Barclays’ Turnaround, European Equities Rally & US Inflation Risks

Hello and welcome back to the Trading Floor. We've got 3 topics as ever to discuss today. We're going to start with Barclays. They've just come out this morning and they've delivered strong results and launched a £1 billion buyback. They are of course in the midst of a quite dramatic 3-year turnaround story, so we can dive into what's driving their performance at the moment. And that will lead us nicely into talking about something I want to speak to you about, Piers, is I've been reading lots of headlines this week quoting various press articles saying about how attractive European equities are looking. And indeed, they have been performing phenomenally well. But I think if you weren't watching markets day to day, you'd probably think, well, how on earth is that happening? Because all I'm thinking is that tariffs are coming, Trump's trying to broker peace deals with Russia behind Europe's back, there's all sorts going on here, and yet It's actually transpiring, it's the other way around, and European stocks are looking pretty good right now. So good to unpack that. And then finally, the big kind of data point and market movement that we've seen midweek this week, of course, was the release of the latest US CPI print, where the core reading jumped 0.4% on the month, the highest reading since March. That did see in its immediate reaction stocks dump, but they recovered pretty quick snap. But the fixed income market didn't respond quite so dramatically in terms of the secondary move. So I'd love to also get some rationale behind that. But yeah, Piers, how are you? And let's kick it off with Barclays.

Yeah, good, thanks, Sam. Barclays, um, you know, these are— yeah, good, well, good numbers. Um, share price down 4.5%. Uh, so we'll kind of get on to that in a sec. But yeah, look, on the face of it, strong numbers. I, I, it's, I find this quite ironic in a way. So the, uh, chief executive, um, do you want to say his name?

I was gonna, I was just about to say, I'm waiting for this. Go on, you go for it.

Okay. Well, um, the chief exec, Venkatakrishnan. Oh, okay. Thank you. You gotta say it a few times to get it in your head. Anyway, that guy, um, he, he set out a 3-year plan, you know, So there's a few of these banks, right, that have been on turnaround stories. I think on this podcast we've talked quite a bit about Citigroup, for example, over the last sort of 2 years or so. So Barclays have kind of been on their own sort of, you know, turnaround, just to refocus on the core elements of their business and just trying to get back profitable. You know, they ended, um, you know, if we talk about this time last year, they're losing money. And so it was like Okay, let's set about a plan. And so the CEO set about what, you know, he kind of had a 3-point plan. Okay, one of them was to kind of increase focus on the UK market, right? Double down. What are we, what are our roots? You know, what are we good at? Have we kind of extended ourselves too much in various projects that are not kind of core to our business? So it's like doubling down on UK, the boring stuff, UK retail, UK corporate, UK private banking. All right, and that was because this time last year the risky, sexy side of the bank, that's the investment bank, wasn't doing well. Okay, so all right, let's, let's pivot, let's pivot. The great irony, of course, here we are a year later, you know, really bumper numbers here. Profits managed to break above the £1 billion mark for Q4. Revenue's up 24%, you know, really solid stuff. But the main reason why It's because of the investment bank and how the investment bank has performed. So it's that classic story of, you know, when, when the volatile part of your business is going badly, everyone points to it. It's like, oh God, why are we even bothered doing that? You know, it's really damaging our overall performance. When the volatile bit's doing really well, you know, everyone's like, well, why aren't we doubling down and doing more of that? Um, so there's an element of that here, but on the investment bank side Um, like equity trading, that, that part of the business had a phenomenal quarter, up 40% year on year. So the equity trading division posted £604 million in revenues. Fixed income up 29%, so not as big a climb, although 29% is obviously very strong, but actually it's a much bigger part. It's 50% bigger than the equities trading part. So fixed income trading delivered £934 million. Investment banking fees up 22%. You know, this is why Barclays have posted a very strong performance in line, you know, with other, with the other banks really is the kind of same old stuff we're hearing as all of these big banks report.

So yeah, two other things that I'd say with Barclays, one was the timing and the timing given, you know, one within, I guess, the UK banking scene, there's kind of different pockets of types of banks. And HSBC is one who last month announced that it was preparing to exit its M&A and equity capital markets businesses in Europe, the UK, and US. Stephen and I talked about this. So yeah, I just wonder whether somewhat counterintuitive, as you said, it's almost time to double down in that space because there could be a little bit of a land grab, some open market share in the domestic space that they could sweep up. So that was, that was one point. The other thing I did have a very quick skim on the train this morning. Because obviously the results only came out an hour or so ago of their earnings presentation. And I did see a bullet point on one part. I'm assuming it's talking about lending. I know you've talked before about net interest income margins, these sorts of things. And they were talking about, I guess, because this was a retrospective of 2024 as a whole, how we started the year anticipating several rate cuts in the UK. And we didn't have even half of that. So would that have also benefited the bank against its initial forecasting from looking on a year basis?

Yeah. I mean, like you're talking about the year ahead, 2025 rate cuts, right? Are you talking about?

No, I'm talking about even in 2024, if you remember where we were.

Yeah, I understand. Yeah, fine. I mean, that's right. So yeah, rate cuts, rate cuts didn't, well, they did happen actually. The Bank of England, I'm just looking now to remind myself, but the bank cut in July, one quarter percentage point. Then they waited until, um, November to do another cut, and they've just cut again, of course, start of February. So yeah, there were two small cuts, uh, in the second half of last year, but you're right, back at the start of 2024, we were expecting a lot more cuts than that. And so look, yeah, the loan book side of the bank performs really well when interest rates are high. And so yes, you could say less cuts meant that that loan book side of the performed better in 2024, including right into the end of Q4 here. So yes, you are right. Higher rates for longer has been a good thing.

Okay. So that's, that's UK. What about Europe then? So what's going on with some of these European banks? Because you've had a lot of those also report.

Yeah. Well, same comment again, higher rates for longer are good for banks, right? But here, here's a stat. I was reading some, just reading some stuff this morning ahead of this podcast. And I read something and I, You know, like when you read something, you're like, hang on, that— I must have, I must have misread a word in that sentence. There's got to be a word in there that entirely flips the meaning of the sentence that I took in the first time I read it. And I read it back and it— and I was like, what? So here's the stat. So since the start of 2022, the Mag 7, right, which have been the, the darlings of the last couple of years in terms of stock market performance, the Mag 7 have returned. So remember, just as a reminder, that's the US big tech stocks, right? Your Nvidias and Microsofts and Apples and your Metas and the rest of it, Amazon, Google. Um, but they returned 190%, 1-9-0% up since the start of 2022. Okay, there is one category of stock, there's one European stock sector, and we're talking large cap here, there's one European stock sector that beat it. Since the start of 2022 was up 200%. And your answer, given the—

I was just racking my brains. I'm like, 200?

Yeah.

Hmm. I have no idea.

EU banks.

Okay.

Up 200% since the start of 2022. Now, if you're a clever statistician, Then you always, you, you can, you can get your time period perfect to dramatically make a point, right? So since the start of 2022, if you've got your time period right, if you go from the start of 2015 till now, same two categories, Mag 7, well, the Mag 7's up 2,700% since the start of 2015. EU banks since the start of 2015, zero, flat.

That's such a— that is such a good lesson.

Yeah.

Because I think what you hear about financial markets typically comes from sell-side institutions.

Mm-hmm.

And they have an agenda, i.e., typically they're selling an investment idea or opportunity. But I think as a— someone consuming this content, you are 100% right. It's like two different datasets over two different viewpoints to serve two different agendas. It's, yeah, incredible.

You're right. It's a good general point. Like when I read something and I'm like, really? I often think, right, hang on, there's gotta be something behind this. They've spun it somehow. And so yeah, I was just looking back a bit further and right, so EU banks, yeah, there's a lot of FOMO.

There's a lot of FOMO in EU banks basically. And so they can sweep up some business, I'm sure.

Yeah, absolutely. Um, but look, um, they've obviously performed incredibly well, uh, and I mean, we could broaden it out. I mean, EU stocks generally have had a great year. I'm going to give you some stats here. If we talk about, um, well, let's talk about year to date, right? So here we are, what's the date? 13th of February. So obviously a month and a half into this year. So this is 6 weeks. How have the major stock indices performed? And look, let's start US. They've been dominant over recent years, but S&P is up 2.8%. Okay, that's just all right for 6 weeks, not too bad. Uh, NASDAQ's up 4%, pretty good. Um, oh sorry, NASDAQ's up 3.3%, it's the Dow Jones that's up 4%. So that's actually straight there, that's interesting. So the Dow Jones Industrial Average has beaten the tech-heavy NASDAQ. Um, but then we go to that Nikkei 225 is down -1.5%. Then we get into Europe, right? And I'm going down a kind of global list here. In Europe, the DAX, what do you reckon? First 6 weeks of the year?

Well, what's interesting about that is there's so much negativity around the German economy at the moment.

Yeah.

Which makes me feel like probably the market is forward-looking. Share prices are probably incredibly depressed, so coming from a low base. So I'm assuming it's up a lot.

12%.

Yeah.

Yeah. And actually that's the leader. I'm looking at a list of, just on my list here of global stock indices. I can see probably about 40 different stock indices here. The DAX is number 1. So the German stock market has moved up more than any other kind of major market in the first 6 weeks of the year. But look, it's not, look, you look at the Spanish stock market up 11.5%, Italy's up 10%. France is up 9.8%. Even France are up 9.8%. Um, the FTSE 100's up 7%. Um, so look, Europe is punching here and is outperforming.

Can I just ask a question then, just from stepping back, um, and not talking details, cuz we'll get to that, but from an, from an investing perspective. So people who listen to this, a lot of people are, uh, early career professionals. Or have disposable income that they want to then explore investing. Can you just explain to me very simply about— I know you love picking bottoms. I'll leave that open to interpretation, but I know you're a man that likes to pick bottoms. And what's the difference between that and trying to find value in short-term opportunity over longer-term investing? And when we're looking about the to take what you talked about with that 2022-2015 example, extrapolate that over an entire career of earnings over 40, 50 years.

Yeah, well, maybe a good example because we're going to go on to talk about US inflation in a minute. Trading versus investing, you know, I'd say trading, right? I'm going to trade the US inflation data, right? This is news that is going to be announced at a specific time and we can prepare for it, right? We know what's forecast trusted. We can look back at patterns and write what was this data in previous months, what are the trends, blah blah blah. Then the number hits and it's like, right, is it different? Is it, is it different to what was expected? Which way? Higher, lower? And you all— lots of different elements to the inflation report which makes it complicated. But look, you're trying to react and trade to the immediate price reactions. Immediate meaning over the seconds, minutes, hours following the, the data. Okay, so that, that's kind of what I would call trading. Like, investing is, yeah, yeah, you know, certainly picking, uh, more medium-term themes. And, you know, and you want to find like secular trends if possible. I mean, like right now, um, the Gap— well, actually not right now, sorry, at the start of the year the gap in valuation— that's just simple price-to-earnings ratios— the gap between, um, the S&P 500, um, so the US's biggest companies, and the European 350 index, the 350 biggest European companies, um, US companies were trading at a 65% premium with regards to valuations. Okay, that is the largest gap, that's the biggest divergence in price-to-earnings ratios between the two continents ever on record. Right, so relatively US super expensive, Europe bargain bucket cheap. Okay, so ultimately, but that trend's been in place for years, right? I mean, the, the divergence— I like, if you go back to 2015, that was kind of where it bottomed and the difference was about 5%. From 2015 till now, it has trended one way and it's gone from 5% gap to 65%. So my point is, well, is this the moment that you're going to start the, the, uh, the sort of convert— the, the reversion back to the mean? Is that journey now going to begin? The problem is it's been— every time you've chosen that decision in the last decade, you've always been wrong, and the gap's just widened and wider. And this is what we talk about, you know, the, the kind of the American economy being super strong, super resilient, doesn't matter, rates are really high, doesn't— we'll talk about inflation stubbornly high, so it doesn't matter. Okay, US exceptionalism has driven this trend. So you're really asking the question, do you think US exceptionalism has peaked and is it now going to revert? Okay, and that's tied into this buying Europe instead of the US. It's just that for the whole of the last decade Even though this trend has been going all-time highs, all-time highs, all-time highs, all-time highs for like 5 years, you've been wrong every time if you've called the end of this. So I'm just saying.

And that convergence doesn't necessarily need to be US exceptionalism weakening and Europe coming back. It could be other global forces improving, which is pulling back the US and closing the gap, right? Like China, Japan, or whomever.

One reason why now, 2025, one powerful reason why this, this kind of gap is now gonna start to converge is interest rates. 'Cause for the whole of that time, interest rates have been high. Okay. Now we're getting a, a divergence in interest rate expectations because in Europe, interest rates are being cut. Okay, that I just said, the Bank of England cut rates, right, last week. The Fed are not cutting, and we're going to come on to inflation— really bad January inflation for the Fed, you know, staying stubbornly high. The Fed aren't going to cut, Europe are going to carry on cutting. That's a really powerful divergence when it comes to thinking about economic performance. And then if stocks are super cheap, you know, look, if you've been a beneficiary of this US exceptionalism, and you've been wedged into US stocks for the last decade. Well, you know, Trump is a, you know, he's many things, but one thing he's definite is volatile, unpredictable. So that's a risk premium, right? So you're thinking, well, you know, I don't know what Trump's going to do, but I've made a— it's been a great run in the US here. The dollar's strong, Europe's looking really weak. Sorry, I should say cheap. That's going to cut rates, right? I'm going to switch. So it's a kind of It's an asset rotation out of the US and into Europe, which is kind of driving some of that, um, sort of divergence in performance.

And for the sake of sounding boring, then this is a, a perfect, again, putting it in the investment wrapper, the idea of diversification is key for longer-term returns.

Yeah. I mean, that's a great line that they'll always roll out, the asset managers and the fund managers, and, and it's generally, it's true just from a risk perspective. Diversification, um, is key. Um, but you know, those— well, fortune favors the brave, right?

So, oh, rein it in, Piers, come on. We'll get compliance on there and risk starts sniffing around if you start saying stuff like that.

Anyway, look, it's been a great run for 6 weeks, all right? Let's not get carried away. The US have had a great run for 10 years. All right, Europe, they've taken the last 6 weeks, but is it sustainable is the big question. And I would say from an interest rate expectation point of view that you get a tick in that box. We'd expect rates to come down relative to US interest rates through this year for sure. But, you know, what's, you know, the— you know, what's Trump going to do? You know, is he going to slap big tariffs on the EU? German economy's weak, but look, it's coming from a low base. If the euro devalues, that's great for Germany. You know, if the China economic story is going to turn around— look, they— has China troughed in terms of their economic performance? If they start to improve, that's great for Germany and Europe, right? Um, obviously there's the— there's still the geopolitical side of things, but look, yeah, there's, there's quite— I'd say it's been a great 6 weeks. There's no reason why it can't continue, but yeah, there's always plenty of risks.

I was just thinking if I was to ask you to rank in order over the long term, 1, 2, 3, US, Europe, or China, who's gonna win the AI race that could consequently improve economic productivity and so on and so forth.

So, right, that's another curveball.

Who's, who's absolutely bottom of that?

Europe.

Exactly.

Yeah, no, that's a good point. So that's a really good argument against this idea that, you know, you're gonna get a, a sustained mean reversion now in this valuation gap between the US and Europe. And actually this is just a temporary blip, but actually the AI story is gonna force US exceptionalism versus Europe to continue. Yeah.

All right. Well, look, let's move on. We've kind of slightly touched on it, but let's dive into the nuts and bolts of the US CPI print, cuz ultimately in the short term, as you said, for trading, this certainly was quite a volatile event.

It was a shocker, really. I mean, so this is the January inflation data, okay? So what the US do, they announce their inflation figures. It's normally midway through the month for the previous month, right? So midway through Feb here. So they dropped their inflation numbers for January yesterday afternoon, and look, it's just not good. It's not good if you're wanting inflation to continue to drop. I say continue, it stopped dropping. If you want inflation to get back on the, the kind of downward trajectory to get to 2%, which is the Fed's target, and enable the Fed to cut interest rates, if that's what you want, this is really bad news.

Um, it's great news. I'm long European equities, Piers. What are you saying?

There you go. Well, it's good news. I mean, look, let's just go through some of the headline figures first. Um, so there's the inflation. So this is CPI, right? So Consumer Price Index, which tracks inflation with a basket of goods in the Basket is loads of all the stuff you buy on a kind of day-to-day basis as a consumer in the US. So US CPI, if we look on year-on-year basis, so the average prices in January 2025 versus average prices January 2024, up 3%. There's all sorts of things wrong with that. We were hoping for 2.9%, so it was higher than expected. It also has now continued what is 1, 2, 3, it's 5 months in a row of inflation going up. We're used to saying that inflation is stubbornly stuck and it's not coming down. Forget that, it's going up. It's gone up 5 months in a row. 3%, that's the highest we've seen since April of last year. Um, so obviously that's not good news. When you go shorter term now, because we look year on year but then we look month on month, so looking for those much shorter term sort of price behaviors. I mean, there it's shocking because it was +0.5%. So prices in January versus December, +0.5%. We had expected just 0.2%, and 0.5% as a month-on-month reading, that is joint— that, that matched the August 2023. So actually, the last time we had a higher month-on-month print, January 2023. Two-year— we just got a two-year high on the month-on-month inflation print. That is not what the doctor ordered. Um, we'll talk about maybe why in a sec, but that's, that's the headline inflation. We then kind of go to what's called the core inflation. Now this is taking out some of that volatile— the volatile elements, food and energy, which are often unpredictable and quite volatile. They take those out of the basket to try and get a better feel and read for like just the, the, all the rest of the stuff that's a bit more stable, because that food and energy can often distort that headline CPI figure. So the core inflation, it's not much better news. So, um, it came in at 3.3%. Basically last month the December number was 3.2%, right, which is the equal lowest since inflation peaked, has been trending down for the last 2 years, right? 3.2%. We were hoping and expecting the forecast was 3.1%, We were expecting another tick lower for another new low in this downward trajectory. Not only did it not go down, it actually went up to 3.3%. So from a kind of trend perspective, we're now— that basically core inflation has not moved for now 9 months. All right, we've been stuck at either 3.2% or 3.3% for 9 months. We were hoping for a tick down to get the downtrend back on. Didn't happen. Went up. Not good news. And then similarly on the month on month for the core, um, it was +0.4%, higher than the expected +0.3%. So no matter where you look here in this report, it's higher than expected and not what we wanted.

Okay. So, so talk to me then. That's the top level, if you like, the outer of the car. Let's get under the bonnet and like, what is So to determine whether or not— you said these are multi-month patterns emerging. Are we coming to the end of that pattern? Is this pattern expected to begin? What signals are we getting from the components that comprise of the CPI report?

Yeah, and look, the Fed always say, well, you know, we never look at one single month's worth of data in isolation. We're looking at multiple months and longer-term trends. So there is stuff in here, there are elements of the basket that certainly popped and actually had a quite a dramatic impact. Um, and so you've got things such as— well, I say that, I will caveat— there was a broad— it's not all about these singular items I'm about to say. It was relatively broad-based. It's not like everything went down apart from these one or two things that went up massively. Nothing went down, but a few things went up quite strongly. And so things like Used cars, airline tickets, car insurance are certainly being blamed here for a kind of big rise in January. And then there's one item on the sort of food category which is grabbing a lot of the headlines— eggs. And the price of eggs, wow, went up 15% month on month. Year on year, that's up 53%.

Um, right. Which is, oh, on that point then, one, one of the things you, well, I always think just being a fairly curious individual, I'm like, what? Eggs have reached $8 in wholesale markets this week. That is for context, more than double the price of a year ago. It's the highest ever on record. So again, you kind of think, okay. Why is that happening? And much, yeah, well, much like, uh, any type of food, it reminds me actually the reason here being flu related makes me think of China and the pig flu that they had where pork prices a few years ago skyrocketed and were going up 20, 30%. And as a key staple of that kind of cultural cuisine and being a low-cost typical meat. Source that caused all kinds of inflationary havoc. And actually what you've got here is a similar thing. So yeah, this is all down to, uh, avian flu. And to give you some numbers, farmers have lost about 46 million laying hens in the past 4 months.

Wow.

What percentage do you think that is of the national flock of hens who lay eggs? In the US? What do you reckon? 46 million have been culled, essentially.

Well, I would look at the price here, and as you said, it's kind of doubled, right? So I'm thinking supply-wise, I mean, you can't say suppliers halved. That doesn't quite work like that. If it had done, the prices would have gone up way higher. So I'm thinking, thinking it might be something like 20%.

See, this is why you're the former head of trading. 15% of the national flock, 304 million. So my next thing that I think, given that, you know, my, my previous career as an analyst, I think, okay, so we're trying to solve this puzzle of egg prices have skyrocketed and that's feeding into food inflation, which is a part of the puzzle of calculating inflation. Okay, so how do, how quickly can you replace and replenish these 46 million hens that have died? So now you start looking at farmyard analysis and looking at like practices of how they, how hens get reared. And so here's some stats for you.

You went, you went deep here.

Yeah, I'm a boring guy. You know, you have kids, your life gets less fun. Uh, egg to laying hen timeline. So a newly hatched chick to reaching egg-laying maturity. How many weeks or months or years?

Well, the fact you've already, well, you've already said weeks now.

Oh, giving you a tip.

You've accidentally slipped that in there. Uh, they've obviously, I would assume, have thrown a lot of science at speeding this up as fast as they get. I don't know, 12 weeks.

Yeah, 18. If you get it right, you can hit 18. 18 to 22 weeks. So yeah, you can.

And then how— so how do you have this stat? How long does a laying hen— how long do they lay eggs for?

Okay, so here's some— here's some hatchery capacity statistics for you that I've managed to Procure. US commercial hatcheries can produce millions of chicks per week. An example, a large hatchery can produce around 1 to 2 million chicks a week.

Wow.

Um, the scaling up, if an industry capacity is fully utilised, the 15 million replacement hens could theoretically be replaced, uh, or be hatched that is, in 2 to 3 weeks, which means that you would yield then those laying eggs in 4 to 5 months.

Right, okay, so we've got a 4 to 5 month supply shock. Yeah, in the egg market, basically.

Long story short, I could have, I could have, I could have just— you can delete the last 2 minutes of the podcast. Yes, you're right, there you go.

Okay, well, look, back to inflation because this was a component of the So remember, this is a food type, obviously. So that's in the one of the volatile segments. So when we talk about core inflation, eggs aren't in that. So actually, even though eggs are grabbing the headlines here, and sure, went up 15%, which is massive, but even when you take that out, inflation generally did still rise, which is why people are just like, oh God, this inflation thing is just won't go away. Um, But it was quite interesting. I mean, there's 3 things to talk about here. Caveats. Well, uh, is there anything that we can point to that means we shouldn't get overly concerned about this data? Um, we need to talk about the Fed. So what does this mean for the Fed, uh, with regards to their ambitions to cut rates in 2025? And then finally, what was the market reaction? To, to all of this. And maybe let's do the market reaction first because that might nicely feed into caveats, and then we can talk about the Fed. But, um, because the market reaction was— well, I'd call it muted, um, in that— well, obviously this data always drives volatility. Muted's the wrong— mute is the right word if what you're doing is you're looking at the closing positions of these markets at the end of the day. All right, and what happened was the S&P closed down. So remember, higher than expected inflation, meaning less rate cuts, normally bad news for stocks. Stocks sell off, right? And they did, but the S&P finished down just 0.3%, which is modest. The NASDAQ finished higher on the day. Now That's when you're looking at the closing prices. Obviously this stuff triggers a lot of volatility, so actually the S&P immediately dropped 1.1% straight out of the gate off the back of the data, and then steadily kind of recovered most of that as the kind of rest of the session wore on. So that was the pattern: short-term sharp drop, oh my God, another panic. You know, the algos are all over this, so the algo trading systems and the hedge funds out there are geared up for, right, if inflation's higher than expected, sell stocks. That's the algorithm. And then, right, the algo executes that trade, bang, stocks drop. Then you get the kind of more considered, slower human being coming in and going, well, hmm, is that right? You know, is it actually as bad as that? And often it can provide a bit of a buying opportunity. But let me just finish, because it's not just stocks, right? The dollar didn't really move, finished the day, you know, pretty much— in fact, marginally lower. So the dollar, very marginally, the dollar index finished down, which is quite remarkable. If you'd have asked me one second after the data, will the dollar finish down on the day, I would have put on a big trade to say no, it would not finish down on the day, and I would have lost money. But I didn't make that trade. But yeah, the dollar didn't really move. And then the yield curve, the bond markets, were a bit weird. The yield curve— this is going to get a bit technical, so I'll only mention it briefly— but the yield curve steepened. This data is a classic curve flattener trade. I'll explain. If inflation is higher than expected, two things: you should think that interest rates will stay higher for longer, meaning the short end of the curve, let's say 2-year bond yields, should go up. Up as they price out interest rate cuts, right? 2-year should go up separately. Well, what does that mean for economic growth expectations? Well, if rates are going to stay higher for longer, bad news for growth. So actually, there should be a bit of safe haven buying of the longer end, which means those yields often come down. So you should get a curve flattener. Off higher-than-expected inflation like this, except the opposite happened, which I find very interesting. And that tells me that the bond market, at least, and you could say the FX market because of the dollar, and you could say the stock market because of the NASDAQ finishing up, they're basically saying, yeah, yeah, looks bad, but we're not too bothered. And that could be for a few reasons. Um, Number 1, they could think that we've had high inflation. As I said a minute ago, inflation has been flat for 9 months, still flat. So in the meantime, actually, our economy's on fire and it's doing really well. And, you know, so just, it's just going to be more of the same. More of the same meaning actually really good from a kind of markets point of view. Um, obviously all that you can look on the positive side of all the Trump policy that he's promised and that might come— tax cuts, deregulation, that kind of stuff— to help to fuel it. You've already mentioned the AI thing. Maybe 2025 is going to be the, the year when it really hits the kind of front line of industry and we start to get a tick up in productivity. So these, these are kind of all the positives that you can spin out of it, right? Um, but then obviously there are negatives. Trump tariffs. It was like, you know, inflation, I said on the headline, has gone up 5 months in a row. Is it going to continue? Are the Fed going to have to hike? I mean, so at the moment, to conclude, maybe the market reaction is basically, well, yeah, it's higher than expected, but it's not bad enough that the Fed might need to think about hiking. So it's status quo. We know we're not going to get cuts, but that's fine because the economy is really really strong. And anyway, January inflation data is normally higher than expected. And I've got a stat: 14 out of the last 15 years, January inflation data surprised to the upside.

You've been talking to your mate Jim Reid again.

Oh, is that what he was banging? I haven't actually read his report, but is that what he was talking about?

Yes.

Um, well, I know it makes sense, right? If you're a business, you run a business, you know, a new year, you know, you often do a lot of strategizing and set— so often you get price rises at the start of the year. Now, there are models that are supposed to smooth out seasonal effects. I don't know who's built these models, and I don't know when they were built, But they're crap because they don't work. 14 out of the last 15 years, inflation's surprised to the upside. That tells me the model is rubbish. So that— I think a lot of people are going, well, yeah, yeah, it's high, these numbers don't look great, but it's January. So unless February data is bad, and until that moment, I'm gonna just— I'm, I'm operating as I was before, thanks.

And just to be clear then, because several months ago we were talking about when inflation was decreasing, uh, looked like we'd got over that battle of stickiness, if you like, the, the, the focus was shifting to the labor market. So right now, is it a 50/50, we need to monitor both, or have we moved back to inflation again?

I think we, I think this report I think it means we've moved back to inflation as the primary number we're monitoring, and that February data— so we're going to get that in the middle of March, so we've got to wait 4 weeks, right? So the middle of March, we'll get the February inflation data. That, I think, now is the number one piece of information in Q1. We're halfway through Q1, but, you know, for the rest of this quarter, that's number one on the, on the list of importance, I would say.

All right, cool. We'll wrap it up there. Thanks very much as ever, Piers, for sharing those insights.

Can I just finish? I've got one other thing to say because Powell was talking yesterday. So he does, I think it was his biannual testimony in front of the Senate. And so he's been talking to the politicians this week. I got a funny one because so basically he was, you know, all his soundbites, usual stuff. So I'll quote a few here. I would say we're close but not there yet on inflation. That's what Powell said. He said today's inflation print says the same thing, right? So that's another reason why markets were quite calm about it. Powell's not freaking out here. Um, he said we've made great progress but we're not quite there yet, so we want to keep policy restrictive for now, right? And so that's it. He then threw in Um, we are doing our job and staying out of politics, right? Because obviously Trump has been not shy about his opinion on the direction of where interest rates should be going and basically telling Powell, you're doing a rubbish job, you need to cut rates, cut rates, cut rates. So here's Powell's kind of return: doing our job and staying out of politics. Do you know what Trump tweeted? Kind of in response and after the inflation data, Trump said interest rates should be lowered, something which would go hand in hand with upcoming tariffs. Exclamation mark, exclamation mark, exclamation mark. Let's rock and roll, America! Exclamation mark, exclamation mark, exclamation mark. So the, uh, the, the argument continues.

Yeah, let's not, let's not unpack that tweet. Uh, and why that makes no sense, but here we go. This is the intersection of politics and economics that we live in.

Absolutely.

Yeah. Amid, amid the, uh, uh, well, stay tuned in fact, because Stephen and I are recording, um, later this week for a Monday drop and it's gonna be entitled, uh, Musk versus Altman.

Oh yes. Okay.

I'm all over that. We'll do a deep dive into Batman versus Superman. Who will be triumphant? It's Marvel against DC. Love it. Yeah. All right. Thanks very much everyone. Have a great weekend. Thanks, Piers.

Yep. Thanks a lot. Bye.