June 19, 2025 • 37 mins
Markets have stayed calm so far this week, but central banks and geopolitics were anything but. Anthony and Piers break down the Fed’s muted meeting, the revised growth and inflation forecasts, and the hidden signals in the dot plot. Over in the UK, a dovish shift at the Bank of England suggests more cuts are coming despite a steady headline rate.
They also unpack rising tensions between the U.S., Israel, and Iran, and what oil markets are really telling us about the risk of escalation.
From vote splits to forward guidance, this episode filters the noise to reveal the signals that matter.
(00:00) Intro & Topics in Focus
(02:03) Fed Hold Rates But Dot Plots Move
(17:49) Bank of England's Strategy and Vote Split
(27:39) Geopolitical Tensions and Market Reactions
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello and welcome back to the show.
And we have three things we're going to talk about.
And namely, that is a central banking theme that connects the
first two. And of course, we've had the
Fed. the US central bank has held rates at 4:00 and 3:45 and
a half percent as expected, withofficials continuing to pencil
in two interest rate cuts in 2025.
(00:23):
So was that the amount the market was expecting?
How do we know it's 2? Did they explicitly say that?
And what's this thing called thedot plot and how do you
interpret it? We're going to dive into that.
And then the Bank of England, again, also kept rates on on
hold at 4 1/4%, but a dovish vote split.
So why mention split votes? We will also have a look at
(00:46):
that. And then finally, there's
obviously continued focus acrossglobal markets on the situation
as it's evolving between Israel and Iran.
Senior U.S. officials are preparing for a possibility of a
strike on Iran in the coming days, according to people
familiar with the matter, citingBloomberg article released on
the 19th. So perhaps we could start Piers
(01:08):
with the with the Fed? Yeah.
So they held, they held rights. I mean, that was, I mean, we're
talking to the interns today. We actually watched the Bank of
England live. We didn't, we didn't.
So last night with the Fed, but it's it's one of those, isn't
it, where if you're brand new tothis, you're kind of all gearing
(01:28):
up towards one headline kind of number or figure.
But as I'm sure you're going on to explain, this is such a multi
faceted news driven event, right?
Yeah. And I was, I was actually
running a session for Nomura Markets interns in New York
yesterday, like a kind of finished maybe a couple of hours
(01:51):
before the Fed announcement. And I was like amping it up and
going, oh, that's amazing. Your first ever Fed meeting.
When you're on the trading floor, it's going to be
fireworks, you know, and really try to get them revved up and
excited. And then it was the Dalist
market reaction I've seen for a long time to a Fed meeting.
And actually, if you're Jerome Powell, you know, you chalk that
(02:14):
up as a very large success. I would say, as you said,
there's so many moving parts to all of this and yet he can
deliver he him and his committeeand, and through the statement
and his press conference can kind of navigate through that
And actually markets basically didn't move.
(02:34):
So from the Fed's point of view,it's kind of job nicely done.
And and what does that mean? It means they're not changing
rates and they are basically Wheeling out almost exactly the
same message as they have done for months, which is like it's
too much uncertainty here, you know, uncertainty on the Trump
(02:56):
tariff policy side. Yes, that, you know, I would say
the big concern about tariffs ramping up, you know, super
high, that's gone. And actually that was probably
explains the pretty much the single change to their
statement. So as I think most of you
(03:17):
listening all know, they, they how to the Fed communicate.
Well, they have a meeting every six weeks and then at the end of
that meeting, they, they agree on a script, which they call the
statement. There's basically two sides of a
four. And then that gets released and
then all the details are on that.
But then the media pick up and report on.
So obviously are they changing rates or not?
(03:38):
But it's, they go into a lot more detail about their economic
assessment and all the rest of it.
And traders pour over every single sentence and like,
compare it to the meeting beforeand write what, what words or
what word even has changed and, and trying to just, you know,
read between the lines literally, you know, right, that
one single word change. What might that mean for, you
(04:01):
know, is that the Fed telling uswhat is that code language for
what they might do in the future?
And it it all goes a little bit too far, to be honest.
But the change in the statement was so the, the the previous
meeting six weeks back, they were saying uncertainty about
the economic outlook has increased further.
OK, Now that was in that period of time because six weeks ago we
(04:23):
were in that little period of time.
It was after Liberation Day. So that was April 2nd when Trump
said, right, the world, here yougo.
How, how'd you like these tariffs?
And he started this kind of to threaten everyone that tariffs
are going to ramp up. And then there was a back and
forth with China tit for tat andwe got up to tariffs being
threatened at 145%, which would be an economic disaster.
(04:47):
And that's when the Fed had their last meeting.
So obviously they were going look, economic outlook, you
know, uncertainties increased further, obviously.
But since then, you know, the Taco trade, Trump, Trump always
chickens out. So meaning he backtracks and
backtracks. And then let's get around the
negotiating table. And that 145% threat becomes
(05:08):
maybe something like 30%, which is more digestible.
So the Fed have reflected that in their statement.
So instead of saying the outlookhas, the uncertainty to the
outlook has increased further, they said the uncertainty about
the economic outlook has diminished but remains elevated.
So, you know, that's what that means.
(05:29):
But of course we know that. I mean, it's obviously it's
diminished. So this isn't news that the
reason why markets didn't react to really any of this was
because, well, yeah, obviously that's the sort of analysis of
the situation, you know, as it'stranspired in the last six
weeks. So equally then they updated
(05:50):
their every other meeting economic forecasts and then
there was some change there was the fact that the market wasn't
that bothered because of what you've just mentioned.
So data suggests that yes, because these aren't six weeks,
this is 3 months if change to becompensated for.
So all very much well known thenand telegraphed by the market
(06:13):
from looking at data points. Yeah.
So just to make that clear. So every six weeks they have a
meeting, but every other meetings, so every 12 meets and
it's actually the meeting that takes place in the last month of
each quarter. Then they go further and they
change their economic forecasts or economic projections as they
(06:34):
call them. And then they change this thing
called the dot plot, which we'llcome onto in a second.
But from an economic forecast point of view, you know how they
changed up there and this is for2025 as a full year, right?
So in March, which was the last time they updated these, they
had GDP growth forecasted at 1.7%.
OK, that's in March. Now here we are in June, they've
(06:55):
revised that down. They now think GDP is going to
be more like 1.4% this year. OK, so obviously that's a
negative revision. Unemployment, they said there,
while they now reckon it's goingto be 4.5% by year end, back in
March they thought it would be 4.4% by year end.
So that's a negative revision aswell.
Obviously unemployment being higher is worse, right?
(07:17):
So that's the economic situation.
They're revising things down. Why are they doing that?
Well, obviously there's uncertainty around tariffs and,
and all the rest of it. But then of course there's the,
I would say since March, the, you know, the deficit and the
debt kind of situation in the UShas kind of escalated.
So that brings uncertainty, of course.
And then obviously we've got this geopolitical flare up as
(07:40):
well, which adds uncertainty also.
So they've revised the economic situation down.
Problem is the other part of that forecast is inflation.
There they've revised it up and this is like the worst case
scenario, you know, worsening economic momentum with rising
inflation. So there they've changed their
PCE inflation forecast for year end.
(08:02):
They've changed it to 3%. Back in March they had it at
2.7. So that's the situation.
That's all bad. Every single revision is bad.
Why haven't markets reacted then?
Well, because we kind of knew that was going to happen.
So and, and they're only small tiny changes.
(08:22):
And it's so hard to, it's so hard to predict because of that
word uncertainty that I mean, these are all going to get
changed again in three months anyway.
And then we'll find out what they actually are at the end of
the year and they might be nothing like these.
So I think the value and the gravity put onto these forecasts
has reduced because of that uncertainty element going up.
(08:46):
So what's what's your friend Donald got to say about?
All of this, Donald, he's not happy.
He's not happy with Jerome. I mean, we've talked about him,
but obviously slating Jerome in the past.
And yeah, just before the meeting yesterday, he he called
(09:06):
Jerome Powell stupid. He said the Fed chair's stupid.
And then he said, yeah, you think?
Last week about a couple of replacements, right?
But I think you're missing someone off your list.
Well, this is it. He's now put himself forward as
a potential candidate to head upthe central bank.
So this is, yeah, dictator Trumpjust trying to kind of set his
(09:32):
kind of platform out for a full ownership of the entire policy
mix of the United States. But yeah, he's kind of, he's
kind of joking. Or is he?
I don't know. But what do you think about
that? Because what do you think Jerome
thinks? Or is it just whatever, Trump, I
(09:54):
don't care? Or do you reckon this can have
any impact on what the Fed do? Yeah.
So, well, to answer that that question, no, I don't think it
has any impact as far as marketsare concerned in terms of
politics. Maybe there's a little bit of
impact. He said as well.
Be nice if the Fed cut rates by as much as 2 1/2 percentage
(10:18):
points. I think last time you said it,
it was he wanted to go full 100.Now he's going to 250.
Yeah, it's. Going to be 10%.
Basically. But yeah, tell me to answer your
question. I think he does.
If you were to go back and I remember doing lots of this in
his first term when I was a bit more following markets in my my
(10:38):
previous life. But looking at his tweets, what
he tweets and the types of things he's tweeting about every
time, it's kind of, well, what'sthe economic and political
situation, the context overlay at that point in time.
And I think then this is just that kind of deflection tactics
of whatever he's dealing with. It's just a reason to pin blame
(11:00):
on someone else. I would absolutely, as his
strategist, advise him to do exactly what he's doing.
Because to a large bulk of the the electorate, I think there's
enough there for people. You know, it's almost like that
us and them. It's like he thinks he's super
clever. He thinks he knows it all.
(11:21):
This is all his fault. He's causing these debt payments
to be out of control. Like I think that's just that
one O 1 out of the playbook and I would expect no different to
be honest. Yeah.
OK. So if the if the economy does
worsen, it's Powell's fault. And he will say, I told you,
yeah. And even though we know it's
(11:42):
other obviously lots of things that are put into that, he will
squarely put that on Powell and not himself, of course.
But of course, if the economy improves and if all of this
concern about our inflation is going to go back up, if it
doesn't and if the economic situation improves, obviously
there he he takes the win, right, and says, well, that's
because of my policy, my fiscal policies, right?
(12:03):
So it's a. It's a win, win.
It's a Trump hedge, basically. Yeah, yeah.
Makes sense? Yeah.
All right, makes sense. But then, yeah, I, I'll just,
I'd like just to kind of maybe. Yeah.
Well, we need to talk about the dot plot perhaps just as a point
of interest. Again, markets didn't move
though, so it's a bit of a mute point.
(12:25):
But you know, that's the other thing that they update on a
quarterly basis. So it's not just those economic
forecasts. They then update this thing
called the dot plot, which is their way.
There's a thing called forward guidance and that's where the
central banks, certainly the kind of Western sort of mature
economy central banks like to beas transparent as they can be
(12:49):
with regards to where interest rates might go in the future.
Just to kind of let markets know, let businesses know, let
people know, you know, what's the direction of travel for the
cost of borrowing. They don't want to go too far
and be too explicit. They don't want to give like
hard nailed on, you know, interest rates will be X by Y
(13:11):
dates because of course, if we don't know what's going to
happen and and economic ups and downs.
And whilst they might think interest rates will be at 4% at
the end of this year, they mightnot be just depends on what
happens between now and then. But if they were to what's their
best guess now, basically they'dsay 4%, right.
(13:31):
But that, so that forward guidance, they, the Fed are
quite unique where they use a thing called the dot plot to
really give us some, some real insight into what each
individual member of the Fed is thinking.
So this dot plot, basically there's four columns on the
chart and there's a column for the end of 2025, the end of
(13:52):
2026, the end of 2027, and something called the longer run.
OK, So what each member of the Fed is asked to do is say, what
if you know what, where do you think rates will be at the end
of each year? And then plot your dot.
OK, so 252627 longer run is right.
Where do you think rates will end up being?
Where's the neutral rate for interest rates?
(14:16):
Once the if we are in a cutting cycle, which they're telling us
we are, we are, then where will the bottom of that be where it
kind of naturally settles down and flattens off?
OK. So look, it's their forward
guidance tool and every three months they update it.
What was interesting here then about the changes to the dot
plot it, it wasn't much in that obviously each member plots
(14:38):
their own dot and it can get a bit messy, but we're interested
mainly in taking the average, you know, what's the median?
Sorry, what's the median dot? And then that becomes, if you
like the market forecast, Well, not the market, the feds forward
guidance that becomes their number.
So at the moment it didn't change for the end of 2025 S in
the March meeting and now in here in the June meeting as it's
(15:00):
updated, that end of 25 numbers stayed the same in that it's 2
interest rate cuts each of 25 basis points probably currently
in September and December's meeting taking interest rates
from 4 1/2 to 4.25 to 4. OK, so year end rates 4%.
So that hasn't changed as in themedian.
But actually those dots, even though the median didn't change,
(15:24):
those dots did maneuver perhaps a bit more than I was expecting
to be honest. And what's what it's shown is
we've got an ever increasing divide amongst the committee
because what happened was you'venow actually got 7 people on
that committee at the 17 right. Seven of them are saying no rate
(15:47):
cut at all in 2025. They're saying you know what,
rates are going to stay exactly where they are now at 4 1/2% so
that the number of people sayingno cuts has gone up.
So you got people shifting into that camp, but then you got
people again, slight shift into the other camp, which is 2 rate
cuts there you've got 10 people.OK, so you've got 7 saying none
(16:11):
and you've got 10 saying 2. And that that, that they you've
got these two camps within the committee and though both camps
have kind of added members if you like, but net the average
hasn't changed. So it's just an interesting one,
I think. But this is all kind of
splitting hairs, to be honest, because ultimately they say
(16:34):
themselves they don't know, right?
Those that are sitting on the we're going to cut twice camp or
they're saying, look, you know, we need borrowing costs to drop
here, otherwise it's going to have a negative impact on the
economy. So let's cut rates.
They're saying, look, growth momentum slowing, we've just
revised down our GDP forecast. Unemployment's getting worse
(16:54):
that we've just revised it up, let's cut.
But then the unchanged camp, they're like, well, you know,
inflation's more important and inflation's just ticked higher.
And whilst it's one month, we don't want, and Ashley Powell, I
think said this whilst we, whilst we, you know, we don't
want one month up tick in, in inflation to turn into another
(17:16):
inflation problem. Meaning we're not cutting rates
now because we don't want to, wedon't want to let that inflation
genie get back out of the bottle.
So they're obviously they're no cutters are more concerned about
that inflation situation and just want to just be super sure
inflation, the inflation crisis is behind us before getting that
(17:39):
cutting machine out. OK, well, let the the Fed is it
4 meetings now Certainly since the beginning of the year, they
just haven't haven't taken any action whereas the Bank of
England move on to them, they kept rates of 4 1/4%, but
they've kind of got this kind ofstrategy at the moment it would
seem as this sort of step down approach of a cut or one cut
(18:03):
every other meeting and that remains it seems to be remaining
intact for the moment. And one of the things here was
that, so I watched this live with the interns as I said at
the beginning and pound initially dropped.
So I think it's like a 30 pip straight line move because race
on hold. But the first thing was to vote
(18:23):
split. So maybe you could explain to me
then the difference with the Bank of England, because not
only do you get this vote split,but you also get the minutes at
the same time as the statement, which is unique, of course, the
BOE. Yeah, that's all.
All central banks do it their way, right?
So there's always there's differences like the Bank of
England don't have a dot plot matrix, for example.
(18:46):
That's the kind of unique Fed thing, right?
So what's unique about how the Bank of England do it?
Well, and they've changed it up over the years.
I mean, they have more, they have moved more in line with the
Fed. I mean, the Bank of England used
to meet once a month, like everyfour weeks, as did the ECB, of
course. But actually, I don't know how
long ago was it even pre COVID? Maybe they shifted more to that
(19:08):
six week frequency like the Fed.That was when you had long hair
pierced. OK.
Was it? Oh, it's only only a couple of
months ago then. So that the Bank of England,
what was what's interesting about them is I mean, look at
the core, it's interest rates and they're assessing the
economic situation and they're making a decision on rates,
(19:30):
right? That that's obviously the same
for all these banks. And that's the most important
thing. OK, so then it's about getting
into the weeds. And so for the Bank of England,
they have this thing called the vote count.
I know they have diff again, thecentral banks have different
numbers of people who sit on thecommittee that make the
decisions. So the Bank of England happens
(19:52):
to have nine people on the monetary Policy Committee, the
MPC, OK. And so they convene every six
weeks and then they make their decision.
What they what I think this is really interesting.
I'd love it if all central banksdid this, what they release not
only are we changing rates or not.
And so obviously today it was nochange.
But then they say right of the nine members, how did each
(20:14):
person vote? Because.
This is a democratic situation. At the end of the meeting, they
all vote. Do you want to hike unchanged or
cut? And if so, by how many, right,
How many basis points? And so it's interesting to get
that insight. So we get the vote split that
can really and obviously the vote split changes, right?
And so that can for the Bank of England, that's their forward
(20:35):
guidance. That's like their equivalent of
the dot plot but just near return because if the vote split
changes, then that shows the direction of travel of the
committee, either closer towardscutting or further away from
cutting and so on. Right.
So what was interesting about this meeting is normally you've
(20:57):
got 2 dovish members of that nine person committee, Dingra
and Taylor. And so they're always super
dovish. They always vote for a cut.
OK, like always. What was interesting here was
that the deputy Governor, Ramsden, he joined them.
He swung onto the cutting side of.
(21:19):
Come on, Dave. Come on, Dave.
So that was the interesting thing here.
You've now got three people in the cutting camp, right?
It didn't matter because everyone else voted for no cut.
So you had six no cuts and threecuts, right?
And so, oh, actually, am I rightin saying that?
Did anybody vote for a hike? No, it was 63, wasn't it?
(21:40):
Yeah, fine. So 6 no cuts and three cut,
right, majority rules. So the overall decision is no
cut, but it was 3 in the cuttingcamp, which was more than the
last time they were on hold for a meeting.
So I'd say this just shows generally very subtly that
committee has slightly tipped more dovish.
(22:01):
And look, we're almost certainlygoing to get another cut in six
weeks time to maintain. They're cut one cut every other
meeting frequency. So I think that's pretty much
nailed on, especially with this vote split change.
Yeah, I think you're absolutely right.
This is their version of a forward guidance tool.
They do have forward guidance language of which was left
(22:23):
unchanged. What that sounds like is gradual
and careful, which is basically inferring of the one every other
meeting strategy in terms of overlaying the timing of the
language shifts and what's been happening.
The thing about the minutes then, because the minutes is the
other thing. So typically, like with the Fed,
you can have, for example, a Fedmeeting and then all of a sudden
(22:46):
a big episode of of conflicts emerges between Islam and Iran
and the whole game can change pretty radically.
And so a two week gap can be a lifetime in markets.
But the Bank of England strategyis right.
Let's just get it all out there now.
The minutes of this meeting showed the committee, quote,
expected a significant slowing over the rest of the year in pay
(23:09):
growth amid further loosening ofconditions.
So sounds dovish. They said that there was some
greater signs of disinflationarypressures from the labor market.
So just decode that. What disinflationary pressures
from the labor market? Sounds like jargon.
Like what are they trying to tell us?
Well, that's what that's the words describing that change to
(23:31):
their wage growth forecast, right?
Where So if wage growth is goingto dampen, meaning is the rate
at which salaries are going to go up is is that is the rate of
rise going to drop? That's bad news for people.
Their pay rises will slow. So that is anti inflationary or
disinflationary as they've said,right?
(23:52):
So that would be a negative kindof force on inflation, which is
perfect because well, hang on, it's perfect.
Obviously. It's obviously it's not perfect
that people's wages are going togo up slower.
Obviously that's. Jesus Screech.
Obviously, that's not good for the economy and like demand and
(24:14):
GDP growth, what it is good for,which is still the kind of thorn
in our side, what it is good foris bringing inflation back down.
And the thing about the UK and all right, due to idiosyncrasies
with the way that energy costs get handled, but we had a jump
up in inflation in April. It jumped to 3 1/2% in May.
(24:36):
We had that data earlier this week.
It came in at 3.4%. So obviously well above the 2%
target. So, you know, slower wage growth
is good news if you're just looking at that inflation
situation. So that's disinflationary, just
meaning that the Bank of Englandare on their trend and there is
absolutely nothing right now that's going to take them off
(25:00):
that trend, which is cutting every other meeting for the
whole year. So that's what's that's what the
forward guidance language is saying.
I don't know why they don't justsay that in one sentence rather
than messing about with all these kind of nuanced words and
language. You need your.
Get out of jail free card, looking at the pound three hours
(25:23):
after the announcement, because we're recording this literally
just after and it hasn't done anything.
So that initial spike and spike and blip that you had on the
dovish vote split was taken backpretty, pretty rapid and it's
absolutely going sideways. Yeah, that's true.
But it has like the pound against the dollar has stepped
down out of the range we've beenin for the last couple of
(25:46):
months. So like this morning, we hit the
lowest we've seen since at the 21st of May.
So, so there was a that the # weakened into this meeting.
You could say the dollar has strengthened, maybe geopolitic
risk has risen. Maybe there's a bit of dollar
(26:07):
safe haven bid that's helped with the sterling dollar
exchange rate coming down. But the point is that the
exchange rate had dropped by a couple of, well, no, let's just
call it 100 basis points and notbasis points, 100 pips, sorry,
ahead of the meeting. And that's, that's about right.
There's, there's nothing in thismeeting that warrants
necessarily an immediate furthermove lower.
(26:29):
But look, you do I, I think in the coming weeks, you've got the
Fed who are saying categorically, we're staying
where we are, we're not cutting.And you've got the Bank of
England saying we're going to carry on to cut slowly.
So you've got this gradual divergent monetary policy
divergent. And so I would expect cables
(26:53):
exchange rate to continue to move back down off what's been
incredibly elevated levels because this thing's been
charging to the upside for the whole of 2025.
And you know, even though it's come off 100 pips into this
meeting, we're still at three 3 1/2 year highs here for this
exchange rate, so. Yeah, you're absolutely right.
(27:14):
There's kind of like no real reaction on the intraday.
It has moved low against the dollar out of a two week kind of
holding pattern, just under 136.But actually cable's had a
really great time since what mid-May and the dollar's had a
terrible time. So I guess that context allows
for a bit of this recalibration it seems and the fundamentals
(27:35):
line up. All right.
Well, look, let's finish and talk a little bit about what's
been happening on the geopolitics because it's such a
a prominent feature in terms of what investors and traders are
looking at. So the headline here is senior
U.S. officials are preparing forthe possibility of a strike on
Iran in the coming days, according to people familiar
(27:55):
with the matter. That article on Bloomberg went
on to suggest that some of them pointed to potential plans for a
weekend strike. Now, kind of two points here
that I think have changed since we last spoke on this topic
literally a week ago. One, the president's openness to
war is a reversal from his public remarks he made a week
(28:15):
ago. So Trump back then was urging a
lot of diplomacy to reach a nuclear disarmament deal with
Iran. That seems to have flipped.
There has been a lot of pressureon him from various different
senior political figures. And then two, originally Israel
was targeting these nuclear facilities and now they're
(28:36):
saying they could escalate attacks to Iranian strategic and
governmental targets. So this goes beyond now they're,
they're widening the, the, the remit here.
So yeah, any any thoughts on this?
Well, I mean, obviously, there'sno question it's escalated.
And Trump was like yesterday, what did he say?
(28:57):
Like asked in a press conference, you know, are the
US, are they going to join this offensive and attack Iran as
well? And Trump said, I might do, but
I might not. And it was like, you know, I get
what he's doing there. And he wants to keep Iran
guessing. Obviously, Trump, I would say
behind the scenes, and he said it in front of the camera as
(29:18):
well, that he wants Iran to surrender.
And I guess he's just trying to keep them guessing to keep the
pressure on and hopefully they do right and this conflict can
kind of pause and stop. But it's escalating.
But I, I don't know, all I do islook at markets.
If you look at crude oil, like literally in whilst we've been
(29:41):
talking in the, literally in thelast 10 minutes, we've just
broken up, not aggressively, butwe just moved up above the spike
high that we had on Friday last week.
That's when Iran, sorry, that's when Israel went in and bombed
Iran for the first time, right in this phase.
So at that big, you remember 13%move higher.
(30:02):
Well, WTI crude kind of pulled back off that spike on Friday
and it spent the whole week sideways with the last couple of
days just drifting back higher as this thing's escalated.
And we just moved just above that last Friday high now.
So oil, the oil price is tellingyou that things are escalating
and that, yeah, looks like, I mean, I don't know, does look
(30:26):
like the US are going to get more involved here.
It's then just becomes about, right, Well, does this stay as a
contained situation within Iran,which is the likely scenario?
That's why all the other marketsaren't really bothered.
You know, stocks, bonds, they'renot really flashing alarm bells
(30:49):
here at all. But always the problem, I guess
from a geopolitical sense is that, you know, who are Iran's
allies? And look, it's China and Russia,
right? So they are very allied.
And so obviously the big, big, big, you know, big, big, big
geopolitical kind of elephant inthe room is if if those two big
(31:14):
powers and obviously China beingmuch bigger than Russia, But if
they come to the table in support of Iran, well, then
obviously that's taking us down a whole new path that markets
would absolutely pay attention to.
But yeah, is that going to happen?
Yeah, I mean, I agree that's a scenario, but I would put a very
low probability certainly of China doing such things.
(31:37):
Russia may be slightly, slightlydifferent.
One of the things here is that the Iranian foreign minister is
set to meet with foreign ministers of UK, France, Germany
on Friday in Geneva. So is this and escalate on
Trump's strategy to negotiate again?
(31:57):
And I mean, I don't want to go as far as to say it's Trump's
working in unity with with Europe and the UK to try and
forge a deal here. I mean, it's not his style to
really collaboratively like that, but.
So hang on, is Trump part of that meeting?
So the G7 including. Trump, I understand he's not
part of that meeting. OK.
So it's the G6. Yeah, he does his own thing.
(32:20):
He has his own. Part obviously Trump left the
Canadian G7 meeting summit early.
I look, this is good play from Iran because look, is there a
bit of a divide between Trump and the US and the rest of those
G7? Is there a bit of a split?
Yes, relationships are definitely soured.
So is this Iran just trying to wedge an even bigger or drive a
(32:46):
bigger wedge in there by like let's meet with all the others
minus Trump just to set and thenTrump's like, well, hang on what
you guys talking about over there?
And so maybe there's some of that in it.
But look, you know what, the diplomatic that Trump was going
to be meeting with Iran, well, on Israel, right, which
literally the day after Israel bombed Iran, there was a meeting
(33:11):
booked, a diplomacy meeting. But Israel for whatever reason,
just said, said that we're not waiting for that.
We're going to just go for it. And so, yeah, that doesn't seem
to be any appetite for diplomacyfrom Israel's side.
So really it's just whether, whether you especially where do
the US fall and that's it. Do they want to get involved and
(33:34):
join Israel or do they want to kind of tell Israel to stop?
And we don't know yet. So from a from a news
perspective, again, just to share because I was asked about
this by some of the the interns this week.
So timing wise, now you've got the meeting on Friday.
So it's key of what is said at that moment in time.
There's the constant monitoring of the actual military
(33:55):
engagement that they're having. And then three, the report
saying that Israel could strike at the weekend.
Now to go one step further, if you're watching on Spotify,
YouTube, I'm going to flash now a graphic very detailed of
Iran's oil infrastructure. And this is a really incredible
(34:16):
resource. So if you do work in commodities
in the future, you'll probably use a platform called Platts.
So this is owned by S&P Global, which is a big data vendor, so
to speak. There's lots of other things.
You probably recognize them for rating agencies.
It's just one part of their business, but they have really
deep data and real time trackingmaritime routes, power grids,
(34:39):
all this good stuff. And there's a really detailed
map of Iran's oil infrastructure.
So what I would be doing today, days ahead of the potential
strike at the weekend, what willbe important to determine the
size of potential price shock iswhat gets targeted.
And what within that infrastructure would carry a
(35:00):
bigger supply shock in terms of crude?
Yes, there's obviously how how aggressive they are and how
widespread it is and what are the governmental targets non oil
related they might hit would escalate the political side of
it. But from a factual supply of oil
and gas, you can work this stuffout in advance of time and you
(35:20):
should if you're trying to scenario build around.
OK, is headline about Badar Abbas in the South north of the
Strait of Hormuz as important asthe Masjid Suleiman, which was
the first saw discovery in the 19 early 1900s?
Like what is important, what isn't?
If you're not used to this, you're like, they're just names,
(35:42):
but actually they're very different strategically.
So yeah, that's the I'd recommend that resource, S&P
Global Platts. And if you go to the insights
section, you can essentially look at everything, electricity,
power, oil, gas, you name it, and there's three articles that
you can get. The difference being they're
just delayed. So you know regular Joes unless
(36:04):
you pay the the the big subscription fees.
Yeah, unless you really want to geek out.
Sounds like you've been, you've been geeking out for a while
here. Yeah, I mean.
Look, it goes into every single thing, like down to very precise
details. But look, this is what you would
do from a career insight perspective if you worked for
Trafigura, for Glencore, these big oil majors, this is what
(36:28):
they have specialists doing essentially.
That's the edge, so to speak. All right, well, look, I think
we're we're pretty much done. So is there a way to kind of
conclude then for students who might be thinking about
interview season conversations they might be having?
So central banks overall, is this a status quo?
(36:51):
We're monitoring what's going onand we will make decisions
accordingly, type of thing. Yes, but if you're going into an
interview, just just talk it like that's what everybody knows
because that's what the headlines are saying.
But if you can get in there and talk about the dot plot, you
know, let's dive in here in a bit more detail.
Or if you want to talk about thevote split at the banker, if you
can talk about that good stuff in an interview, then they're
(37:14):
going to be going ah, all right,this this, this person knows
what they're talking about. So that's how you kind of stand
out. So yeah, just getting a bit more
detailed knowledge, even though,yeah, all these central banks
are on the same kind of path andnothing's changed too much.
Right. So there doesn't need to be a
dramatic move in order to have something of of credible
tangible evidence to demonstrateyour knowledge to talk about.
(37:38):
Cool. All right, that is it.
I'll let you go and enjoy the rest of your day.
Everyone take care. See you later.
Thanks. Thanks, Piers.
Hello and welcome back to the show.
And we have three things we're going to talk about.
And namely, that is a central banking theme that connects the
first two. And of course, we've had the
Fed. the US central bank has held rates at 4:00 and 3:45 and
a half percent as expected, withofficials continuing to pencil
in two interest rate cuts in 2025.
(00:23):
So was that the amount the market was expecting?
How do we know it's 2? Did they explicitly say that?
And what's this thing called thedot plot and how do you
interpret it? We're going to dive into that.
And then the Bank of England, again, also kept rates on on
hold at 4 1/4%, but a dovish vote split.
So why mention split votes? We will also have a look at
(00:46):
that. And then finally, there's
obviously continued focus acrossglobal markets on the situation
as it's evolving between Israel and Iran.
Senior U.S. officials are preparing for a possibility of a
strike on Iran in the coming days, according to people
familiar with the matter, citingBloomberg article released on
the 19th. So perhaps we could start Piers
(01:08):
with the with the Fed? Yeah.
So they held, they held rights. I mean, that was, I mean, we're
talking to the interns today. We actually watched the Bank of
England live. We didn't, we didn't.
So last night with the Fed, but it's it's one of those, isn't
it, where if you're brand new tothis, you're kind of all gearing
(01:28):
up towards one headline kind of number or figure.
But as I'm sure you're going on to explain, this is such a multi
faceted news driven event, right?
Yeah. And I was, I was actually
running a session for Nomura Markets interns in New York
yesterday, like a kind of finished maybe a couple of hours
(01:51):
before the Fed announcement. And I was like amping it up and
going, oh, that's amazing. Your first ever Fed meeting.
When you're on the trading floor, it's going to be
fireworks, you know, and really try to get them revved up and
excited. And then it was the Dalist
market reaction I've seen for a long time to a Fed meeting.
And actually, if you're Jerome Powell, you know, you chalk that
(02:14):
up as a very large success. I would say, as you said,
there's so many moving parts to all of this and yet he can
deliver he him and his committeeand, and through the statement
and his press conference can kind of navigate through that
And actually markets basically didn't move.
(02:34):
So from the Fed's point of view,it's kind of job nicely done.
And and what does that mean? It means they're not changing
rates and they are basically Wheeling out almost exactly the
same message as they have done for months, which is like it's
too much uncertainty here, you know, uncertainty on the Trump
(02:56):
tariff policy side. Yes, that, you know, I would say
the big concern about tariffs ramping up, you know, super
high, that's gone. And actually that was probably
explains the pretty much the single change to their
statement. So as I think most of you
(03:17):
listening all know, they, they how to the Fed communicate.
Well, they have a meeting every six weeks and then at the end of
that meeting, they, they agree on a script, which they call the
statement. There's basically two sides of a
four. And then that gets released and
then all the details are on that.
But then the media pick up and report on.
So obviously are they changing rates or not?
(03:38):
But it's, they go into a lot more detail about their economic
assessment and all the rest of it.
And traders pour over every single sentence and like,
compare it to the meeting beforeand write what, what words or
what word even has changed and, and trying to just, you know,
read between the lines literally, you know, right, that
one single word change. What might that mean for, you
(04:01):
know, is that the Fed telling uswhat is that code language for
what they might do in the future?
And it it all goes a little bit too far, to be honest.
But the change in the statement was so the, the the previous
meeting six weeks back, they were saying uncertainty about
the economic outlook has increased further.
OK, Now that was in that period of time because six weeks ago we
(04:23):
were in that little period of time.
It was after Liberation Day. So that was April 2nd when Trump
said, right, the world, here yougo.
How, how'd you like these tariffs?
And he started this kind of to threaten everyone that tariffs
are going to ramp up. And then there was a back and
forth with China tit for tat andwe got up to tariffs being
threatened at 145%, which would be an economic disaster.
(04:47):
And that's when the Fed had their last meeting.
So obviously they were going look, economic outlook, you
know, uncertainties increased further, obviously.
But since then, you know, the Taco trade, Trump, Trump always
chickens out. So meaning he backtracks and
backtracks. And then let's get around the
negotiating table. And that 145% threat becomes
(05:08):
maybe something like 30%, which is more digestible.
So the Fed have reflected that in their statement.
So instead of saying the outlookhas, the uncertainty to the
outlook has increased further, they said the uncertainty about
the economic outlook has diminished but remains elevated.
So, you know, that's what that means.
(05:29):
But of course we know that. I mean, it's obviously it's
diminished. So this isn't news that the
reason why markets didn't react to really any of this was
because, well, yeah, obviously that's the sort of analysis of
the situation, you know, as it'stranspired in the last six
weeks. So equally then they updated
(05:50):
their every other meeting economic forecasts and then
there was some change there was the fact that the market wasn't
that bothered because of what you've just mentioned.
So data suggests that yes, because these aren't six weeks,
this is 3 months if change to becompensated for.
So all very much well known thenand telegraphed by the market
(06:13):
from looking at data points. Yeah.
So just to make that clear. So every six weeks they have a
meeting, but every other meetings, so every 12 meets and
it's actually the meeting that takes place in the last month of
each quarter. Then they go further and they
change their economic forecasts or economic projections as they
(06:34):
call them. And then they change this thing
called the dot plot, which we'llcome onto in a second.
But from an economic forecast point of view, you know how they
changed up there and this is for2025 as a full year, right?
So in March, which was the last time they updated these, they
had GDP growth forecasted at 1.7%.
OK, that's in March. Now here we are in June, they've
(06:55):
revised that down. They now think GDP is going to
be more like 1.4% this year. OK, so obviously that's a
negative revision. Unemployment, they said there,
while they now reckon it's goingto be 4.5% by year end, back in
March they thought it would be 4.4% by year end.
So that's a negative revision aswell.
Obviously unemployment being higher is worse, right?
(07:17):
So that's the economic situation.
They're revising things down. Why are they doing that?
Well, obviously there's uncertainty around tariffs and,
and all the rest of it. But then of course there's the,
I would say since March, the, you know, the deficit and the
debt kind of situation in the UShas kind of escalated.
So that brings uncertainty, of course.
And then obviously we've got this geopolitical flare up as
(07:40):
well, which adds uncertainty also.
So they've revised the economic situation down.
Problem is the other part of that forecast is inflation.
There they've revised it up and this is like the worst case
scenario, you know, worsening economic momentum with rising
inflation. So there they've changed their
PCE inflation forecast for year end.
(08:02):
They've changed it to 3%. Back in March they had it at
2.7. So that's the situation.
That's all bad. Every single revision is bad.
Why haven't markets reacted then?
Well, because we kind of knew that was going to happen.
So and, and they're only small tiny changes.
(08:22):
And it's so hard to, it's so hard to predict because of that
word uncertainty that I mean, these are all going to get
changed again in three months anyway.
And then we'll find out what they actually are at the end of
the year and they might be nothing like these.
So I think the value and the gravity put onto these forecasts
has reduced because of that uncertainty element going up.
(08:46):
So what's what's your friend Donald got to say about?
All of this, Donald, he's not happy.
He's not happy with Jerome. I mean, we've talked about him,
but obviously slating Jerome in the past.
And yeah, just before the meeting yesterday, he he called
(09:06):
Jerome Powell stupid. He said the Fed chair's stupid.
And then he said, yeah, you think?
Last week about a couple of replacements, right?
But I think you're missing someone off your list.
Well, this is it. He's now put himself forward as
a potential candidate to head upthe central bank.
So this is, yeah, dictator Trumpjust trying to kind of set his
(09:32):
kind of platform out for a full ownership of the entire policy
mix of the United States. But yeah, he's kind of, he's
kind of joking. Or is he?
I don't know. But what do you think about
that? Because what do you think Jerome
thinks? Or is it just whatever, Trump, I
(09:54):
don't care? Or do you reckon this can have
any impact on what the Fed do? Yeah.
So, well, to answer that that question, no, I don't think it
has any impact as far as marketsare concerned in terms of
politics. Maybe there's a little bit of
impact. He said as well.
Be nice if the Fed cut rates by as much as 2 1/2 percentage
(10:18):
points. I think last time you said it,
it was he wanted to go full 100.Now he's going to 250.
Yeah, it's. Going to be 10%.
Basically. But yeah, tell me to answer your
question. I think he does.
If you were to go back and I remember doing lots of this in
his first term when I was a bit more following markets in my my
(10:38):
previous life. But looking at his tweets, what
he tweets and the types of things he's tweeting about every
time, it's kind of, well, what'sthe economic and political
situation, the context overlay at that point in time.
And I think then this is just that kind of deflection tactics
of whatever he's dealing with. It's just a reason to pin blame
(11:00):
on someone else. I would absolutely, as his
strategist, advise him to do exactly what he's doing.
Because to a large bulk of the the electorate, I think there's
enough there for people. You know, it's almost like that
us and them. It's like he thinks he's super
clever. He thinks he knows it all.
(11:21):
This is all his fault. He's causing these debt payments
to be out of control. Like I think that's just that
one O 1 out of the playbook and I would expect no different to
be honest. Yeah.
OK. So if the if the economy does
worsen, it's Powell's fault. And he will say, I told you,
yeah. And even though we know it's
(11:42):
other obviously lots of things that are put into that, he will
squarely put that on Powell and not himself, of course.
But of course, if the economy improves and if all of this
concern about our inflation is going to go back up, if it
doesn't and if the economic situation improves, obviously
there he he takes the win, right, and says, well, that's
because of my policy, my fiscal policies, right?
(12:03):
So it's a. It's a win, win.
It's a Trump hedge, basically. Yeah, yeah.
Makes sense? Yeah.
All right, makes sense. But then, yeah, I, I'll just,
I'd like just to kind of maybe. Yeah.
Well, we need to talk about the dot plot perhaps just as a point
of interest. Again, markets didn't move
though, so it's a bit of a mute point.
(12:25):
But you know, that's the other thing that they update on a
quarterly basis. So it's not just those economic
forecasts. They then update this thing
called the dot plot, which is their way.
There's a thing called forward guidance and that's where the
central banks, certainly the kind of Western sort of mature
economy central banks like to beas transparent as they can be
(12:49):
with regards to where interest rates might go in the future.
Just to kind of let markets know, let businesses know, let
people know, you know, what's the direction of travel for the
cost of borrowing. They don't want to go too far
and be too explicit. They don't want to give like
hard nailed on, you know, interest rates will be X by Y
(13:11):
dates because of course, if we don't know what's going to
happen and and economic ups and downs.
And whilst they might think interest rates will be at 4% at
the end of this year, they mightnot be just depends on what
happens between now and then. But if they were to what's their
best guess now, basically they'dsay 4%, right.
(13:31):
But that, so that forward guidance, they, the Fed are
quite unique where they use a thing called the dot plot to
really give us some, some real insight into what each
individual member of the Fed is thinking.
So this dot plot, basically there's four columns on the
chart and there's a column for the end of 2025, the end of
(13:52):
2026, the end of 2027, and something called the longer run.
OK, So what each member of the Fed is asked to do is say, what
if you know what, where do you think rates will be at the end
of each year? And then plot your dot.
OK, so 252627 longer run is right.
Where do you think rates will end up being?
Where's the neutral rate for interest rates?
(14:16):
Once the if we are in a cutting cycle, which they're telling us
we are, we are, then where will the bottom of that be where it
kind of naturally settles down and flattens off?
OK. So look, it's their forward
guidance tool and every three months they update it.
What was interesting here then about the changes to the dot
plot it, it wasn't much in that obviously each member plots
(14:38):
their own dot and it can get a bit messy, but we're interested
mainly in taking the average, you know, what's the median?
Sorry, what's the median dot? And then that becomes, if you
like the market forecast, Well, not the market, the feds forward
guidance that becomes their number.
So at the moment it didn't change for the end of 2025 S in
the March meeting and now in here in the June meeting as it's
(15:00):
updated, that end of 25 numbers stayed the same in that it's 2
interest rate cuts each of 25 basis points probably currently
in September and December's meeting taking interest rates
from 4 1/2 to 4.25 to 4. OK, so year end rates 4%.
So that hasn't changed as in themedian.
But actually those dots, even though the median didn't change,
(15:24):
those dots did maneuver perhaps a bit more than I was expecting
to be honest. And what's what it's shown is
we've got an ever increasing divide amongst the committee
because what happened was you'venow actually got 7 people on
that committee at the 17 right. Seven of them are saying no rate
(15:47):
cut at all in 2025. They're saying you know what,
rates are going to stay exactly where they are now at 4 1/2% so
that the number of people sayingno cuts has gone up.
So you got people shifting into that camp, but then you got
people again, slight shift into the other camp, which is 2 rate
cuts there you've got 10 people.OK, so you've got 7 saying none
(16:11):
and you've got 10 saying 2. And that that, that they you've
got these two camps within the committee and though both camps
have kind of added members if you like, but net the average
hasn't changed. So it's just an interesting one,
I think. But this is all kind of
splitting hairs, to be honest, because ultimately they say
(16:34):
themselves they don't know, right?
Those that are sitting on the we're going to cut twice camp or
they're saying, look, you know, we need borrowing costs to drop
here, otherwise it's going to have a negative impact on the
economy. So let's cut rates.
They're saying, look, growth momentum slowing, we've just
revised down our GDP forecast. Unemployment's getting worse
(16:54):
that we've just revised it up, let's cut.
But then the unchanged camp, they're like, well, you know,
inflation's more important and inflation's just ticked higher.
And whilst it's one month, we don't want, and Ashley Powell, I
think said this whilst we, whilst we, you know, we don't
want one month up tick in, in inflation to turn into another
(17:16):
inflation problem. Meaning we're not cutting rates
now because we don't want to, wedon't want to let that inflation
genie get back out of the bottle.
So they're obviously they're no cutters are more concerned about
that inflation situation and just want to just be super sure
inflation, the inflation crisis is behind us before getting that
(17:39):
cutting machine out. OK, well, let the the Fed is it
4 meetings now Certainly since the beginning of the year, they
just haven't haven't taken any action whereas the Bank of
England move on to them, they kept rates of 4 1/4%, but
they've kind of got this kind ofstrategy at the moment it would
seem as this sort of step down approach of a cut or one cut
(18:03):
every other meeting and that remains it seems to be remaining
intact for the moment. And one of the things here was
that, so I watched this live with the interns as I said at
the beginning and pound initially dropped.
So I think it's like a 30 pip straight line move because race
on hold. But the first thing was to vote
(18:23):
split. So maybe you could explain to me
then the difference with the Bank of England, because not
only do you get this vote split,but you also get the minutes at
the same time as the statement, which is unique, of course, the
BOE. Yeah, that's all.
All central banks do it their way, right?
So there's always there's differences like the Bank of
England don't have a dot plot matrix, for example.
(18:46):
That's the kind of unique Fed thing, right?
So what's unique about how the Bank of England do it?
Well, and they've changed it up over the years.
I mean, they have more, they have moved more in line with the
Fed. I mean, the Bank of England used
to meet once a month, like everyfour weeks, as did the ECB, of
course. But actually, I don't know how
long ago was it even pre COVID? Maybe they shifted more to that
(19:08):
six week frequency like the Fed.That was when you had long hair
pierced. OK.
Was it? Oh, it's only only a couple of
months ago then. So that the Bank of England,
what was what's interesting about them is I mean, look at
the core, it's interest rates and they're assessing the
economic situation and they're making a decision on rates,
(19:30):
right? That that's obviously the same
for all these banks. And that's the most important
thing. OK, so then it's about getting
into the weeds. And so for the Bank of England,
they have this thing called the vote count.
I know they have diff again, thecentral banks have different
numbers of people who sit on thecommittee that make the
decisions. So the Bank of England happens
(19:52):
to have nine people on the monetary Policy Committee, the
MPC, OK. And so they convene every six
weeks and then they make their decision.
What they what I think this is really interesting.
I'd love it if all central banksdid this, what they release not
only are we changing rates or not.
And so obviously today it was nochange.
But then they say right of the nine members, how did each
(20:14):
person vote? Because.
This is a democratic situation. At the end of the meeting, they
all vote. Do you want to hike unchanged or
cut? And if so, by how many, right,
How many basis points? And so it's interesting to get
that insight. So we get the vote split that
can really and obviously the vote split changes, right?
And so that can for the Bank of England, that's their forward
(20:35):
guidance. That's like their equivalent of
the dot plot but just near return because if the vote split
changes, then that shows the direction of travel of the
committee, either closer towardscutting or further away from
cutting and so on. Right.
So what was interesting about this meeting is normally you've
(20:57):
got 2 dovish members of that nine person committee, Dingra
and Taylor. And so they're always super
dovish. They always vote for a cut.
OK, like always. What was interesting here was
that the deputy Governor, Ramsden, he joined them.
He swung onto the cutting side of.
(21:19):
Come on, Dave. Come on, Dave.
So that was the interesting thing here.
You've now got three people in the cutting camp, right?
It didn't matter because everyone else voted for no cut.
So you had six no cuts and threecuts, right?
And so, oh, actually, am I rightin saying that?
Did anybody vote for a hike? No, it was 63, wasn't it?
(21:40):
Yeah, fine. So 6 no cuts and three cut,
right, majority rules. So the overall decision is no
cut, but it was 3 in the cuttingcamp, which was more than the
last time they were on hold for a meeting.
So I'd say this just shows generally very subtly that
committee has slightly tipped more dovish.
(22:01):
And look, we're almost certainlygoing to get another cut in six
weeks time to maintain. They're cut one cut every other
meeting frequency. So I think that's pretty much
nailed on, especially with this vote split change.
Yeah, I think you're absolutely right.
This is their version of a forward guidance tool.
They do have forward guidance language of which was left
(22:23):
unchanged. What that sounds like is gradual
and careful, which is basically inferring of the one every other
meeting strategy in terms of overlaying the timing of the
language shifts and what's been happening.
The thing about the minutes then, because the minutes is the
other thing. So typically, like with the Fed,
you can have, for example, a Fedmeeting and then all of a sudden
(22:46):
a big episode of of conflicts emerges between Islam and Iran
and the whole game can change pretty radically.
And so a two week gap can be a lifetime in markets.
But the Bank of England strategyis right.
Let's just get it all out there now.
The minutes of this meeting showed the committee, quote,
expected a significant slowing over the rest of the year in pay
(23:09):
growth amid further loosening ofconditions.
So sounds dovish. They said that there was some
greater signs of disinflationarypressures from the labor market.
So just decode that. What disinflationary pressures
from the labor market? Sounds like jargon.
Like what are they trying to tell us?
Well, that's what that's the words describing that change to
(23:31):
their wage growth forecast, right?
Where So if wage growth is goingto dampen, meaning is the rate
at which salaries are going to go up is is that is the rate of
rise going to drop? That's bad news for people.
Their pay rises will slow. So that is anti inflationary or
disinflationary as they've said,right?
(23:52):
So that would be a negative kindof force on inflation, which is
perfect because well, hang on, it's perfect.
Obviously. It's obviously it's not perfect
that people's wages are going togo up slower.
Obviously that's. Jesus Screech.
Obviously, that's not good for the economy and like demand and
(24:14):
GDP growth, what it is good for,which is still the kind of thorn
in our side, what it is good foris bringing inflation back down.
And the thing about the UK and all right, due to idiosyncrasies
with the way that energy costs get handled, but we had a jump
up in inflation in April. It jumped to 3 1/2% in May.
(24:36):
We had that data earlier this week.
It came in at 3.4%. So obviously well above the 2%
target. So, you know, slower wage growth
is good news if you're just looking at that inflation
situation. So that's disinflationary, just
meaning that the Bank of Englandare on their trend and there is
absolutely nothing right now that's going to take them off
(25:00):
that trend, which is cutting every other meeting for the
whole year. So that's what's that's what the
forward guidance language is saying.
I don't know why they don't justsay that in one sentence rather
than messing about with all these kind of nuanced words and
language. You need your.
Get out of jail free card, looking at the pound three hours
(25:23):
after the announcement, because we're recording this literally
just after and it hasn't done anything.
So that initial spike and spike and blip that you had on the
dovish vote split was taken backpretty, pretty rapid and it's
absolutely going sideways. Yeah, that's true.
But it has like the pound against the dollar has stepped
down out of the range we've beenin for the last couple of
(25:46):
months. So like this morning, we hit the
lowest we've seen since at the 21st of May.
So, so there was a that the # weakened into this meeting.
You could say the dollar has strengthened, maybe geopolitic
risk has risen. Maybe there's a bit of dollar
(26:07):
safe haven bid that's helped with the sterling dollar
exchange rate coming down. But the point is that the
exchange rate had dropped by a couple of, well, no, let's just
call it 100 basis points and notbasis points, 100 pips, sorry,
ahead of the meeting. And that's, that's about right.
There's, there's nothing in thismeeting that warrants
necessarily an immediate furthermove lower.
(26:29):
But look, you do I, I think in the coming weeks, you've got the
Fed who are saying categorically, we're staying
where we are, we're not cutting.And you've got the Bank of
England saying we're going to carry on to cut slowly.
So you've got this gradual divergent monetary policy
divergent. And so I would expect cables
(26:53):
exchange rate to continue to move back down off what's been
incredibly elevated levels because this thing's been
charging to the upside for the whole of 2025.
And you know, even though it's come off 100 pips into this
meeting, we're still at three 3 1/2 year highs here for this
exchange rate, so. Yeah, you're absolutely right.
(27:14):
There's kind of like no real reaction on the intraday.
It has moved low against the dollar out of a two week kind of
holding pattern, just under 136.But actually cable's had a
really great time since what mid-May and the dollar's had a
terrible time. So I guess that context allows
for a bit of this recalibration it seems and the fundamentals
(27:35):
line up. All right.
Well, look, let's finish and talk a little bit about what's
been happening on the geopolitics because it's such a
a prominent feature in terms of what investors and traders are
looking at. So the headline here is senior
U.S. officials are preparing forthe possibility of a strike on
Iran in the coming days, according to people familiar
(27:55):
with the matter. That article on Bloomberg went
on to suggest that some of them pointed to potential plans for a
weekend strike. Now, kind of two points here
that I think have changed since we last spoke on this topic
literally a week ago. One, the president's openness to
war is a reversal from his public remarks he made a week
(28:15):
ago. So Trump back then was urging a
lot of diplomacy to reach a nuclear disarmament deal with
Iran. That seems to have flipped.
There has been a lot of pressureon him from various different
senior political figures. And then two, originally Israel
was targeting these nuclear facilities and now they're
(28:36):
saying they could escalate attacks to Iranian strategic and
governmental targets. So this goes beyond now they're,
they're widening the, the, the remit here.
So yeah, any any thoughts on this?
Well, I mean, obviously, there'sno question it's escalated.
And Trump was like yesterday, what did he say?
(28:57):
Like asked in a press conference, you know, are the
US, are they going to join this offensive and attack Iran as
well? And Trump said, I might do, but
I might not. And it was like, you know, I get
what he's doing there. And he wants to keep Iran
guessing. Obviously, Trump, I would say
behind the scenes, and he said it in front of the camera as
(29:18):
well, that he wants Iran to surrender.
And I guess he's just trying to keep them guessing to keep the
pressure on and hopefully they do right and this conflict can
kind of pause and stop. But it's escalating.
But I, I don't know, all I do islook at markets.
If you look at crude oil, like literally in whilst we've been
(29:41):
talking in the, literally in thelast 10 minutes, we've just
broken up, not aggressively, butwe just moved up above the spike
high that we had on Friday last week.
That's when Iran, sorry, that's when Israel went in and bombed
Iran for the first time, right in this phase.
So at that big, you remember 13%move higher.
(30:02):
Well, WTI crude kind of pulled back off that spike on Friday
and it spent the whole week sideways with the last couple of
days just drifting back higher as this thing's escalated.
And we just moved just above that last Friday high now.
So oil, the oil price is tellingyou that things are escalating
and that, yeah, looks like, I mean, I don't know, does look
(30:26):
like the US are going to get more involved here.
It's then just becomes about, right, Well, does this stay as a
contained situation within Iran,which is the likely scenario?
That's why all the other marketsaren't really bothered.
You know, stocks, bonds, they'renot really flashing alarm bells
(30:49):
here at all. But always the problem, I guess
from a geopolitical sense is that, you know, who are Iran's
allies? And look, it's China and Russia,
right? So they are very allied.
And so obviously the big, big, big, you know, big, big, big
geopolitical kind of elephant inthe room is if if those two big
(31:14):
powers and obviously China beingmuch bigger than Russia, But if
they come to the table in support of Iran, well, then
obviously that's taking us down a whole new path that markets
would absolutely pay attention to.
But yeah, is that going to happen?
Yeah, I mean, I agree that's a scenario, but I would put a very
low probability certainly of China doing such things.
(31:37):
Russia may be slightly, slightlydifferent.
One of the things here is that the Iranian foreign minister is
set to meet with foreign ministers of UK, France, Germany
on Friday in Geneva. So is this and escalate on
Trump's strategy to negotiate again?
(31:57):
And I mean, I don't want to go as far as to say it's Trump's
working in unity with with Europe and the UK to try and
forge a deal here. I mean, it's not his style to
really collaboratively like that, but.
So hang on, is Trump part of that meeting?
So the G7 including. Trump, I understand he's not
part of that meeting. OK.
So it's the G6. Yeah, he does his own thing.
(32:20):
He has his own. Part obviously Trump left the
Canadian G7 meeting summit early.
I look, this is good play from Iran because look, is there a
bit of a divide between Trump and the US and the rest of those
G7? Is there a bit of a split?
Yes, relationships are definitely soured.
So is this Iran just trying to wedge an even bigger or drive a
(32:46):
bigger wedge in there by like let's meet with all the others
minus Trump just to set and thenTrump's like, well, hang on what
you guys talking about over there?
And so maybe there's some of that in it.
But look, you know what, the diplomatic that Trump was going
to be meeting with Iran, well, on Israel, right, which
literally the day after Israel bombed Iran, there was a meeting
(33:11):
booked, a diplomacy meeting. But Israel for whatever reason,
just said, said that we're not waiting for that.
We're going to just go for it. And so, yeah, that doesn't seem
to be any appetite for diplomacyfrom Israel's side.
So really it's just whether, whether you especially where do
the US fall and that's it. Do they want to get involved and
(33:34):
join Israel or do they want to kind of tell Israel to stop?
And we don't know yet. So from a from a news
perspective, again, just to share because I was asked about
this by some of the the interns this week.
So timing wise, now you've got the meeting on Friday.
So it's key of what is said at that moment in time.
There's the constant monitoring of the actual military
(33:55):
engagement that they're having. And then three, the report
saying that Israel could strike at the weekend.
Now to go one step further, if you're watching on Spotify,
YouTube, I'm going to flash now a graphic very detailed of
Iran's oil infrastructure. And this is a really incredible
(34:16):
resource. So if you do work in commodities
in the future, you'll probably use a platform called Platts.
So this is owned by S&P Global, which is a big data vendor, so
to speak. There's lots of other things.
You probably recognize them for rating agencies.
It's just one part of their business, but they have really
deep data and real time trackingmaritime routes, power grids,
(34:39):
all this good stuff. And there's a really detailed
map of Iran's oil infrastructure.
So what I would be doing today, days ahead of the potential
strike at the weekend, what willbe important to determine the
size of potential price shock iswhat gets targeted.
And what within that infrastructure would carry a
(35:00):
bigger supply shock in terms of crude?
Yes, there's obviously how how aggressive they are and how
widespread it is and what are the governmental targets non oil
related they might hit would escalate the political side of
it. But from a factual supply of oil
and gas, you can work this stuffout in advance of time and you
(35:20):
should if you're trying to scenario build around.
OK, is headline about Badar Abbas in the South north of the
Strait of Hormuz as important asthe Masjid Suleiman, which was
the first saw discovery in the 19 early 1900s?
Like what is important, what isn't?
If you're not used to this, you're like, they're just names,
(35:42):
but actually they're very different strategically.
So yeah, that's the I'd recommend that resource, S&P
Global Platts. And if you go to the insights
section, you can essentially look at everything, electricity,
power, oil, gas, you name it, and there's three articles that
you can get. The difference being they're
just delayed. So you know regular Joes unless
(36:04):
you pay the the the big subscription fees.
Yeah, unless you really want to geek out.
Sounds like you've been, you've been geeking out for a while
here. Yeah, I mean.
Look, it goes into every single thing, like down to very precise
details. But look, this is what you would
do from a career insight perspective if you worked for
Trafigura, for Glencore, these big oil majors, this is what
(36:28):
they have specialists doing essentially.
That's the edge, so to speak. All right, well, look, I think
we're we're pretty much done. So is there a way to kind of
conclude then for students who might be thinking about
interview season conversations they might be having?
So central banks overall, is this a status quo?
(36:51):
We're monitoring what's going onand we will make decisions
accordingly, type of thing. Yes, but if you're going into an
interview, just just talk it like that's what everybody knows
because that's what the headlines are saying.
But if you can get in there and talk about the dot plot, you
know, let's dive in here in a bit more detail.
Or if you want to talk about thevote split at the banker, if you
can talk about that good stuff in an interview, then they're
(37:14):
going to be going ah, all right,this this, this person knows
what they're talking about. So that's how you kind of stand
out. So yeah, just getting a bit more
detailed knowledge, even though,yeah, all these central banks
are on the same kind of path andnothing's changed too much.
Right. So there doesn't need to be a
dramatic move in order to have something of of credible
tangible evidence to demonstrateyour knowledge to talk about.
(37:38):
Cool. All right, that is it.
I'll let you go and enjoy the rest of your day.
Everyone take care. See you later.
Thanks. Thanks, Piers.
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