Inside the Biggest Stories in Global Markets This Week (UK CPI, US Debt, Oil & Gold)

End of the week and having a bit of a summary of some of the major things that have happened in markets in the past few days and a little bit of a focus on the UK. And that's because we had UK inflation jumped more than forecast. In fact, its highest rates in over a year on a raft of price increases, but not only the inflation side in the UK, we've had retail sales soar once again. Somewhat defying for the consumer some of these headwinds from tax hikes, rising household bills, and the ongoing tariff war. And consumer confidence reading also came out this morning, which was pretty solid as well. So unpack all of that. Elsewhere on the macro kind of landscape, oil's headed for its first weekly decline in 3, and that's come as OPEC+ is weighing another bumper production increase, which which in itself seems a bit odd in a world where global growth is slowing and they're looking to increase production. So what's the rationale there for some of these oil-producing nations within OPEC? And then gold is headed for its biggest weekly gain in more than a month. So in the commodity space, oil down, gold up. We have, of course, in the past week had concerns about the US ongoing fiscal deficit. We had Moody's ratings decision to strip the US of the final, I think it was AAA rating. And now this morning you've had the US House pass Trump's big, beautiful tax spending bill. So quite a lot to unpack there as well. So yeah, maybe we kick off with the UK, Piers.

Yep. Let's do the UK and wow, inflation is on the up, people. Which wasn't a surprise because we talked about this a few weeks ago on this podcast, and this is because energy bills have risen. So here in the UK, we have this body called Ofgem who basically control household energy bills and they raise it and they lower it. They're the regulator. And depending on what's going on out there from a macro and a geopolitical point of view and what's the cost of gas and oil and all this stuff, they kind of basically try and control what utility companies can charge the consumer, right? Well, they raised that level of price, right? So we, this is flagged months and months in advance. So that's bumped up and obviously inflation's gone up accordingly. What's most important here is it went up by more than expected though. So actually in April it was 3.5%. We were expecting 3.4%, right? The Bank of England's forecast for inflation in April was 3.4%. They were slightly wrong. It was higher. Okay. So that's one thing. The other thing is it's the highest, I guess it's the high because it was 3.4, it's the highest for, yeah. Oh, like 15 months. And in this world where we're desperate to try and get interest rates back down, and we're gonna come onto this at the end of this, the last topic I wanna talk about is government debt and the cost of it, right? And that's why we're super desperate to get interest rates down. And inflation is the same in the US. It's just stubbornly not playing ball, and it's actually here in the UK going back up, right? But look, this was flagged. And so you're looking at some of the markets, and I like looking at cable, sterling versus the dollar. 1.35 handle, baby. 1.35. The last time we traded there was back in Feb 2022. I mean, this is like the pound's like expensive again. What's going on here? So the sterling has risen and you might think, well, why? Because it was so telegraphed that inflation would pop higher in April because of this Ofgem thing. But I think it's all the other factors that have come along with it that were less expected. We're expecting inflation to go up. It has. Now, will— so the question then remains or becomes, will inflation stay this high? And here you look at the economic momentum and as you've just said, consumer confidence better than expected. Retail sales, you know, had came in at like a stellar month, up 1.2%. Okay. Consumer confidence is obviously pretty solid here. We had GDP figures in the UK that were better than expected. And so you've actually got this tail, this story that's a little bit surprising because of all those Trump tariff risks and blowing up in the media and everyone's a bit uncertain and what's going to happen. And that tends to breed you know, well, a loss of momentum in things like consumption, and it just hasn't. And so I guess that's the key here. And why is sterling at 1.35? It's because now we're only expecting one rate cut from the Bank of England for the remainder of this whole year. So we've revised down our cut expectations, and it's because retail sales are strong. Consumer seems confident. Actually, Ofgem's bumped up the levels and fine, inflation's going to stay well above target. And so that's the tale here.

So just playing devil's advocate, a couple of things on the inflation side. I did see that the airfares, I think they are up over 16% from a year ago.

Yeah.

And obviously that's because it's capturing some of the Easter holiday demand, which is very seasonal in that way. So that is in that. Within there amongst a whole bunch of other stuff. The other thing was retail sales. You're right, it's the fourth consecutive monthly rise, best quarter I think for British retailers since 2021.

'21.

Yeah. However, very importantly, as everyone in the UK will well have experienced, April was the sunniest month on record in the UK. Or for that month of the year. Yeah.

The sunniest April. Yeah.

Yeah. For that month of the year. And so obviously what happens, as you very much well did yourself, was out comes the barbecue, the meats come in, the supermarket expenses go up, the alcohol consumption goes up. And so food and alcohol were categories within the retail component mix that really helped elevate that. But there's one thing I can guarantee you about UK weather, it doesn't last long. And so is that, you know, I mean, April, I mean, do you look at this and go, this is the fourth consecutive monthly pretty decent number, and in the context of everything else, that's positive? Or do you look at this and go, no, it's just a bit of a, this is an April bump, April weather. Probably if you were to look at the weather, average temperatures from last year to this year was probably considerably different.

Yeah, I mean, it's, I, I don't know, honestly, is the answer to that. And I think that's what markets are grappling with at the moment. Is this sustainable or not? And the weather obviously weirdly is going to play a key role in that, I would say. But I mean, just looking ahead, actually this morning talking about Ofgem and raising that energy cap, they've actually announced they're going to lower it again. Um, come September and they're gonna lower it by 7%. So actually that's a little bit of a bonus. We didn't expect that, right? So that'll perk people up and maybe think, all right, my utility bills are gonna drop later in the year, so maybe I'll be, I'll be a little bit more, you know, happy to get the crack out the wallet. Um, but on that airfares thing, I mean, I'm currently monitoring, I'm trying to buy flights to Greece in August and I'm not cuz they're too expensive and I'm like, I'm waiting for them to drop. You can go online and you can see, you can get as far as booking your seat and the plane's empty. And I'm like, well, I'm not paying that amount when the plane is empty. I'm going to wait. So we'll see. There's a tussle here between the purchaser and the airlines on price. There's a bit of a standoff at the moment.

Okay. Well, look, let's move on. Let's talk about oil for a moment.

Yeah.

And so oil has headed the opposite direction because generally speaking, a lot of geopolitical tensions worldwide at the moment. There's this tariff risk, which I guess is kind of on the supply and demand side. It's pretty wild at the moment. And that uncertainty a lot of the time can often mean oil goes up, but we're heading down at the moment. And one of the key components here in the news flow in the past week has been that OPEC and its allies are discussing another output quota increase of 411,000 barrels a day for July. Importantly, just to caveat that they've not made an agreement, but this is how, yeah. So just to be clear, if you are an investor or a trader and you are new to this, OPEC is a very different animal to a central bank. So the meetings, so basically there's a video conference on June 1st, so pending in the coming days, and that's when they settle their July production rates and they have a virtual meeting ahead of that to just get, this is on May 28th. Where they'll start talking about, you know, how's your compliance levels been, what's the quotas looking like for this year and so on to inform them for their decision. So my point being, unlike a central bank, you'll get all the juicy information of exactly what they're discussing and thinking all the way in the run-up. And actually the event in itself is a pretty foregone conclusion. So it looks like this is going to happen, Piers. They're going to increase production considerably. But in a world where, as I mentioned, economic growth concerns are quite evident, so what's the rationale behind that type of move?

Well, it's, well, the line that the media are using is that, in inverted commas, it's to win market share. Now maybe there's some truth to this, but look, oil's at a 4-year low here. I mean, we haven't seen these levels, literally February 2021 was the last time we saw these levels for crude prices. So obviously these OPEC nations particularly are huge producers and are incredibly reliant on revenues that come from selling oil, right? So, but they're playing this game. It's a delicate balance of, right, well, obviously we'd love to pump and sell as much oil as we possibly can because we're so reliant on that revenue. But of course, the more they pump, well then the more supply increases, which actually brings the price back down, right? So there's all this game between supply and demand and price. And so here they have decided, it looks like, to ramp up supply even though the price is trending lower and is at a 4-year low already, which will continue to feed this downtrend, especially when we continue to be nervous around global growth. And, you know, with Trump's tariff uncertainties, I know a lot of that uncertainty's come away, but the uncertainty's still there, right? This whole China thing. We've got the 90-day clock ticking and we'll see what happens, right? But in the meantime, they seem intent to just go ahead, increase production. Look, obviously Trump, from a policy point of view, he's drill baby drill. So that's where the US are going to see production increase. And the advantage that most OPEC nations have over the US is the cost of production is much lower. And so if they can push price down, Ironically, they can win market share by forcing some of those expensive shale production processes to have to go offline because it's not economically viable at these prices. So it's, there's that kind of cat and mouse game here as well. And I think that ultimately they've, they're just a bit fed up as well. The last few years they cut production to try and prop up price. And the US just came in over the top of them and ramped up production. I think they're just fed up of being on that side of this coin and they're like, look, let's just get production back up.

Just a question. Is it quite difficult from a trading perspective to be short this market? And I'm assuming it depends on what type of timeframe. And the reason why I say that is there's this overall macro negative force for oil prices with the growth story. But there's been some incidents in geopolitics this week, which has, what's happened is a response from Israel's been quite forceful. So there was a midweek report from CNN that US intelligence has suggested that Israel was making preparations to strike Iranian nuclear facilities. This was just yesterday. Yeah. And that, that feels like that, that tension between historically those two nations is just boiling up a little bit again. So if you're shorting this market and you get the wrong side of one of these pretty big spikes that can occur, like we have seen in years gone by, so how would you approach that?

I mean, that is the life of an oil trader. Geopolitics is ever-present as a risk, right? I know any moment in time it always feels like, oh, there's stuff happening and it might flare up and it might, but but basically were permanently, you know, you go back the last 20 years and pretty much there's always something that might flare up right now. It's up to you to judge, well, how close is that to happening? What's the probability of that occurring? Obviously if it did occur, well sure, you're in a lot of trouble if you're short crude and something of that, you know, quite extreme nature occurs on the geopolitical front. So you've gotta be super careful. I'd say also like more medium term rather than those anything can happen at any moment type risks, which that is, you just gotta generally think about this global growth story. And ultimately here we are getting towards the middle of the year and all this doom and gloom about recession coming and global growth momentum slowing. We haven't really seen it, just talking about the UK there, right? And so ultimately, are these economies going to continue to be more resilient than expected, in which case this negative demand outlook is going to have to flip as well.

Final question on oil. At what point does it fall to when you start going, this is just value right here at these levels, value expressed through long oil, through oil-related companies, whatever part of that?

Yeah.

Vertical, it might be.

I mean, look, $50 is always a very important, very psychological level. I'm looking at WTI crude at the moment. It's trading $61. It has gone below there. It did hit like $58. So $50, you're going to get a lot of people go, hang on a sec, this is looking pretty tasty. That would be my response to that.

Get the barbecue out. 50 bucks.

All right.

So the final topic, just kind of bringing in the opposite direction, which is gold. It kind of, it was soaring pretty one-dimensional trade for the last recent few months.

It dipped. Yeah.

Now it's headed for its biggest weekly gain in more than a month. So I know there's a couple of things at play here, namely in and around the debt situation of the US is a predominant focus. Yeah. If you could explain to me some of the elements of this from rating agencies to the debt situation, to the bill that Trump's got through.

Right. Yeah. There's a lot going on here. Gold, look, for context, has been like medium term, has just been one of the best performing assets of the last 12 months. And you know, in the last 12 months it's gone from $2,300 to $3,400. Literally unbelievable scenes. Okay. Now, Over the last, I would say probably, well, the high of the year, the all-time high was April 21st, right? So since then it's only been 4 weeks, 4 or 5 weeks where it's just consolidated and we've had a little bit of a consolidation pattern. And just this last week it's back on the up, but we're still not back to 3,400, which is the all-time high. We're at 3,330 right now. So we're kind of poised here at the top. Of this monster 12-month rally. Now, is it going to go higher? Is it not? And at the moment we're back on the up and looking like threatening to test 3,400 again. And that's because there's a lot of things feeding into this. So firstly, some safe haven stuff, right? So let's talk about debt here and let's talk about the US. And actually what happened is that the House of Representatives have voted through Donald Trump's Big Beautiful Bill. The irony of this name, because actually internally, apparently in Trump's cabinet, so Trump has called this bill, this is his tax cut bill, right? He's called it the Big Beautiful Bill, and internally they've been calling it the Triple B, which carries great irony because Triple B is a rating agency rating and it's actually right at the bottom end of investment grade. So why is it ironic? 'Cause Moody's, the ratings agency, uh, basically ahead of this bill getting voted through in the House, and it got voted through by one single vote, right? 215 to 214. Now this bill isn't done 'cause it's now gotta go to the Senate. They need to vote it through. If that happens, then it hits Donald's desk and he signs it off and it becomes law. Why is this important? 'Cause it basically is going to see tax cuts extended. It's going to see spending increase. We're going to get about another $4.3 trillion added to the monster debt pile over the next decade. Okay? And Moody's are looking at this and going, hang on a sec, you know, your debt levels are already unsustainable. Now you just want to load more on top. We're cutting your credit rating. So Friday night last week, Moody's cut their credit rating from AAA And, but look, I mean that in itself, well, I should say, yeah, from AAA, but they, they, so there's 3 key ratings agencies in on this planet. The 3 big ones, it's S&P, Moody's, and Fitch. Okay. Fitch and S&P, they'd already cut the US's credit rating from AAA one notch down. Okay. S&P pulled the trigger on that in 2011. So this is a very old story and you could argue, well, why the hell are Moody's still rating them at AAA. It seems a bit stupid. So really Moody's are falling into line here with S&P and Fitch that made a move on this a long time ago, right? But it's still quite symbolic given the timing and given the debt ceiling crisis that's looming, given this tax cut bill that's just getting put through. And so there's a lot of concern growing, and I think it's definitely the next big thing is debt. And obviously since COVID debt levels have increased and back to interest rates and inflation, the problem is the longer interest rates stay high, the bigger this problem gets because the cost of servicing your debt, you know, what are your debt interest costs is obviously a function of interest rates. We talked about this a couple of episodes ago, I think. And what the US are going to see in 2026 is their debt interest bill will break $1 trillion for the year and will be the single biggest item in their budget. Their single biggest co— they'll spend more on debt interest than they will on defense. And it's just not sustainable, right? And Moody's are saying, here, hang on, this is just getting worse. You're going in the wrong direction, guys. So the thing here is that gold, things like gold, and actually there's a double pub positive here because as inflation stays high, preventing interest rates from coming down, well, gold's a good inflation hedge. So that's also positive for gold as well as then this kind of negative sentiment around this whole debt crisis that's looming.

Isn't gold then thinking of how you were describing that? I know you were quite passionate about the ticking time bomb that is US debt. But I can't help but feel that if you were thinking long term, I can't see any other way than this US debt pile continuing to increase, and therefore the concerns that you are highlighting will compound and compound. Wouldn't gold just be a pretty sensible asset to own over the long term as part of a portfolio mix?

It has been for 12 months because it's gone up and it will continue to be. I think—

I'm not talking 12 months. I'm talking this, this, this US debt problem is, is not going to get solved and it's not going to go down. So by definition then, does that not mean the gold, talking gold long-term, 10 years, 20 years, like, yeah, forget 3,000, 4,000, 5,000, like It's just going to get more supply.

I agree. Gold, it was a waste of time owning gold for a decade, right? Now it's not. Now it's a really important thing in your portfolio, I would say. And look, why is it different this time with the US debt? 'Cause look, well, let's maybe talk about Japan. 'Cause they got, they're in the same boat in many ways, right? Japanese debt. Well, hang on. The US debt to GDP ratio is 125%. Okay. Way too high, not sustainable. Japan's debt-to-GDP ratio, 263%. That right? That's the highest out of any developed nation. Now, so you might say, well, hang on, they've had that kind of debt level for decades. So why are we worrying about this? It's not really a problem. It's never been a problem. So why should it now suddenly become a problem? And the difference now is interest rates are high. Japan's had zero interest rates for decades, so huge amounts of debt. Fine. The servicing costs of that debt are low. Well, now COVID triggered an inflation uptick in Japan that they haven't seen for decades. So inflation's high, right? Actually, you're getting to see some actual economic momentum in Japan. Economically, things are looking pretty good. Okay, so our inflation expectations rise further. The central bank are gonna be raising interest rates, okay? They're currently trying to taper off their QE program. This is all feeding into bond yields rising, and actually the 30-year Japanese government bond yield is at a record ever high. Now, why is that important? Because they're sat on a monster mountain of debt, and if interest rates are gonna go up now, the costs of that debt is rapidly going to increase. Like put numbers on it with the US. I said this last week, right? Typically the US would pay $300 to $400 billion a year on interest. Okay? That's the, that last decade, last 15 years, $300 to $400 billion, right? $300 to $400 billion every year. Next year it's going to be a trillion plus. It's just suddenly gone exponential. So that is why this debt situation If interest rates cannot come down, then this debt crisis is going to really become the dominant force.

Okay. Well, on that happy note, we'll send people on their way for a merry old weekend. So yeah, sleep well. And until the next episode, unless there's anything out that you can lift the spirits, is there anything positive to say to finish?

Uh, well, Tottenham won the European Cup, so, um, you know, I'll repeat my question.

Is there anything positive to say to finish? It's just getting more doom and gloom.

It is. I mean, I'm happy. I'm a very happy man. Forget that, whatever. Tottenham have got a trophy in the cabinet.

Yeah, the world's burning, you can be there with your Spurs shirt on.

Okay.

All right. Thanks, Piers, and thanks everyone for listening, and we'll see you next week. Take care.

Have a good weekend.