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Welcome to the Merton Talks Money Market rap, where we talk about the biggest moves in markets this week and wat's driving them.

I'm joined Steppick, senior report and author of the Money Distilled newsletter.

Merin is still off on holiday.

I mean, I don't know where she gets all these days from.

So as always we've invited Marcus Ashworth, Bloomberg opinion columnist Marcus Guru, very good friend of the show.

Always pleasure, Marcus, nice to have you here again.

Well my pleasure.

I mean it's a pleasure.

There's been quite a lot of stuff for August thinking about it because usually this is like you know, the kind of the dead one, the and of opinion columnists.

And it's been more interesting than no normal because the markets aren't moving necessarily.

But there's a lot of other stuff going on, obviously tariffs, bit of politics, yeah, and a few other sort of stuff which is I think making it more of a not quite so many silly stuff.

It's usually daft things in August then is not to do.

This week it's been the Swiss and the Fighting Lane.

Yeah, very funny cartoon in one of the Swiss press basically saying, basically, we come to the conclusion that your American F thirty fives aren't expensive enough.

I we know we're going to have to pay up and look big.

I mean the famous story of that was always in Japan, when somehow one of the trading houses Whi's got the contract to supply the Japanese Air Force or naval air Force, managed to at the end they work, that's thirty five times the list price that Lockie put on this F sixteen or whatever it was.

So yeah, there is there is a history of overcharging, should we say, for supply contracts and all the rest other things.

So I wonder how the Swiss going to get around this one.

But yeah, I mean they're going mob handed to see Trump and shower him with gifts, just as the EU are saying that actual fact, maybe we won't quite deliver on the six hundred billion of whatever the things we've been thrown, or seven to fifty of the energy.

I lose track which ones which which?

I think The comments coming back from the States are, ah, how was about fifteen thirty five percent?

Well that's because the Swiss swift good.

What is it tootly five was a thoroughly name, isn't it so random number?

Why has he pecked on the Swiss?

And that's because well, the charity one a non charitable version.

The non charitable version he does not realize that all the shenanigans being on in gold which require a lot of gold to be melted down ships across the States and put into sizes.

It's the comex future delivery will accept because there's a squeeze on the contract there.

It's going nothing to do with the Swiss per se.

It's just the way that you know, shifting of gold across from the States to the States, from Switzerland and various other places.

Yeah, but that's the untracted version of the charitable version, is that he's just looked at this and gone, look, very very rich country.

You've got roach nev artists, you know, nesle making lots and lots of money out of the American consumer.

Why aren't you making the espresso capsules and indeed all the pharmaceuticals in the US.

And that's the big pushrus is behind this is that is that he's also threatening on pharmaceuticals, which will affect the Swiss.

Double Lisa not just thirty nine percent everything, but also the fact that it could be up to one hundred and fifty and even two hundred and fifty percent pharmaceutical tariff, which of course both the Irish and Swiss economies are going to find extremely painful.

In the German to be fair as well.

So you know there are French huh oh in the UK anyway, So what is this one's coming down the pipe?

It's been longcoming that what he's going to do on pharmaceuticals.

But the Swiss have got thirty nine steps bumbum to try and make come more offers of the stuff they will buy, which will clearly be maybe some energy, but certainly I would think defense spending.

That's kind of track you for our neutral, famously neutral country.

Yeah, well, neutrality is of meaningness to I mean, the EU are slightly smirking behind the they're veil on this one because I think they feel that the Swiss has ever it's been accused of playing from both sides, and I think neutrality is not relevant here as far as Trump is concerned.

So we'll see a play out, but I think there is.

I think the Swiss are pretty confident they will be able to get some form of sensible answer to this one.

So let's jump a little man to the farmer say the things, because I think it's interesting to talk about what Trump is actually trying to achieve with tards, because I mean, I guess there's two elements to this.

There's what he wants to achieve, and then there's what it actually achieves.

And they're kind of miss stand to focus on I will actually it means it's attacks on the US consume.

Oh blah blah blah.

Well, they don't know, and they've been pro proven that the actual synopsis is not playing out, and they don't know when they'll play out.

But the simple rule is I think people would understand is that all things been equal, a tariff imposed by your country will make your goods into your own consumers more expensive.

Now that will be ameliorated by margin pressure, which is clearly coming through.

It's been a lot of greedflation in the last year or two post COVID, and there is plenty of margin room to say soften the blow for the consumer.

But you know, we're seeing some signs, particularly on Ponferral report and various other different things, IM and other manufacturing purchasing sort of and servicing surveys that we are seeing, you know, a potential uptic in inflation.

Yeah, clearly the Fed's focused on that.

But the other thing, which is also pretty much undeniable, that even if the inflation doesn't come through anywhere as much as it could come through on the consumers say from the United States, that the exporting countries will suffer a deflationary pressure.

And then I think some of the is what the European Central Bank and other central banks particularly are blindly ignoring.

But you know there is this is going to cause pressure on exporting companies and that will affect both the inflation and the economy of those countries.

And that that I think is which Trump doesn't care about because he's trying to change the cus I mentioned before, the corporate US tax code, and the best way he thinks of doing so he won't be able to get the Congress, is to do it via inflicted on the rest of the world.

Along with a long long held view that ever since the two thousand and one introduction of China back into the well into the World Trade Organization, that this has been exploited not just by China but by peripheral countries Vietnams, Indonesias, et cetera, but equally by the European Union and the Swiss.

So you know they get.

Because I suppose there's the there's the difference here between sticking a tada for see fifteen percent or whatever on blanket goods from the EU.

So to imamained, you're not changing.

We are the manufacturer on this dine.

You're just increasing.

The government is hidden in a genera.

Yeah, but I'm just thinking like that.

But if you're putting two hundred and fifty percent tariffs on pharma, then that does feel like, actually, no, I expect the factory that is currently in Switzerland to be moved to wherever.

Little Switzerland, Pennsylvania.

Yeah, exactly, Yeah, you know it is that feels like I suppose it's that thing where like, on the one hand, it's okay, well, we're still going to buy your stuff because in the world have just put the price up, it's still cheaper and less hassle than actually manufacturing in the US.

Whereas if you're putting a two hundred and fift percent tariff on something, that feels like that's a very explicit instruction.

No, you need to build this stuff here.

Yeah, I don't think does that make any sense.

I don't know.

What it does for the United States perhaps, but that were to take place, it would course push the cost drugs within the US sky high, and these initially and take quite some while before that was a mini Actually he's we've seen that with the cot for tariffs, which he's had to correct already.

So I mean, but the whole point is it's chop change chaos for a reason.

You know.

Ultimately, the tariff revenues, which he's clearly starting to get to see some uptick in, are going to be redispersed in theory to lower the tax taxes on on on, you know, up to one hundred thousand and five thousand whatever it may be earning regular Americans, which of course, along with lots of lovely new manufacturing jobs which probably won't shut up.

Let's just imagine they are means that you don't very democrat you know in the red you know, sorry, the sort of blue collar areas which you know, the states, because they always fight over you know, for your Michigan Wisconsins, in your Pennsylvanias, etcetera.

That that that that'll will swing it JB events as way or whatever it is in the next elections.

And so so when I guess things, we're talking about deficits and tax takes and allistic because obviously we are going John, Yeah, there's the definitely something in the US is want of the B but is something that we.

Had enough thing to worry about here.

It's nothing that's perfully fine, nothing at all.

So there's this new report coming from one of the more the better an knowing think tanks, and I yes this morning as we're recording this on Wednesday, and it's said that basically Rachel is going to have to find fifty one billion because the black hole has somehow grown from twenty two billion to forty one billion, and if she wants to keep ten billion fiscal Hendron, which is still a tiny, tiny child, she's going to have to do something.

So the National Step for Economic and Social Research used to be viewed, obviously is used to be perceived as as sort of one of the left leaning and someone was quite left leaning.

However, recently it seems to be not that way leaning at all.

I will politely say these numbers are clickbait for the summer silly season, which I said, there wasn't too bad this year, but I think this one is just big NUMBERUS.

It's getting lots of free publicity.

Our economists, for what it's worth, view a twenty billion hole plus the ten A round they and that's sort of their worst case scenario.

So I would say fifty is Look, the scenario isn't great at the moment, but you know, she's high bound by these ridiculous fiscal rules.

You know, the Office for Budget Responsibility is doing a job it wasn't really ever meant to do, and it's given an importance and a credence which I don't think are irrelevant really in a modern society.

It's it's it's hairshirt stuff.

It's ridiculous.

She's worse, she's she's just she's now completely beholden to them.

I think she does have some wiggle room in the context of obviously we talked before fiscal drag winding out those income tax sort of frozen at fifty thousand, whether tax kicks in for ever more, and definitely on pensions, I think, you know, cutting the percentage relief and the allowances annually and things like that, that there are ways and means of doing things which will fulfill some of those back holes.

But she's going to have to raise tax elsewhere as well.

I don't think personally she's going to go at capital gains tax for two reasons.

One it would be stupid too.

She said that she won't do anymore.

She should have sorted that already, so that would be you know, really going back recent.

Changes cut it.

So I mean, you certainly can't cut the allans much farther because don't need three key.

No, well, I forget that, you'll touch I was talking about more the sort of the rates in twenty four percent and eighteen the for lower tax band.

But you know, look, all things are possible, I'm sure, but I think people are getting a little bit silly on this, and I think there are ways and means of doing other stuff.

But you know, look, she will come after the individual taxpayer for sureless time round, as opposed to having gone off the employer last time round, principally.

And so a lot of stuff that we wrote, you know last year, rinse, repeat and dust it down and change the data and it comes again.

The thing adventure.

So this this trail emma that they talk about, which is we are that she's she feels she can't break us firstcool rules.

She can't break the manifest or promise not to.

Is in a employee in a B A T the big taxes And well, she can't cut spending because the back benches of all already made it very explicit that they won't counting them say any spending.

Can and she will cut spending.

But the question is whether we believe the previous government.

They say there's all sorts of forward tax spending cuts a part of me which never never manifests.

So I think she will have to cut spending, and she'll she'll she'll have to show that she's cutting spending just on nothing, which perhaps back bench is quite so much.

But I also think at some point they're going to have to launce that boil because they cannot last the rest of this term of parliament without addressing it, and I don't think the ABI will allow them.

I that and the OBI has made some fairly unsubtle signals, as as Bank of England as indeed has the insue fiscal studies and clearly Anaesia SR as well that you know what, her current scenario doesn't float, and I think she's going to have to be more aggressive with approaching what's happening with government spending.

When last question Plasente Droid's do you think are the chances of her lasted until the end of this year?

Yeah, definitely, and I don't.

I think she's got more We've got room than perhaps people are prepared to think that she has.

And I think the alternative for Starma, particularly after the quasi quarteng trust, sort of doesn't work well.

And also I think she, you know, is a human shield, so in that sense for Starmer himself, and if he were to change her, it would come with a wholesale approach change and I think that would mean dropping the fiscal rules, and it would have to bring someone in of credibility and a whole different approach, and I think that would be a seismic shock, which I don't think he's got that type of political chops for or once, so personally I think he will, you know, muscle out.

That's his style.

Fascinating.

Thanks very much, Marcus.

That's all for this show, So thanks for listening to this week's Merlton Talks Money Debrief.

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