The Trading Floor: UK’s Surprise Boom vs. America’s Debt Doom
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Welcome to the Market Maker podcast, hosted by me, Anthony Chung, where every Friday I talk to a member of the team about what happened in markets this week. From macro themes and single stock news to cryptocurrencies and careers in finance, our aim is simple, to make finance interesting and easy to understand for everyone. So let's get to it.

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, you know, 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 three. And that's come as OPEC Plus is weighing another bumper production increase, 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.

um that 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 percent

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, because it was 3.4%, it's the highest for...

Yeah, like 15 months. And in this world where we're desperate to try and get interest rates back down, and we're going to come on to this at the end of this, the last topic I want to 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, it's 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? 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 off-gem 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 had came in like a stellar month, up 1.2%. 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 tale, 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, 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 135? 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, OffGems bumped up the

the levels and fine inflation is going to stay well above target um and so that's the tale here so just playing devil's advocate a couple of things on the inflation side um i did see that the airfares i think they were up over 16 from a year ago 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, your rights to fourth consecutive monthly rise, best quarter, I think, for British retailers since 2021. However,

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

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, 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, a

come September and they're going to 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 going to drop later in the year. So maybe I'll be a little bit more, you know, happy to get the crack out the wallet. But on the airfares thing, I mean, I'm currently monitoring, I'm trying to buy flights to Greece in August and I'm not because 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, let's move on. Let's talk about oil for a moment. 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 is pretty, 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. So just to be clear, if you're an investor or a trader and you're 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, the line that the media are using is to win market share. Now, maybe there's some truth to this, but look, oil's at a four-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 four-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 has come away, but the uncertainty is 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, if they can push price down,

um ironically they can win market share by forcing some of those expensive shale production processes to to have to go offline because it's not economically viable at these prices so 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 u.s just came in over the top of them and ramped up production i

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 has 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. And this was just yesterday. And that feels like that tension between historic 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.

But 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 basically we're 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 quite extreme nature occurs on the geopolitical front. So you've got to 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

You just got to 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? Value expressed through long oil, through oil-related companies, whatever part of that 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. Um,

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 was soaring, pretty one-dimensional trade for the last recent few months. It didn't.

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. So 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 2300 bucks to

to 3,400 bucks. 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 four weeks, four or five 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 had

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 bill.

Which carries great irony because BBB is a rating agency rating, and it's actually right at the bottom end of investment grade. So why is that ironic? Because Moody's, the ratings agency, 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 because it's now got to 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? Because 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 three key ratings agencies in, on this planet. The three big ones is 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 emblematic 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 cost, 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 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're 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're 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'm not talking 12 months. I'm talking this US debt problem is not going to get solved and it's not going to go down. So by definition, then...

Does that not mean that gold, talking gold long-term, 10 years, 20 years, like forget 3,000, 4,000, 5,000, like it's just going to get more support. 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'd say. And look, why is it different this time with the US debt? Because let's maybe talk about Japan because they got there 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%.

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. So our inflation expectations rise further. The central bank are going to be raising interest rates. 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 going to go up now, the cost 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 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 else that you can lift the spirits, is there anything positive to say to finish? Well, Tottenham won the European...

so you know I'll repeat my question is there anything positive to say to finish it's just getting more doom and gloom I mean I'm happy I'm a very happy man forget debt whatever Tottenham have got a trophy in the cabinet yeah let's go while 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