagues made it for other central bankers though,
because although they love to say that they don't watch
the Fed, they do in some ways they do.
Speaker 8 (08:41):
And it's tricky because traditionally the Federal Reserve has kind
of been the central banker to the world naturally, and
they were a little bit late to hiking rates relative
to some of their peers, even their G ten peers.
For example, you saw the BOE of course front run
on the Federal Reserve on that front. You saw the
Royal Bank Reserve Bank of New Zealands use meet the
(09:02):
RBA as well, all front running the FEN terms of hikes.
But they all may potentially not do that in terms
of cuts, although you are seeing that in say the
Swiss National Bank, for example, already a cut there, and
that already had caused so much ripple effects in the
fact that the Swiss front and round the ACB as well.
So I think at the crux of the question is
do you start to see the same growth dynamics in
(09:23):
the entire world, And that's really where the divergence comes
from this idea that the United States a lot that grows.
A lot of that inflationary push is one of growth,
whereas the UK and other parts of the world as well,
some of it is more commodity exposed, some of it
is more housing exposed, and some of them is kind
of still a wage story. There are a lot of
places in the world, including the UK, where real wages
haven't caught up and affordability is a bigger issue than
(09:45):
it is in the States.
Speaker 4 (09:45):
Yeah.
Speaker 1 (09:45):
Absolutely, Andrew Bailey making that very point, insisting the inflation
dynamics in the UK a very different to the US,
which is pretty interesting. There's also optimism to from Christine Legarde.
Her key message focusing on the Arizone Economy Act. She
looking brighter, saying, you know, we we didn't go into
recession and so that you're looking a bit stronger.
Speaker 8 (10:09):
It is, and look, when you've looked at some of
the data points and the economic data as well, look
at the periphery because the traditional kind of a weak
spots are sore spots of the European economy. I'm thinking
of Italy, Spain, Greece, et cetera.
Speaker 9 (10:22):
Those are your outperformers.
Speaker 8 (10:23):
This time around, you're really just seeing kind of more
weakness in Germany and that's kind of bringing up the question,
the age old question, which is as the ECB cater
to the entire year zone or just Germany, and if
you do actually have over look at the data point,
it is much much stronger. This is where fiscal deficits
become a bigger issue. And I think France is a
really great example of what you're seeing there because the
spending is starting to become far more than anticipated and
(10:45):
that's where starting to seem you are you're seeing more
issues in terms of markets pricing in particular. But Christine
le Guard, to her credit, is looking at the periphery,
looking at the traditional problem spots and saying, oh, well,
things aren't looking that bad there, are we also in
a hurry.
Speaker 2 (11:00):
Interesting to see in her comments as well, this idea
that although she points to the single mando to the
ECB being price stability, that the exchange rate is something
that they take into account in terms of how it
will impact inflation as well. So it brings us back
to this question of central bankers watching each other in
this too. Chriati Gupta thank you very much for talking
as through the latest of what we've proad from those
(11:20):
central bankers at the IMF and World Bank Spring meetings
in Washington.
Speaker 1 (11:24):
Well, let's stick with europe weak growth, the fallout from
Russia's war in Ukraine, and inertia about a capital markets
union are some of the key issues on the agenda
as EU leaders meet in Brussels today. It comes as
a special report from the former Italian Prime Minister Errico
Letta recommends integrating the European energy market, consolidating the telecoms industry,
(11:48):
and also this idea of joint boring to finance defense spending.
Bloomberg's Oliver Kruk joins us now from Brussels for more
on the summit. Ollie, thank you so much for being
with us. There does seem to be real concern in Europe,
you know, about its competitiveness, about its defense spending. Letters
(12:09):
report is also quite forceful. What are the key points
of his recommendations.
Speaker 10 (12:15):
Yeah, it's really a single market report. It's one hundred
and forty seven pages and it really goes into a
lot of detail on a number of issues, and you've
enumerated some of them, but really I think that one
where you might have the most consensus is this question
of defense spending. Everyone knows in Europe you need to
get that spending up. The question is how do you
pay for it. The question of joint debt is really
the main question. I think for many people in Europe.
(12:36):
There is potentially there is potentially some room to make
progress on this, or of course some of the nations
that historically have been a joint debt averse that are
still standing in the way of that.
Speaker 9 (12:47):
But I think that there is a little bit more
wiggle room on.
Speaker 10 (12:49):
This, particularly on this reality of the new defense reality
of Europe. There's also this question of the Capital Markets Union.
We've heard about it for about a decade. Will there
be sort of more uniform financing rules, ability for capital
to move across Europe? This is one It's seen as
one of the main catalysts not just for defense spending,
but for attracting spending across all the spec sectors in Europe.
There's also about energy market integration, telecoms consolidation. You know,
(13:12):
they're talking about their thirty two carriers at least across Europe.
Speaker 9 (13:15):
The United States has two.
Speaker 10 (13:16):
These are all breeding all kinds of inefficiencies within the
European market alive.
Speaker 2 (13:21):
One of the expectations around progress being made at this
particular meeting on advancing in any of those issues.
Speaker 10 (13:27):
So it's interesting about the competitiveness issue, Stephen, is that
it's a lot easier to put tariffs on Chinese goods
than it is to look in the mirror and say, hey,
we have a competition problem. And you know, the other
former prime Italian Prime Minister who is also in charge
of this is Mario Dragi, who gave a speech this
week that was frankly very stark, but he was talking
about a reimagining of Europe that has to be on
(13:48):
the same scale as when it was founded seventy years
ago with the Steel and Coal Accord that really made it,
brought it into being. And unfortunately for Europe, this is
exactly the kind of thing that they're really bad at, right,
A massive issue, very difficult political negotiations, but no immediate urgency.
Speaker 6 (14:04):
Right.
Speaker 9 (14:04):
So you have some of the issues.
Speaker 10 (14:06):
Like the Capital Markets Union, where will that be supervised
from this is one of the main contentious issues.
Speaker 9 (14:10):
You know, will it be in France, will it be
in Paris?
Speaker 10 (14:13):
Perhaps not in the other points Steven, and this is
something that I'm sure you're watching very closely. All of
these recommendations call for a bigger, more centralized Europe, a
Europe that acts more like a nation than an arrangement
of nations, and that may not be the most popular view,
particularly light of the polls going into the election.
Speaker 1 (14:29):
Yeah. Also, these European leaders have been discussing, you know,
the defense issues and the wars that we're seeing in
the world, the Middle East, the concerns around Iran. On defense,
what is the new goal for weapons production, for spending
in Europe. How quickly is that changing. What's the sense
of that at this gathering.
Speaker 10 (14:48):
Yeah, well, it depends who you ask, Right. We hear
a lot of rhetoric from the politicians. But I was
at a defense summit yesterday where I spoke to the
CEOs of sab and Kongsburg, you know, the two sort
of Nordic giants of defense here and in Europe, and
really their point was that, listen, we are willing to
ramp up capacity, we've already started it, but we need
two things. We need one long term stable order flow
(15:09):
from the governments. And there's been a lot of talk
if they do not have all the orders they need
to justify the kind of ramp up that's required. And
two they need investment in financing, and they're not waiting
for a capital markets union.
Speaker 9 (15:20):
They say, you need to go for the lower hanging fruit.
Speaker 10 (15:23):
The European Investment Bank rules need to change so that
that institution can invest into defense, and they need those
long term commitments so that they can start ramping up
production for a historically very low volume industry that needs
to suddenly turn out extremely high volume.
Speaker 2 (15:37):
This is Bloomberg Daybreak Europe, your morning brief on the
stories making news from London to Wall Street and beyond.
Speaker 1 (15:43):
Look for us on your podcast feed every morning, on Apple, Spotify,
and anywhere else you get your podcasts.
Speaker 2 (15:49):
You can also listen live each morning on London DAB Radio,
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Speaker 1 (15:55):
Our flagship New York station is also available on your
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I'm Caroline Hepka.
Speaker 2 (16:04):
And 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.
This is the BlueBag Daybacurt podcast, available every morning on Apples,
Spotify or wherever you listen. It's Thursday, the eighteenth of
April here in London. I'm Caroline Hepkin and.
Speaker 2 (00:11):
I'm Stephen Carroll. Coming up today, more Federal Reserve policymakers
add their voices to the growing consensus that progress on
US inflation has slowed.
Speaker 1 (00:20):
Bank of England Governor Andrew Bailey says that Britain now
faces less of an inflation risk than America.
Speaker 2 (00:27):
Plus swinging the acts again, UBS gets set to make
more job cuts as part of its ongoing Credit Sueese integration.
Speaker 1 (00:34):
Let's start with a roundup of our top stories.
Speaker 2 (00:36):
Federal Reserve policymakers are increasingly making the case to hold
off on cutting rates. On Tuesday, Charger own pals that
he needs to see more evidence that the pace of
price rises is cooling. Now he's been joined by Federal
Reserve Governor Michelle Bowman, speaking at an event in Washington.
She too conceded a lack of recent progress.
Speaker 3 (00:57):
What we've seen over the past first few months of
twenty twenty four, anyway, is that progress on inflation has slowed,
and I expect maybe it's even stalled at this point.
Speaker 2 (01:10):
Michelle Bowman's comments were echoed to by the Bank of
Cleveland President Lorettamester, speaking at a separate event, She said
the central Bank shouldn't be in a hurry to cut
The shift in tone from rate setters comes after three
months of surprisingly high inflation readings and jobs data suggesting
the US economy remains resilient.
Speaker 1 (01:29):
The UK and Europe are facing less of an inflation
risks than the US. That's according to the Bank of
England Governor Andrew Bailey, whose remarks suggests that the UK
will cut rates before the FED. UK inflation came in
stronger than expected at three point two percent in March,
but Bailey says that he expects price rises to be
significantly cooler next month.
Speaker 4 (01:50):
We're in the position where we'ressueing those processes of this inflation.
I expect that next month's number will show quite a
strong drop because we have a particularly unique energy household
energy pricing system in the UK.
Speaker 1 (02:03):
Andrew Bailey also agreed with the International Monetary Funds analysis
suggesting that demand is overheating in the US but is
below potential in the UK and the Eurozone selling edged
down after Bailey's comments.
Speaker 2 (02:17):
Savenian central banker Bosta and Vassler says the ECB can't
disregard monetary policy and inflation in the US when making
its decisions on interest rates. He told Bloomberg that divergence
has its limits. This is ECB president Christina Gowd says
the Eurozone economy is getting back on track after a
year of stagnation.
Speaker 5 (02:37):
Growth in Europe has been mediocre and has been much
slower than growth in the United States. We haven't had
a recession, but it's been very slow and meager, and
in terms of where we see Europe going forward, it
is recovering and we are clearly seeing signs of recovery.
Speaker 2 (02:58):
Now, its comments Commas. Traders bet the ECB will cut
interest rates at its next meeting in June. Officials are
very carefully watching euro exchange rates as Federal Reserve policymakers
signal they will wait longer to cut US rates. Traders
are pricing in eighty basis points of reductions from the
ECB across this year.
Speaker 1 (03:18):
European Union leaders are pushing for a new joint defense
and industrial strategy at their Bustle summit a draft seen
by Bloomberg calls for a paradigm shift in the face
of losing their competitive edge to China and the US,
and wars both near and far. The text is yet
to be agreed, with both euroskeptic and frugal countries opposing
(03:40):
what could amount to the block itself issuing hundreds of
billions of euros in debt.
Speaker 2 (03:45):
UBS is planning another round of job cuts as it
continues to trip headcount following its rescue of Credit Swee.
Bloomberg's team at Abayo has the details.
Speaker 6 (03:54):
The emergency takeover of Credit Sweee by UBS added around
forty five thousand people to the combined bank's workforce. The
bank is aiming to save six billion dollars a year
in staff costs over the coming years, but hasn't said
how many jobs overall will be affected in this latest
round of job cuts. Sources have told Bloomberg that more
(04:15):
than one hundred employees at the firm's global investment bank
will go. Whilst exact timings aren't final, it's thought the
changes could take place in the coming weeks. In London.
Tewa Ada Bio Bloomberg Radio.
Speaker 1 (04:29):
Here in the UK, Chancer Jeremy Hunter says that consumers
shouldn't be made to pay for Thameswater's mistakes. It's the
most direct public comment from the top of government so
far on the fate of Britain's largest utility. James Wilcock
has more Now, the question.
Speaker 7 (04:45):
Hasn't changed since Thames Water's owner first went into default.
Who is going to pay for its debts? The chance
that gave a clear answer overnight. It shouldn't be customers,
but its shareholders called Thames uninvestible and they refuse to
put in more money too. As the standoff continues, Bloomberg
has learned hedge funds have started shortening other UK water
(05:07):
utilities and their debt. It's assigned something Britain's water problem
could get far worse before it gets better in London.
James Wilcock Bloomberg Radio.
Speaker 1 (05:16):
Now, in a moment, we'll bring you the latest on
what central bankers have been saying about inflation and interest rates.
Plus we'll look ahead to today's EU leaders summit. But
another story that caught it arrived this morning. If you're
in the market for a luxury purchase, well who's not
in the market for that? Apparently Japan is the place
to go.
Speaker 2 (05:36):
And I've just been, as I said, dripping in Chanel
here in the radio student this morning. No, not quite.
But this is to do with the sharp fall in
the en combined with the number of premium brands that
haven't yet adjusted their prices to reflect the change, which
means that there's an opportunity to get these luxury goods
at a discount. A Tagua Carrera chronograph watch in Tokyo
sells the equivalent of just over five thousand US dollars
(05:57):
after the ten percent duty free discount, which is around
thirteen hundred dollars cheaper than it would cost if you
buy it in New York. So our colleagues Claire Valentine
and Lisa who have been reporting that the savings are
bringing buyers from around the world to Japan, with some
eager to resell their luxury goods then for a profit
when they get home. Now, the experts in this field
(06:17):
say that essentially luxury brands will catch up, so it's
a closing window because they don't want price arbitrage between
different countries as well. So there's a whole list of
the things that you can buy in Japan at the
moment at a disc und versus where you'd buy them.
Speaker 1 (06:29):
I almost that you've skipped over the whole fantastic pitchannel. Well,
the fantastic trip to Japan. Highlight of Japan. I know
you've read the food.
Speaker 2 (06:36):
Really yeah, everything I ate was fantastic, amazing.
Speaker 1 (06:40):
There you go, So giving you some inspiration for your
travel set. And let's think about central banking though, shall
we next? A divergence has emerged among the world's top
central bankers over their view of where inflation is going
and they might be able and when they might be
able to cut interest rates. We've been hearing from the FED,
the ECB, the Bank of England policymakers during events linked
(07:00):
to the IMF and the World Bank Spring meetings at Washington,
a whole plethora of voices. Really Tony's this morning, but
by tv Anka pretty good to fall more on this. Firstly,
on the FED, we've seen other FMC members like Mesta
starting to echo your own powers signals on inflation, so
a bit of catch up by other speakers. Interest rate
cuts might basically come later. How a market seeing these messages.
Speaker 8 (07:24):
They're running with it, really and if you look kind
of market pricing you have no cuts priced now officially
for twenty twenty five at least those or sees me
twenty twenty four until twenty twenty five. That seems to
be where the markets are pricing in simply because you
have this massive, kind of almost dark period in the
back half of the year where because of the election
risk on both sides.
Speaker 9 (07:44):
Of the Atlantic.
Speaker 8 (07:45):
By the way, you are going to see a little
bit of pushback in terms of whether or not you
can use ratecuts or imply ratecuts as late as September
as what people are saying. But again, it's not just
about that opening ratecut. You have to kind of follow
them up with consecutive ones. So that's why it's being
pushed back not only to December, but even further out,
given that they're waiting for those inflationary dynamics and because
(08:06):
the data has come in hot three data points, I
think we can say is they're to make a trend.
And that's kind of the argument that a lot of
these central bankers are saying. So Lorettamester not really say
anything new, but kind of really harping on the fact
that there is no hurry and there is no rush,
and therefore she does ultimately still see that an interest
rate cut could be on the docket.
Speaker 2 (08:26):
Just not yet, not yet. Indeed, how difficult has Jerome
Powell and colleagues made it for other central bankers though,
because although they love to say that they don't watch
the Fed, they do in some ways they do.
Speaker 8 (08:41):
And it's tricky because traditionally the Federal Reserve has kind
of been the central banker to the world naturally, and
they were a little bit late to hiking rates relative
to some of their peers, even their G ten peers.
For example, you saw the BOE of course front run
on the Federal Reserve on that front. You saw the
Royal Bank Reserve Bank of New Zealands use meet the
(09:02):
RBA as well, all front running the FEN terms of hikes.
But they all may potentially not do that in terms
of cuts, although you are seeing that in say the
Swiss National Bank, for example, already a cut there, and
that already had caused so much ripple effects in the
fact that the Swiss front and round the ACB as well.
So I think at the crux of the question is
do you start to see the same growth dynamics in
(09:23):
the entire world, And that's really where the divergence comes
from this idea that the United States a lot that grows.
A lot of that inflationary push is one of growth,
whereas the UK and other parts of the world as well,
some of it is more commodity exposed, some of it
is more housing exposed, and some of them is kind
of still a wage story. There are a lot of
places in the world, including the UK, where real wages
haven't caught up and affordability is a bigger issue than
(09:45):
it is in the States.
Speaker 4 (09:45):
Yeah.
Speaker 1 (09:45):
Absolutely, Andrew Bailey making that very point, insisting the inflation
dynamics in the UK a very different to the US,
which is pretty interesting. There's also optimism to from Christine Legarde.
Her key message focusing on the Arizone Economy Act. She
looking brighter, saying, you know, we we didn't go into
recession and so that you're looking a bit stronger.
Speaker 8 (10:09):
It is, and look, when you've looked at some of
the data points and the economic data as well, look
at the periphery because the traditional kind of a weak
spots are sore spots of the European economy. I'm thinking
of Italy, Spain, Greece, et cetera.
Speaker 9 (10:22):
Those are your outperformers.
Speaker 8 (10:23):
This time around, you're really just seeing kind of more
weakness in Germany and that's kind of bringing up the question,
the age old question, which is as the ECB cater
to the entire year zone or just Germany, and if
you do actually have over look at the data point,
it is much much stronger. This is where fiscal deficits
become a bigger issue. And I think France is a
really great example of what you're seeing there because the
spending is starting to become far more than anticipated and
(10:45):
that's where starting to seem you are you're seeing more
issues in terms of markets pricing in particular. But Christine
le Guard, to her credit, is looking at the periphery,
looking at the traditional problem spots and saying, oh, well,
things aren't looking that bad there, are we also in
a hurry.
Speaker 2 (11:00):
Interesting to see in her comments as well, this idea
that although she points to the single mando to the
ECB being price stability, that the exchange rate is something
that they take into account in terms of how it
will impact inflation as well. So it brings us back
to this question of central bankers watching each other in
this too. Chriati Gupta thank you very much for talking
as through the latest of what we've proad from those
(11:20):
central bankers at the IMF and World Bank Spring meetings
in Washington.
Speaker 1 (11:24):
Well, let's stick with europe weak growth, the fallout from
Russia's war in Ukraine, and inertia about a capital markets
union are some of the key issues on the agenda
as EU leaders meet in Brussels today. It comes as
a special report from the former Italian Prime Minister Errico
Letta recommends integrating the European energy market, consolidating the telecoms industry,
(11:48):
and also this idea of joint boring to finance defense spending.
Bloomberg's Oliver Kruk joins us now from Brussels for more
on the summit. Ollie, thank you so much for being
with us. There does seem to be real concern in Europe,
you know, about its competitiveness, about its defense spending. Letters
(12:09):
report is also quite forceful. What are the key points
of his recommendations.
Speaker 10 (12:15):
Yeah, it's really a single market report. It's one hundred
and forty seven pages and it really goes into a
lot of detail on a number of issues, and you've
enumerated some of them, but really I think that one
where you might have the most consensus is this question
of defense spending. Everyone knows in Europe you need to
get that spending up. The question is how do you
pay for it. The question of joint debt is really
the main question. I think for many people in Europe.
(12:36):
There is potentially there is potentially some room to make
progress on this, or of course some of the nations
that historically have been a joint debt averse that are
still standing in the way of that.
Speaker 9 (12:47):
But I think that there is a little bit more
wiggle room on.
Speaker 10 (12:49):
This, particularly on this reality of the new defense reality
of Europe. There's also this question of the Capital Markets Union.
We've heard about it for about a decade. Will there
be sort of more uniform financing rules, ability for capital
to move across Europe? This is one It's seen as
one of the main catalysts not just for defense spending,
but for attracting spending across all the spec sectors in Europe.
There's also about energy market integration, telecoms consolidation. You know,
(13:12):
they're talking about their thirty two carriers at least across Europe.
Speaker 9 (13:15):
The United States has two.
Speaker 10 (13:16):
These are all breeding all kinds of inefficiencies within the
European market alive.
Speaker 2 (13:21):
One of the expectations around progress being made at this
particular meeting on advancing in any of those issues.
Speaker 10 (13:27):
So it's interesting about the competitiveness issue, Stephen, is that
it's a lot easier to put tariffs on Chinese goods
than it is to look in the mirror and say, hey,
we have a competition problem. And you know, the other
former prime Italian Prime Minister who is also in charge
of this is Mario Dragi, who gave a speech this
week that was frankly very stark, but he was talking
about a reimagining of Europe that has to be on
(13:48):
the same scale as when it was founded seventy years
ago with the Steel and Coal Accord that really made it,
brought it into being. And unfortunately for Europe, this is
exactly the kind of thing that they're really bad at, right,
A massive issue, very difficult political negotiations, but no immediate urgency.
Speaker 6 (14:04):
Right.
Speaker 9 (14:04):
So you have some of the issues.
Speaker 10 (14:06):
Like the Capital Markets Union, where will that be supervised
from this is one of the main contentious issues.
Speaker 9 (14:10):
You know, will it be in France, will it be
in Paris?
Speaker 10 (14:13):
Perhaps not in the other points Steven, and this is
something that I'm sure you're watching very closely. All of
these recommendations call for a bigger, more centralized Europe, a
Europe that acts more like a nation than an arrangement
of nations, and that may not be the most popular view,
particularly light of the polls going into the election.
Speaker 1 (14:29):
Yeah. Also, these European leaders have been discussing, you know,
the defense issues and the wars that we're seeing in
the world, the Middle East, the concerns around Iran. On defense,
what is the new goal for weapons production, for spending
in Europe. How quickly is that changing. What's the sense
of that at this gathering.
Speaker 10 (14:48):
Yeah, well, it depends who you ask, Right. We hear
a lot of rhetoric from the politicians. But I was
at a defense summit yesterday where I spoke to the
CEOs of sab and Kongsburg, you know, the two sort
of Nordic giants of defense here and in Europe, and
really their point was that, listen, we are willing to
ramp up capacity, we've already started it, but we need
two things. We need one long term stable order flow
(15:09):
from the governments. And there's been a lot of talk
if they do not have all the orders they need
to justify the kind of ramp up that's required. And
two they need investment in financing, and they're not waiting
for a capital markets union.
Speaker 9 (15:20):
They say, you need to go for the lower hanging fruit.
Speaker 10 (15:23):
The European Investment Bank rules need to change so that
that institution can invest into defense, and they need those
long term commitments so that they can start ramping up
production for a historically very low volume industry that needs
to suddenly turn out extremely high volume.
Speaker 2 (15:37):
This is Bloomberg Daybreak Europe, your morning brief on the
stories making news from London to Wall Street and beyond.
Speaker 1 (15:43):
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Speaker 2 (15:49):
You can also listen live each morning on London DAB Radio,
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Speaker 1 (15:55):
Our flagship New York station is also available on your
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I'm Caroline Hepka.
Speaker 2 (16:04):
And 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.
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