00:00Talking about Fed speak, and we had a number of names yesterday, or these two names, talking about the impact
00:03of AI on the labour market and productivity and where the neutral rate could be, and seemingly diverging from Kevin
00:11Walsh, who of course could be the next head of the Fed.
00:14What do we take from the kind of Fed speak? What have we learnt?
00:16Yeah, so it's quite interesting. We had Barr saying in a speech yesterday that he doesn't think that AI will
00:23necessarily result in lower inflation, that it wouldn't necessarily, therefore, support the case for more Fed rate cuts.
00:30Now, it is the opposite to what the administration and what Kevin Walsh have been suggesting.
00:37Barr's argument is that the capital required to invest in the technology will actually potentially add to inflation.
00:46So that, I think, is particularly weighing slightly on yields this morning. Well, sorry, weighing on treasuries and pushing up
00:54yields slightly this morning.
00:56We are seeing a bit of uncertainty, I suppose, in how AI plays out, and that really is what we're
01:01seeing across all industries and asset classes.
01:04There's this sort of, you know, is it going to, you know, support growth, but then is it going to
01:09be inflationary or not?
01:10And it's very difficult to tell. It depends how it impacts consumers as well and sentiment and what people do
01:16with their money.
01:16So it's a very complex picture. Yeah, absolutely. We seem to be at the foothills of understanding all of that,
01:21aren't we, Moenna?
01:22So we're going to get minutes from the Fed a little bit later on.
01:24So we'll no doubt be passing that tomorrow to the extent that it's all still relevant and useful.
01:29Let's talk about the UK then, because you spent a lot of time looking at UK assets, and we've had
01:33two days' worth of data.
01:36Overall, has it cemented the view that we'll get cuts from the Bank of England this week?
01:41How has the inflation data gone down today?
01:42Absolutely. It has cemented, I think, the case for a spring rate cut.
01:48What today's data hasn't done is move the needle really any further than yesterday's Labour data, which was a lot
01:54more benign than expected.
01:56And that really did see traders ramping up bets on interest rate cuts for April, being almost fully priced in,
02:04and looking increasingly likely for March, which is the next meeting that we're going to have.
02:10Today's data was sort of expected to be the big critical one, and I suppose it feels like it's fallen
02:14a bit flat because, essentially, inflation had called, but it was expected to.
02:19In fact, the reading was very much in line with expectations on the top line.
02:24There were a few areas where it was a tiny bit higher, but some of those, when you look at
02:28the overall pattern and the mechanics, were expected.
02:31It really supports the picture of a disinflationary trajectory going forward.
02:36So, very much supports what the market was already pricing in.
02:40It hasn't really changed that much today.
02:41But this week, we certainly have seen expectations firming up that we will have a cut by April, if not
02:48in March.
02:49Yeah, on the one hand, you've got the services story, where we've got some quite resilient inflation dynamics in the
02:56UK, it seems.
02:57But on the other hand, we've got what the government is doing to bring down those sort of regulated prices.
03:01And so a lot of people talking about, yeah, 2.1% inflation by maybe April.
03:04Moena, thank you very much.
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