The Macro Memo - Global Trends Briefing for Boards & Directors: Why is regulatory oversight from climate to cyber on the rise, and what's the impact on global business?

A great wave of regulation is washing across business: capital rules for banks, cyber security and sustainability reporting mean corporate leaders appear to be in a new age of oversight. What’s driving this rule-making overdrive and how should business respond?

Mark Kennedy and George Lagarias of Mazars, and Gavin Hinks of Board Agenda—also ask why London is struggling as a centre for IPOs and, with the Paris Olympics just around the corner, we ask whether showpiece events can really boost finance and economics?

Those are some the big issues under discussion in this month’s Macro Memo podcast as it explores the international business landscape.

All this and much more in Board Agenda’s podcast series, The Macros Memo, the global trends briefing for boards and directors. 

You can access the podcast via Apple, Spotify and wherever you get your podcasts. Don’t forget to hit subscribe.

Transcript

Welcome to MacroMemo, a board agenda podcast exploring the impact of macroeconomics and geopolitics on business with Mark Kennedy, George Legarias, and hosted by Gavin Hinks. To access thousands of articles, guides, reports, and our upcoming events, sign up or log in at board agenda dot com. That's board agenda dot com.

This episode is brought to you by Mazars, the international audit tax and advisory firm helping businesses around the world operate and grow with confidence.

Hello, and welcome to this edition of the macro memo. My name is Gavin Hinks, editor of board agenda, your essential source of corporate governance news and insight. And this is our regular briefing on the macro trends affecting business and trade. We have a packed agenda to work through in this program with lots of big issues to talk about. We'll be exploring the wave of regulation that seems to be crashing through major economies. We'll look at listings and where best to launch your IPO.

With the Paris Olympics just weeks away, we'll ask whether big sporting events can be a business and economic opportunity. And lastly and briefly, we'll turn to our favorite topic on this program, interest rates, and whether their downward trend really is guaranteed. But as always, on our agenda is a hearty welcome to our resident macro maestros, Mark Kennedy joining us from Dublin, and George Legarius from Athens. Hello, Mark and George.

Hi, Gavin. Hello, Gavin. Mark, nice to meander through the economic headlines with you once again. Kick us off by giving us your postcard. Where have you been, and what have you learned while you were there?

So I was in Hong Kong last week, Gavin, for our, well, each year around this time of year, we have meetings of of managing partners from different, countries in a particular region. So we were visiting Asia Pac last week. We had a really, really good meeting for a couple of days.

A lot of positive energy. But Hong Kong, as you know, is a city that's changing a lot, but it's a fascinating city in its own right.

And I have to say, I was struck by how buzzing the city was. And I don't know the city well. I know old hands might say it's changed a lot and it's not as as vibrant as it was. But, certainly, as somebody who visits only occasionally, I'd say, I was really, really struck by how much is going on, how much activity.

And and, you know, just the volumes of people, the volumes of shipping, the volumes of everything that seems to pass by your window every day was was really striking. What I was thinking about as I was coming away was, maybe the role of the Entrepot City in the future and what are we gonna see in the twenty thirties and and beyond? And, you know, Hong Kong being that kind of archetypical entrepreneur city and still is, if you look at its trade numbers, you know, fifty percent roughly of trade is going into China and out of China. It's, you know, it is a key engine, the global market.

And I well, what I was reflecting on and maybe backdrop having met people from I don't know how many different nationalities over and over of days is that rather than being in decline, which I think is some of the academic thinking is wandering in the world of AI and so on how these cities will flourish, that perhaps as a con cultural connection, particularly in times where geopolitics are difficult, Hong Kong has an even more important role to play, and cities like Hong Kong have an even more important role to play. So I think the the real world connections that the infrastructure of a city like that created is just fascinating. And I think, you know, politics may change, but I see it being a strong city for many years to come.

Well, that's good news because it certainly went through, quite considerable political travails for some time.

No. And I'm sure that's still there. But certainly from a business perspective, there was a a feeling of vibrancy.

Well, Mark, from Far East, George, do you have a postcard for us? Where have you been, and what have you learned?

I do, although not so far in the east. I went to the island of Crete, which is south of, Greece.

And I recently I recently finished a survey which says that Greece is the second poorest country in the EU after Bulgaria.

In terms of expand expenditure, household expenditure, they have one of the biggest shares in in Europe, which means they need to pay a lot for imported, energy and and such. And you go there, and that poverty, you know, that that is so well described in in the headline numbers, is simply nowhere to be seen in in terms of satisfaction in a simpler way of life.

And, you know, the more I spend time there, the more I understand that a lot of our headline metrics, which should in theory measure how satisfied societies are, at some point, they should possibly be embellished with more consumer sentiment type surveys because I don't think the headline, the hard numbers are telling us the truth.

Maybe we should do like Bhutan and measure GDP and happiness.

That's a p that's a piece of information at the end now, so I just shake my head.

Yeah. I'm not sure you're convinced by that idea.

But let's move on. Let's move on to our first agenda item. We're in the middle of a great wave of regulation coming through, which will touch many businesses one way or another. This includes capital requirements for banks, sustainability reporting, and cybersecurity.

It's gonna be a big effort for many companies and their staff. But there are three big pieces we could look at. The first of those being the Basel three point one regulations aimed at making banks safer.

George, three point one, Basel, is about to be finalized and implemented, and it involves new ways of risk weighting. And that's all about, as we've, just said, making creating a security blanket for banks. Why are they gonna be protected in this way?

It's It's a good question, Gavin.

And to truthfully answer, I'm not sure they do need to be protected, so much. Look, the the experience of two thousand eight was traumatic.

And a lot of the, a lot of the regulations that are coming online now started back then when we figured that banks are too systemically important, and they, on occasion, need a lot of cash to to stay afloat. So we decided as a society that we shouldn't give it to them. Therefore, we should make sure that they go back to being the boring old institutions they were in the sixties.

But there is a caveat to that.

Banks create money. Okay? It's a very simple process through, you know, credit creation. You give a bank a hundred pounds. Those hundred pounds are still your asset.

Okay? And the bank takes that, and it creates fifty, seventy, sometimes even a hundred pounds of, of of new assets by credit. Okay. When it lends that idle money out.

Now if we tell banks they should do less, which is what the new basal, capital requirements asked them to do, that means that they're going to create less credit, which means that growth is going to be more lackluster.

So as a society, I think we haven't had a proper conversation about what type of capitalism do we want. Do we want a low growth capitalism, which as we have seen does not help, income inequality much. If anything, that's been exacerbated because all of the company funding has been done through private equities, and they all just went to tech companies. So you have, you know, unicorns, being funded for for doing very little, and good companies could not find funding, and they had to shut down. You know, that has an impact on the economy, employment, or what have you. So either you go back to banks being the boring old institutions, but still that means lackluster growth and possibly even greater income inequality, or you accept higher peaks and deeper troughs that are concomitant with capitalism.

And that on occasion, you know, we might have to to to give some money to banks to to stay afloat. And it's not an easy decision. It's not as easy as I make it sound because giving that money to banks means carrying more debt. And currently, the world is is over debt as it is at three hundred thirty percent global debt to GDP. So there are no easy answers, but at the very least, I think ahead of the basal implementation, even now at the last moment, we should have a discussion as to what type of capitalism we want.

And no easy answers because of the systemic importance of banks, at least some of the banks, because they are so big and so important to economies. Mark, do we really expect Basel III to, change the relationship between banks and companies? Is it gonna be harder to access credit, essentially?

It's a good question. In the long term, I don't think so. I think there will be some period of transition. But I think at the end of the day, banks, you know, they totally agree with sorry. I should say, totally agree with George's analysis, and it's the the credit creation function of banks is is a primary focus of all of this regulation.

At the end of the day, I think banks are driven by their ability to make a profit, which is really driven by their ability to drive net interest margin. So they have to lend.

And while regulations may shift the bias, so one way or another, I don't think Basel three is going to be the the one that that makes us see maybe we can change there. I think there are other factors in the market that make bank lending a slightly different proposition maybe than ten years ago or twenty years ago. One is the availability of other funding, which is a direct consequence of of what happened in two thousand and eight, you know, where you've seen shadow banking and PE take much larger chunks of the economy. And I think the sustainability directors, particularly in Europe, are going to create a different landscape in terms of the ability of certain companies to to borrow in the longer term. But these are longer term trends. I mean, like, part of what banks do is negotiate all that and make a simple product that companies can can, use to fund themselves. So I think that that piece is unlikely to change in the long term.

We'll come on to the sustainability directive, directly. But, George, I just want to pass back to you. Surely, the variations that Basel three might cause are not as significant as, say, variations that central banks and overall sentiment in the economy is going to, affect bank thinking on interest rates?

No. No. But, well, we we see that, but, so, obviously, interest rates play, a a big role. But I think regulation plays a much bigger role in in the amount of cash and, sorry, the amount of money, in the amount of liquidity in a in in a society.

Central banks, can only can only make sure, you know, what to to see whether money is expensive enough or cheap enough.

Governments decide, for example, if they overborrow, they can decide on the, velocity of money. So think, twenty twenty, when the US government printed a lot of checks, and m two skyrocketed as a result of that. And now they have a hard time bringing inflation down, by the way. K. That's why US inflation is stuck and everybody else's inflation is thick. It goes, it goes back to to that era.

So I would argue, Gavin, that central banks, are there just to, not not not are there to, temper the extremes, but they're not there to fully regulate the flow of money in a society.

Regulation and government have a much bigger role in that.

Well, thanks for that, George. Let's move on to that subject of, sustainability reporting that you mentioned there, Mark, because because what we have coming through in the EU is the corporate sustainability due diligence directive and the corporate sustainability reporting directive, both enormous pieces of legislation, is gonna put a big burden on companies, but probably change their outlook as well.

Yeah. So I think that's by design. I mean, the the I suppose the interesting thing, and if you kind of frame this as too much regulation, the reason we're seeing so much change in regulation is because we've seen so much change in recent years in how the economy works, whether that's on the banking side and and, as George has said, reaction to the global financial crisis and all that followed from that, whether it's issues around the introduction of new technologies like AI or whether it's the kind of sustainability agenda and the attempts that are happening to to try and deal with climate change and what that's doing to the world generally. And it's so there's a kind of an inevitability about it. I think there's also you know, when one looks at it as a company, say, okay. We've got to be very practical, and how do we deal with it?

I think policymakers are trying in the cairnics of sustainability to push corporate behaviors in a particular direction. So it's not simply about complying with legislation and reporting. It's about changing behaviors for the what is perceived to be a common good. And at the end of the day, that's what regulation is about from a policy perspective. It's about trying to shape not just an economic reaction, but a societal reaction to things which are believed to be in the interest of everybody in the long run or not.

I think the challenge you get properly from business is around whether we're contributing to necessary regulation or are we contributing to the creation of an industry of regulation, which kind of adds bells and whistles to everything and and and makes life more complex needlessly. And I think that's that is a a valid question that some may have when they're looking at the current onset of new regulations. But but overall, I think that driver, if I'm sitting as a CEO of a of a company that's subject to the the the various sustainability ranks that you've referenced in Europe that I'm thinking, one, what are the changes that I need to make strategically and from an operational point of view to make sure that I'm only doing things that require me to be regulated where we need to do them? And then how efficient am I in dealing with that? And that, you know, does create its own compliance challenges and so on and so forth. So I think that that that's what's driving that in the background.

Thanks for that.

George, how big an impact on the economies will those sustainability reporting directives be?

I think there is going to be, you know, obviously, the more regulations you, the more regulations that you have, the the worse the economic impact. But I think in terms of cost, that is only, you know, a fraction of of of a total economic growth. And over the long term, if we manage to keep temperatures, you know, at at the place where, they're bearable, then we can avert catastrophes.

And by catastrophes, by averting catastrophes, we'll also avert, you know, making making the Mediterranean deserts, seeing mass migrations that are going to upset, global economies for for decades.

So it's a very, very small cost to pay if we manage to, you know, attain the goal.

Well, I think we'd all be very grateful if we achieve that goal.

But if if I might, I think that's a really important point that that, you know, a lot of the conversation when new regulation comes in is around the cost that my business is gonna bear, the cost that your business is going to bear. But actually, what we're talking about, particularly in the area of sustainability, is an appropriate sharing of the costs of dealing with something which is much more fundamental versus the costs that will land on people if some of the catastrophic issues arise, you know. And there is, you know, while I think there's a lot of progress in that and a lot of good thinking in it, there is a question mark there in my mind as to whether, ultimately, politicians are equipped to take on large vested interests in some of these areas, where in fact, the true costs aren't perhaps proportionately shared.

And I'm thinking there, you know, some interesting coverage today in the media around the role of very large fossil fuels companies, some of which are state backed, and what that does in terms of spreading the cost of of this change in the same way one might look at things like artificial intelligence. Say, who's bearing the cost there? Is it the user, or is it actually the people who are profiting from the development of it?

And that may sound a little bit, left wing on a on a on a discussion like this, but George, at the top of the segment, talked about the question the really fundamental question, what kind of capitalism do we want? And things have changed so fast in the last number of years that I think it is appropriate for policy makers and for professional bodies, you know, representing directors and so on to say, you know, what do we want here? What's what is a fair portion?

So I think it's a complex time to think about regulation.

It's not as simplistic maybe as that analysis we had in the past, which is just we're regulating something and and, you know, therefore, you must respond.

Yes. Very different times indeed. And with that in mind, let's briefly cover, the wave of cybersecurity legislation coming through. We've got bits of rulemaking coming from the US, UK, and EU. George, very quickly, in an age of artificial intelligence, how significant is the threat of cybercrime, and how important is regulation around it?

I think, you know, both of these answers are both of these questions are very easily answerable.

Cybercrime has risen, exponentially over the past, few years.

A number that, just popped in the head was JPMorgan, registering forty two billion, that is with a b, cyber attacks within a single year.

Okay. It's the world's biggest bank. So, you know, people try to to steal the money.

And regulation will be important.

You know, having said that, I'm not a strong proponent of the Terminator scenario, that rogue AI will destroy the planet. And if if that came to to materialize, I'm not sure, you know, what would stop it would be regulation.

It might be a little bit anticlimactic. At least in the movies, it was another Terminator that stopped Skynet. You know?

The point I'm trying to make is that regulation will help put the thing put things in the right path, and it will give us time to think and discuss and reflect, hopefully, some time. And this is back to the theme that I mentioned in the beginning and then Mark mentioned again.

On big issues, we need time to discuss.

And I would argue also that we need to learn how to discuss again because I fear that, over the over the course of the past few years where we haven't been discussing enough, we've been discussing less. We're, you know, we're less accepting of other people's opinions, and we're all closed in our little, social media bubbles and all that. I think big issues need discussion.

If there is no discussion, then Mark's scruples about, elected officials being able to carry out those big plans, climate change, AI, even bank regulation.

And, you know, whether they can, whether they're equipped to do that, or whether it's in their interest best interest to to do it. You know, it's it's left with them. But if we have, wider societal discussions on all of these issues, which regulation should afford us the time to, especially in AI, then I think in and by itself, that's a very good thing.

Mark, we we we're trying to solve enormous problems, not just AI, but climate as well at a time when polar politics is polarized, radically polarized in some cases. That makes it a very difficult time. But for business, it's quite essential, isn't it? Because business models are moving to, virtual models, to digitization.

It it's absolutely critical that this regulation is right.

It is.

I I think in the case it's it's it's not that helpful, I think, to lump them all together in some ways when you kinda think about it from that perspective together In that, if I take the climate change agenda, that's business model impact is profound in a particular way over a longer period of time.

But take something like and and so sorry. Just to finish the thought maybe that the the, you know, the introduction of the regulations that we're seeing now in reporting will drive better behaviors, which should protect businesses and lower. That's the logic there. If I look at something like artificial intelligence, and let's widen it out to the the kind of fundamental position the technology now takes in our lives.

There has been a very significant business model impact already.

Most of us dismiss that as being around communications, but, actually, what we're starting to see it as is it as other more profound consequences.

And we're in the middle of another shift potentially where AI will will remodel a lot of business models again. And and because they're concerned with efficiency and effectiveness, there is a kind of a business stance, and I think a political stance, which says these are kind of an unallied good if you can only figure out how to work it. I do have a concern that we may end up challenging that in a few years' time. And this goes to your point about regulations being right.

I think the regulations that are being put in place now are following that kind of business model angle. And there's a lot about audit. There's a lot about checking and then, you know, engagement with companies, particularly in Europe through various processes. We see them find or change and so on.

We've seen a lot of evidence of that. Whereas I think what's beginning to emerge and then maybe another decade before it is really proven out is that things like use of smartphones, use of AI, and so on have other effects on us as people.

And the analogy I'm thinking of here is with the medical world, you wouldn't actually allow these products into the marketplace without testing them from a medical point of view if you take the drugs, rules, and so on. And I think we may be looking at moving in the longer term to a kind of a model more like that. Now that has business consequences as well. So it's a really complex area, and I'm not sure that I'm adding much to the soul of human wisdom. But as George said, having time to think about these property and having political structures that can think about the property is really, really important, I think, for the long term well-being of businesses and people generally here.

And, Gavin, if if I may just on that, one of the reasons we have so much polarization, I would argue, is that is because technology has advanced so so rapidly. And, you know, we haven't had time as a society usually to, you know, to reflect upon things and discuss things, and people are feeling left behind.

Things are advancing very quickly, and, you know, it can be something as practical as as ruining a profession, for example, that doesn't exist anymore because of AI, or something, as, esoterical as political or religious beliefs from a society that keeps advancing very quickly.

Time is of the essence. We are adaptable beings, humans, but at the, you know, can we always adapt at, at the breakneck pace that that technology now tells us we should?

Well, there's a lot of pressure on us, from technology, and from many quarters at the moment. Let's move on to another area of pressure.

Listings in London, there's a huge debate in London at the moment about how to improve the number of companies listing over here. That raises the issue of where companies are going. New York is very attractive at the moment. They're also going elsewhere in the world. George, if I can come to you first, what are the economic foundations of going for an IPO? What's what's the attraction, and, what's drawing companies to various markets?

There are two things that any company going public is looking, for is looking at.

One, what price will I get if I register if if I list the next market versus y market?

And b, what is the amount of regulation I'm going to have to deal with?

Okay.

Now, to register in most, public markets, especially after the the crisis of two thousand, which was followed by Sarbanis Oxley and the new IFRS and all that.

The regulatory requirements for listing are and and the and the bar is is is very high.

So I I think you won't get much in terms of, you know, the big markets, London, New York, Amsterdam.

You won't get much of a benefit if you say, I'll go for x versus y. You know? There there there is a relative parity in terms of listings, in terms of regulations. Okay? In the US, it is a little bit heavier than Europe, but still, it's it's it's by margin, you know, it's on by very wide margin. Having said all that, companies really are interested in what sort of price they will get.

And that brings us back to Arm. ARM was a British company bought by SoftBank, went private. It was listed in London Stock Exchange. It went private, And then a few months ago, they listed it again, to you know, that's what private equities do. They take company private.

They make some changes, and then they they they list it back to to the market. But this time around, they listed it to, to to, New York, and they got, a much better, a much better deal. They got, presently, they're trading at seventy three price to earnings.

Whereas London, most London companies are now trading at twenty percent below their average.

Okay. And, you know, that's that's the point. You want to go to the, ideally, to the deeper to the deepest, the biggest market, and, you know, the industry matters. If if you're in tech, then maybe you want to be more in the US. You know, there there isn't much of of technology investing in Europe.

Mark, what are the other ingredients in making a a a market attractive for listing? Because the the LSE really is struggling to attract IPOs. Yeah.

I think I think George has kinda hit the nail on the head. I mean, I think part of it is depth of markets. And and the LSE probably stood out in a European context because it the the European tradition is much more debt funded. And under a continental Europe here, that that would be much more the the model.

That hasn't changed. I mean, it's a concern that the European Commission still has that Europe is too debt funded. And and there's, again, the capital markets initiative is back on the table. But that was actually very driven by the UK representatives in the EU back pre twenty sixteen.

So so, it's interesting to see that since Brexit, London has struggled in increasingly over time. And I think that's because that depth of market position is an issue there. And maybe Europeans are less attracted now to go to the UK because it's outside the zone than than perhaps they were in the past. So that has an impact as well.

The second thing I think is there are there are some signs that that the investment bias in the UK is more and more conservative. And some of that is driven by kind of what they call the LDI or liability driven investment. And a lot of big investors like pension funds in the UK taking that strategy. Now it hasn't worked as well as they expected in recent years, so there have been some losses with that approach.

But but it certainly meant that equities were less attractive to those kind of investors. And, again, in a slightly constrained pool that had a big impact, in terms of the ability of of companies to raise the funds they have. And I think when you look to the US, on top of that, you get a kind of compounding effect. So you have stronger comparators because you've got a deeper market, which means that there's a valuations impact.

It It also means that your your positioning is probably better understood by potential investors, and people are seeking to spread their risk within categories. And as George said, sectors matter enormously. The tradition that I see has been a little bit around more risk averse industries getting better backing than, say, technologies and so on that that might be high growth but less less definite in terms of your profit curve. And I think in the US as well, you have control rules and so on that favor larger investors.

So and and founders, which help. So all of that, none none of it's none no agent in itself is that is probably the bad idea, but I know that the UK government is now looking at how do you address some of those issues in in initiative to try and, again, maybe strengthen the LSE's position as global market.

Oh, very quickly, though, Mark. No quick fix for the LSE?

Don't think so in the current environment. You know? And, I mean, environment matters too, but I don't think so. I think I think it's going to remain a challenge here the next couple of years.

Now we're just three months away from the Paris Olympics, an event lauded not only for sporting endeavors, but also for the boost it can bring to business and economics. Coming to you, George, you're in Greece. Famously, Greece hosted the Athens Olympics. Was it a big boost?

Famously, Greece hosted the Olympic Olympics, back in ancient times in ancient Olympiad.

But also, we hosted the Athens Olympics both in eighteen ninety six and the more recent ones in two zero four.

And I would argue that the the last set of Olympics hasn't been kind to the country. There were very large infrastructure pro, projects, that would not have happened otherwise, and it would not have been agreed otherwise. Having said that, the expediency of the Olympics drove the cost up as much as five times the, the budget.

And one could argue that they did contribute to the country's downfall. It's a very small country hosting a very big event. In fact, after the Greece, Greece's Olympics, smaller countries have been more lengthened to, to bid.

France is in a slightly different position or Paris is. It's, it's on a different scale, isn't it, the economy there?

It is. But, again, look. I mean, you look at history. I think of the last thirteen or fourteen Olympics, only four have made a positive return.

I think it's accepted now that you're making long term infrastructural investments and that you're not necessarily gonna get the the return in the year of the Olympics or even shortly afterwards. And for Paris, you know, they're taking on a very brave project.

It's gonna be in the city. It's gonna be a fantastic event.

But I do think that for people living there, it's gonna be challenging.

People are already being asked to move away from the city for a bit. And I think the expectation is it will not be a a a money generator in the end of the day. That it's it's the costs are so high that really you're you're you're doing a showcase. And and, again, let's face it, and it's interesting that the Paris Olympics in nineteen twenty four was was seen as the rebirth of the modern Olympics in many ways because it suddenly became popular. It needs a bit of a moment like that, and everybody knows today popular means TV or streaming, not necessarily in the city. But it'll it'll still be a fantastic event.

Very swiftly, the cost of events, even with the Commonwealth Games, has become a high profile issue. We have seen countries turning down the opportunity. So that's something that's emerged recently. It's really become a pressing issue for, municipal government.

Yeah. In any of these events, you you know, where there's a global audience, you're looking at tens of billions of expenditure over a period running into it. And those are big numbers, you know, in any any big language.

Oh, well, they certainly are. From one set of big numbers to another set of numbers, interest rates, just two weeks ago, Jamie Dimon of, JPMorgan predicted that US rates would actually rise, not keep descending as widely expected.

That, caused a bit of a shock, and some shock headlines. George, what's happening? Why are people starting to talk about, either interest rates not coming down as swiftly as we expected or even rising?

So after Jamie Dimon, the Fed chair said that we're no rush to to lower rates. And then Michelle Baumann, who is a board member, and she heads, a regulation for smaller banks, and also, Bostick, who is the head of the Atlanta Fed, have both mentioned even rate hikes.

So that's that's happening now. And, the reason is, as we said in the UK, in the US, inflation is not sticky, it's stuck. It's at near three percent. It it was three percent a year ago, June twenty twenty three. It's at three point five percent now.

Okay. So, they're seeing that inflation isn't coming down, and they feel that policy, given all the money that was printed a few years ago, they're even thinking about the idea that policy might not even be restrictive enough. Having said that, in the, in the EU and the UK in, last week's IMF event, both Andrew Bailey and Christine Lagarde said, you know, American problems are American problems. We're, we're more likely to cut rates this year. So we are also seeing a divergence in in in this.

Mark, does that divergence hold or does you do US rates have an impact on the rest of the world?

I I look. I I take the point of a divergence, but I I think there's a more fundamental point here. First of all, Jamie Dimon or or Dimon, I'm not sure how he pronounces his surname, is is the longest standing CEO of a major financial institution.

Number one, he's seen a lot. Number two, when you look inside the detail of what he actually said, he didn't he he predicted a range between two percent and eight percent. And I think he's flagging we'll we live in volatile times, and that's a theme he raised back last year as well. So I think this is just a continuation from somebody who's seen the markets in different states saying, this is a very, very volatile, very concerning period, and he's not giving anybody any comfort as to where he thinks interest rates are really going to go.

So I think those who totally get the divergence point in the short term, those who are saying that, I think, also recognize we're in unknown territory here in many ways, and there is going to be volatility. And I think as investors, that's what you take away from his comments.

George, that's a really interesting point. The volatility would seem to indicate that, central bankers should be a little bit more circumset circumspect in their messaging.

Look, I I I think they're circumspect enough in in the sense that everybody acknowledges now. There aren't any predictive models for inflation.

We have no idea where inflation how inflation is going to develop. A lot of it has to do with consumer psychology.

Okay. And whether somebody really that's that's what inflation is down to. Whether somebody has the guts to to go to their boss and ask for a raise.

Okay. Because seventy or eighty percent of inflation is about, wage inflation.

Okay. So you have the the the geopolitical inflation, which is, supply side shocks.

And, you know, we we've had a lot of those. And given the tensions, we could continue to have a lot of those. And then you have the other type of inflation, which is demand side inflation.

And it really does come down to consumer psychology. There there are no there's no model that can predict those things. So, central bankers know this.

So what's your best guess, George? Where where are things heading?

For the short term, as, Mark put it, we, are probably heading towards some divergence. The EU and the UK will cut rates somewhat this year. Having said that, they can't, cut significantly because they will face capital flight.

You know, money will go to where they can get the highest interest rate. Look at what Chinese, foreign direct investments. They have created over the past, year, and that's because the rates on the dollar are so high. So they can only cut rates couple couple of times, three times, four times before they are faced with capital flights, and they can't afford that. We're we're weaker economies.

So we'll all follow the Fed's, call wherever it may lead us.

Mark, very briefly, there are constraints. We we shouldn't get overenthusiastic about interest rates being cut over here.

No. And and, look, I take a very could've maybe prudent view on this. We've lived through a period, which was, again, the column we mentioned, the GFC a number of times, consequences of the GFC where rates were were artificially low, and a huge amount of public investment in economies and in businesses to make sure that that remained the same, that the the same that has been illuminated by by COVID.

And I think we're gonna return to a period where something a little bit closer to the historical risk we saw back in the nineteen nineties and early two thousands is is more the norm propelling purposes, and businesses need to take that view.

Well, I'm sure they will.

Last item on our agenda, guys, as we close the program, looking forward to our key diary dates. We've talked about interest rates, George. So I I imagine your key diary dates are central bank announcements.

Yes. Especially, the American ones because Europeans have been clear we are headed towards rate cuts, but Americans are shifting the narrative again.

So I'm really it's really for me all about the Fed right now.

Fed rates for Mark, for George, Mark, and for you, something else entirely.

Yeah. It it's, EU Green Week at the end of May and the last week of May, and the team this year is towards a water resilient Europe. So in the we talked a lot about sustainability earlier at the really, really important topic.

And a surprising one given how wet it's been over here in the UK in the last few weeks.

True. True. But, you know, the policy issues that the UK faces, and and we've seen, again, press recently about the earnings of water companies compared with the quality of of output.

That's not a UK problem only, and I think it's recognizing that at a longer term frame where water availability can't be relied on even in countries like Ireland and Europe Ireland and the UK. Sorry.

Well, a shame that, that we have to be addressing this issue. George Legarius, Mark Kennedy, thank you very much for joining us in this edition of the macro memo, and thank all of you for tuning in. Goodbye.

Thank you.

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