Latest / Merryn Talks Money / Markets Wrap: AI Jitters, Budget Expectations and UK Housing Rebound?

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Markets Wrap: AI Jitters, Budget Expectations and UK Housing Rebound? · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Merrin
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  Speaker 1: Talks Money Market Wrap, where we talk about the biggest
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  Speaker 1: moves in the markets this week and what is driving them.
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  Speaker 1: I'm Merrin Somerset-Webb, UK money editor-at-large.
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  Speaker 2: And I'm George Stepak, senior reporter at Bloomberg, author of
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  Speaker 2: the Mindstilled newsletter, and the only person on this podcast
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  Speaker 2: who isn't dying of the cold.
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  Speaker 1: I am not feeling great, John, and that's why you
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  Speaker 1: are going to be carrying this podcast.
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  Speaker 2: That'll make a change. Right.
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  Speaker 1: Well, there's a lot going on either way. And we're
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  Speaker 1: finally beginning to see some major jitters in the AI
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  Speaker 1: part of the market, although all the market is AI,
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  Speaker 1: as we keep saying. And I'm not actually sure that
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  Speaker 1: we have a huge amount to say on that, because
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  Speaker 1: we've talked a lot over the last few months about
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  Speaker 1: our worries around The level of CapEx are worries about
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  Speaker 1: how much the big companies have to make in the
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  Speaker 1: way of revenues and profits to justify the CapEx and
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  Speaker 1: to live up to the valuations, etc. So it should
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  Speaker 1: be no surprise that the market as a whole is
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  Speaker 1: starting to ask a few questions around this now.
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  Speaker 2: It does feel as if that is all that's happening.
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  Speaker 2: It's not obvious that there's anything explicit to say that
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  Speaker 2: this is a broken moment. It's more investors have gone
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  Speaker 2: from saying, just get me AI at any price at all,
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  Speaker 2: to starting to just be a bit more picky. And
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  Speaker 2: I think one of the kind of obvious things was
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  Speaker 2: that at the end of last week, a big Australian
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  Speaker 2: data centre IPO that was meant to be a bit
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  Speaker 2: of a kind of flashy one had to get pulled
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  Speaker 2: at the last minute because they were just asking for
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  Speaker 2: too much money. And whenever you read about it, it
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  Speaker 2: is actually pretty clear that they really were just asking
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  Speaker 2: for too much money. It's not as if this was
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  Speaker 2: the first time at which any concern had been expressed
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  Speaker 2: to these people about how much they wanted. Investors were
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  Speaker 2: already a bit jittery about it, but I think the
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  Speaker 2: fact that it fell over and then obviously the South
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  Speaker 2: Korean market, the KOSPI, actually peaked quite a few months ago.
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  Speaker 2: So in a funny way, this sort of almost feels
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  Speaker 2: as if it's more like a slightly delayed reaction to
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  Speaker 2: all of the pressures that have been building and obviously
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  Speaker 2: including financing costs because that's kind of like treasury yields
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  Speaker 2: in particular have gone up. There's this background issue of
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  Speaker 2: tightening finance conditions. And I suppose the ironic thing is that,
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  Speaker 2: or not ironic, I suppose I say completely predictable, but
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  Speaker 2: as the AI stuff has actually run into proper trouble
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  Speaker 2: this week, so government bond yields have actually started to
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  Speaker 2: come back down again as people have sort of said,
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  Speaker 2: I want something safe now. And there's a kind of
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  Speaker 2: knee-jerk instinct to just go back into all the government
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  Speaker 2: bonds that a moment ago they were treating as completely untouchable.
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  Speaker 1: That's interesting, isn't it? The delayed reaction thing. I don't
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  Speaker 1: know if you... Remember a few months ago, we did
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  Speaker 1: an interview with the author of that book, 1873, about
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  Speaker 1: that bubble and collapse then. And one of the fascinating
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  Speaker 1: things about that was that there was this horrible collapse
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  Speaker 1: in Vienna that it took forever for it to translate.
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  Speaker 1: It was like, oh, just a one-off, just a little
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  Speaker 1: sort of private thing going on here. And then it eventually,
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  Speaker 1: but a good year afterwards, translated into a full-on collapse
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  Speaker 1: of the railway bubble and that Cap-8 boom. And maybe
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  Speaker 1: Korea is our Vienna.
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  Speaker 2: Yeah, and I think the other thing that's really interesting
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  Speaker 2: about the parallels with the 1873 book are that then, unlike, say,
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  Speaker 2: the kind of 1929 crash and the Great Depression or
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  Speaker 2: the 2008 financial crisis, actually putting a finger on the
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  Speaker 2: trigger or why it happened is actually really pretty difficult
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  Speaker 2: and it was much more of a kind of lingering, lasting,
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  Speaker 2: on-and-off thing kind of slump that came out of it.
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  Speaker 2: It's interesting to see talks about bimetallism, so basically a
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  Speaker 2: change to the monetary kind of standard as being one
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  Speaker 2: of the big issues there. And it's interesting that we've
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  Speaker 2: got our own kind of questions about the monetary order
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  Speaker 2: and fluctuations there in a way that we haven't had
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  Speaker 2: for many decades. But obviously, you know, there might be
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  Speaker 2: a parallel there as well. But no, it's kind of fascinating.
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  Speaker 1: We had a very interesting question on gold. We're going
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  Speaker 1: to come back to another time, didn't we? Yes, yes.
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  Speaker 2: It was a good question, actually. Good question.
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  Speaker 1: We will come back to that in, we've asked for
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  Speaker 1: questions and we will do another question on the session
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  Speaker 1: quite soon. And there's an interesting question on goal that
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  Speaker 1: we will come back to. But listen, John, the other
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  Speaker 1: thing that has popped into our radar again this week,
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  Speaker 1: it's never off our radar, let's be honest. No. Is
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  Speaker 1: UK house prices, which we are as obsessed with as
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  Speaker 1: our readers are. And I noted something from Zoopla. which
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  Speaker 1: I sent to you, so I hope you saw it
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  Speaker 1: as well, saying how much affordability has actually improved for
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  Speaker 1: people in a certain sector of the bias market. So
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  Speaker 1: if you've got a 20% deposit and you're borrowing four
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  Speaker 1: and a half times your income, your affordability has actually
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  Speaker 1: significantly improved from a couple of years ago, thanks to
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  Speaker 1: falling house prices and a rise in real wages. So
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  Speaker 1: this is good news. The fall in house prices is
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  Speaker 1: doing its job. Even with higher interest rates, it's making
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  Speaker 1: it easier for people to buy houses. But then there's
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  Speaker 1: the matter of that 20% deposit, which not everybody has.
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  Speaker 2: Yeah, that's tricky. But this may be where a report
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  Speaker 2: from Simon French over at Panmure Liberum comes in. Simon
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  Speaker 2: was making what I think is fair to say still
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  Speaker 2: was a contrarian idea that the UK housing market may
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  Speaker 2: bounce back a lot quicker and a lot sooner than
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  Speaker 2: anyone expects. And there's various factors behind that, including the
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  Speaker 2: economy being a bit stronger than people expected, etc., etc.,
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  Speaker 2: But one of the main ones that he brought up,
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  Speaker 2: and I thought that this was quite eye-catching, is this
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  Speaker 2: idea that... So from April, pensions, private pensions, are going
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  Speaker 2: to be included in the inheritance tax net. And so
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  Speaker 2: that actually really upturns a lot of financial planning that's
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  Speaker 2: been around for at least a decade now. And the
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  Speaker 2: idea was that you would save your pension to last
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  Speaker 2: and spend it last because that's the thing you could
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  Speaker 2: pass on to your kids free of inheritance tax. So now.
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  Speaker 2: The pension is no longer going to be protected from
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  Speaker 2: inheritance tax.
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  Speaker 1: It was always ridiculous that you could hand on this
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  Speaker 1: big pile of effectively state subsidized or taxpayer subsidized, depending
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  Speaker 1: on how you like to look at it, cash to
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  Speaker 1: your heirs tax-free. And I know that your heirs had
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  Speaker 1: to pay income tax on it, but nonetheless, there were
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  Speaker 1: ways to make sure that money ended up untaxed, which
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  Speaker 1: obviously I would like all money to be untaxed, John,
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  Speaker 1: but in the great scheme of things, this didn't make
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  Speaker 1: sense inside the UK tax system, did it? No, it didn't.
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  Speaker 2: It was always a loophole that was crying out to
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  Speaker 2: be shut, and the only bad thing, I guess, is
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  Speaker 2: that it wasn't closed earlier. Your listeners know that we
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  Speaker 2: are not typically people who are calling for taxes, and
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  Speaker 2: this is very much more about the exceptional aspect of it.
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  Speaker 2: But I remember whenever we were writing about this when
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  Speaker 2: it first happened, A, we couldn't believe our ears, and B,
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  Speaker 2: it was something we were always careful to describe as,
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  Speaker 2: this is a grey area, this surely cannot continue. And
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  Speaker 2: even at the time, HMRC was treating it as a
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  Speaker 2: grey area. But it then stuck around for long enough
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  Speaker 2: that people started to take it for granted as part
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  Speaker 2: of their tax planning. And unfortunately, that means it did
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  Speaker 2: get embedded. And the main source of irresponsibility here is
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  Speaker 2: government not tackling it earlier. But so now that they have,
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  Speaker 2: it means that people are obviously having to change what
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  Speaker 2: they do. And as Simon points out, one aspect will
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  Speaker 2: be that it will be more of an impetus for
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  Speaker 2: people to pass on their money before they die. And
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  Speaker 2: one very obvious outlet for that is helping kids or
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  Speaker 2: even grandkids with housing deposits. And then if you throw
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  Speaker 2: in the fact that there's also less impetus to downsize,
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  Speaker 2: because in relative terms, the family house is still an
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  Speaker 2: IHT-advantaged asset, whereas pensions are not. And so now you're
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  Speaker 2: better off sending it out. better spending your pension before
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  Speaker 2: you take equity out of your house rather than the
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  Speaker 2: other way about then that means that we're basically throwing
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  Speaker 2: a big demand side boost as in people wanting to
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  Speaker 2: buy or hold on to property at a market that
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  Speaker 2: is completely unable to build any more property because it's
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  Speaker 2: too expensive for house builders to do it so i
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  Speaker 2: think that's actually pretty compelling and logical argument for housing
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  Speaker 2: rebounding possibly faster than we expect And if you throw
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  Speaker 2: in the your first home nonsense on top, then I
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  Speaker 2: don't actually see that having as big an impact. But
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  Speaker 2: it's definitely part of it. And it's also the fact
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  Speaker 2: that it's very obvious. And also from what the Conservatives
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  Speaker 2: have said about IHD and family homes, politicians are lapsing
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  Speaker 2: back into this habit of pitching proposals that will boost
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  Speaker 2: house prices without actually improving the market at all.
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  Speaker 1: They go on and on and on, don't they, about
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  Speaker 1: how important it is to make housing more affordable than
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  Speaker 1: in every single policy they put in place. They're the opposite.
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  Speaker 2: Yeah, it's extremely cynical and short-termist, but then that is
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  Speaker 2: where we are at the moment in politics, unfortunately.
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  Speaker 1: Which makes us nicely into the budget, John. One thing
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  Speaker 1: that we might hope for from the budget... Coming up
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  Speaker 1: in the UK next week is what would we hope for?
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  Speaker 1: We'd hope for nothing. Absolutely nothing.
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  Speaker 2: Yeah, basically nothing.
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  Speaker 1: Leave us alone, please.
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  Speaker 2: Yeah, there are so many things that we need to improve.
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  Speaker 2: But at the moment, simply leaving the system alone, regardless
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  Speaker 2: of how bad a state it's in, would be better
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  Speaker 2: than making it even worse, which is what has happened
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  Speaker 2: certainly over the last two budgets.
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  Speaker 1: And at least.
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  Speaker 2: Britain's not currently in the full glare of the bond market.
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  Speaker 2: It's France's turn. Thank you, France. Merci beaucoup. And the
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  Speaker 2: other thing is that the economic, the surface economic stats
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  Speaker 2: are not that bad. We've just had... you can't trust
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  Speaker 2: the monthly GDP figures as far as you can throw them.
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  Speaker 2: But the latest ones, you know, showed a big bounce,
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  Speaker 2: whereas it was expected to fall.
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  Speaker 1: And yes. We're in a big bounce, John. We have
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  Speaker 1: to stop this. And I'm glad that it's positive.
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  Speaker 2: This is great.
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  Speaker 1: I'm really pleased to see positive. We've got to stop pretending.
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  Speaker 1: that all these tiny numbers.
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  Speaker 2: Good no absolutely two to.
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  Speaker 1: Three percent of real growth every year four percent of
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  Speaker 1: real growth every that'd be great this is just less
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  Speaker 1: bad than it could be.
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  Speaker 2: Yeah you're exactly right but yeah so long story short
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  Speaker 2: britain's probably got some breathing space and the best thing
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  Speaker 2: that john healy could do is just do nothing and
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  Speaker 2: then spend some time thinking about how to actually make
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  Speaker 2: things better in the country. And if he doesn't have
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  Speaker 2: the appetite for that and this government doesn't have the
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  Speaker 2: appetite for it, maybe we need to wait for one
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  Speaker 2: that does. Absolutely.
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  Speaker 1: I don't know. That might be a long wait, John,
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  Speaker 1: but let's see. The timing of election to be discussed
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  Speaker 1: possibly next week. Thanks for listening to this week's Merrin
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  Speaker 1: Talks Money Market Wrap. If you like our show, rate,
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  Speaker 1: at MerrinSW and John underscore Stepak. This episode was produced
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  Speaker 1: by Saman Saadi and Moses Andam. Sound design by Blake
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  Speaker 1: Maples and questions and comments on this show and all
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  Speaker 1: our shows are always welcome. Our show email is MerrinMoney
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  Speaker 1: at Bloomberg.net.