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This is the Blueberg Daybure podcast.

Good morning. It's Tuesday the 21st of

July. I'm Caroline Hepka in London

>> and I'm Steven Carol in Brussels. Coming

up today, Andy Bernham's choice of John

Healey as UK Chancellor puts him in

charge of a department he called a dead

hand on dynamic government. Just weeks

ago,

>> the Trump administration threatens a new

50% tariff on Canadian goods in the

latest trade escalation.

>> Plus, danger money. The ship owners

offering huge bonuses to crews to sail

through the straight of Hormuz.

>> Let's start with a roundup of our top

stories.

>> Auntie Bernham's first major appointment

as British Prime Minister is already

reshaping expectations for the country's

economy. The surprise decision to

appoint former defense secretary John

Healey as chancellor came after markets

had closed and caught Westminster off

guard. But a Bloomberg survey of market

participants last week ranked Healey as

among the most investorfriendly

candidates for the job. In her his first

comments since taking office, Healey was

keen to reinforce those credentials.

The prime minister and I have talked uh

about how we will work in lock step to

meet the fiscal rules with a buffer

against uncertainty and how we'll make

life more affordable for working people

right across the UK.

>> Helaley's appointment is also fueling

speculation that Burnham will spend more

on defense after the former defense

secretary had quit the previous Labor

government over military funding. His

ambition to increase defense spending

would cost at least 10 billion pounds a

year. Last month, Healey described the

Treasury that he's now running as a dead

hand on dynamic government in an

interview with the BBC. He now has to

convince investors he can pay for Andy

Bernham's growing list of expensive

promises after he took over the reigns

of power yesterday with a speech that

was heavy on rhetoric and light on

policy detail. We will make this moment

a circuit breaker for Britain, bringing

forward the biggest changes in the last

40 years. A new political model and a

new economic model.

>> Andy Bernham speaking there. He

reappointed Ed Milliband as foreign

secretary, retained Shabbana Mahmood as

home secretary, named West Streeting

defense secretary and brought Angela

Rener back into government as housing

secretary.

Well, the new prime minister has invited

the US President Donald Trump to

Manchester during their first call as

leaders. Trump posted online that he had

a very good conversation with Andy

Berlin. Bloomberg's James Warlock has

more. Britain cherishes its relationship

with America, but President Trump is

deeply unpopular in the UK. The new

Prime Minister Andy Bham has said he

plans on being upfront in his dealings

with the famously mercurial president.

On their first phone call, the two

leaders discussed North Sea oil trade

and demining the Strait of Hormuz. Plus,

the former mayor of Manchester made a

point of inviting Trump to come and see

his city, which the US president has in

the past called a town. In London, James

Wilco, Bloomberg Radio. The US president

has vowed to impose a new 50% tariff on

some Canadian goods and one of the most

severe threats yet against America's

second largest trading partner.

Bloomberg's executive editor for Canada,

Derek Dlo, says it's a worrying

escalation.

>> A lot of the things that are on the new

list of US tariffs, uh, certain types of

consumer products, Canadianmade beer and

alcohol, they're not necessarily really

large categories of business between the

two countries. But even so, this is

definitely an escalation of the tension.

It's definitely not a great sign for

USMCA.

DLO adds that Canada sees this as a

negotiating tactic with the new levies

due to take effect in 30 days. Last

week, Trump threatened higher tariffs to

punish Canada for the wildfire smoke

that blanketed US cities, including New

York and Washington.

US forces have attacked Iranian targets

for a 10th consecutive day, even as

mediators proposed a new truth.

President Trump suggested that it was

retribution for the deaths of three

American troops, saying in a social

media post that Tyrron will pay every

time Iran kills an American soldier.

Retired Lieutenant General Karen Gibson

says Iran is proving to be a challenging

adversary. Iran has a number of

asymmetric advantages. It's one point in

space, the straight of Hormuz, that we

seek to secure, but they have a vast

geography from which they can launch

attacks. And the kinds of one-way attack

drones that they're using are relatively

inexpensive, easy to replenish, easily

concealed, and have limited signatures

associated with them until they're

actually launched. Completely

eliminating that is very difficult. And

so despite the precision and lethality

of these American strikes, they've only

made a dent in that capability.

>> Gibson added that the US has enjoyed

limited tactical success so far.

Meanwhile, Iranbacked Houthy militants

in Yemen have threatened to expand the

conflict by blockading Saudi Arabia in

the Red Sea.

>> Europe's status as the planet's fastest

warming continent is becoming a serious

drag on its economic prospects.

Economists have told Bloomberg the

continent can no longer afford to ignore

temperatures rising at roughly twice the

pace of the global average. JP Morgan's

global head of climate advisory, Sarah

Kapnik, says it's been the worst heat

wave on record. But this one now, you

have enough warming baked into the

system that infrastructure is literally

breaking because it can't handle this

heat. And so investors and business

leaders, they see this, their experience

is this extreme. the next extreme heat

wave in the coming years or decades,

those will be hotter. And so this is a

moment to see what is happening and then

make decisions about how to adapt and

build resilience.

>> That was JP Morgan's global head of

climate advisory, Sarah Kapnik. The

European Commission estimated that EU

member states should be spending close

to 70 billion euros each year through

2050 to adapt to higher temperatures.

A Bloomberg Business Week investigation

has found that trades with

characteristics often associated with

insider activity have become more

prevalent on poly market over the course

of this year's pot has more now.

>> When does a well-informed wager become

an illegal insider bet? It's a

complicated question that booming

prediction markets have been grappling

with. Bloomberg Business Week analyzed

$34,000 transactions in the first 6

months of this year and found that

roughly $200 million worth of flag

trades took place across a wide range of

categories. It noted that the volume of

flag trades peaked in late February

fueled by a spike in Iran related bets.

Poly Market says it monitors for insider

trading and other illegal activity and

that the transparency of the blockchain

provides the public with a real-time

view of all trading activity. In London,

I'm Yan Pots, Bloomberg Radio. And those

are our top stories for you today. The

tech rally in the markets is rebounding

though this morning. MCI Asia Pacific

index is up by 2.2%. TSMC Samsung

gaining. Also, China's stepping in with

efforts to stabilize its stock market.

You see that in the star 50 index for

example seeing gains there. European

stock futures though are down 210 of 1%.

Oil prices, Brent crude futures although

they rose 16% last week. Brent crude is

actually down half of 1% this morning

$88.73.

So shrugging off the latest clashes in

Iran focused on mediation. And I'll note

that there was a jump in guilt yields

yesterday with the arrival of the new

prime minister Andy Bernham saying that

he would seek any flexibility.

30-year guilt yields hit their highest

in two months. So they close nine basis

points half of the 30-year yield and

eight basis points high of the 10-year

guilt yield. So a bit of a warning shot

for markets, it would seem for the new

PM. Well, in a moment we'll bring you

more on Andy Bernham's plans for the

British economy, plus tell you about the

bonuses being offered to cruise to sail

through the straight of Hormuz. But

let's just take a moment perhaps first

to reflect on how the change of prime

minister is being talked about on the

front pages of the UK papers this

morning. Always uh good with a pun, but

in this case of course that picture of

Andy Burnham and his wife uh making the

front pages of most of the papers, the

eye talking about the Burnham era

beginning with a radical pledge to

transform the UK. The new prime

minister's message of bringing back hope

leading in the Guardian and the

Financial Times. The Times describing

the cabinet appointments as a purge. The

Telegraph says Auntie Burnham is pinning

his hopes on John Healey as chancellor

and a touch of cynicism for the Daily

Mail as well, which points out in its

front page that Bernham has refused to

rule out more tax sites as we reported

yesterday, saying, "Let's pray he knows

what he's doing." And I also point you

to Blick Opinions uh newsletter, which

has a selection of columns about Andy

Burnham as the new prime minister,

including Rosa Prince, saying that

Burnham sent up a flare to calm the bond

market with his choice of John Healey as

chancellor. Yes, I'm not sure that it

completely succeeded because as I say

there was that wobble in the bond

markets. Look, there's also a new

political wife to get to grips with Mary

France Van Heale. She occupies a lot of

the newspapers attention especially with

the signaling in terms of the clothing

and what she wore the dress and what it

means etc. Anyway, I think it's the

cabinet appointments that are really

interesting. You know, Stephen, I think

they do also show some tactics um which

I think is quite fascinating on the

first day. Ed Miband in a great office

of state. He's foreign secretary, but

he's away from net zero. John Healey,

you know, the unexpected choice as

chancellor, but he does have lots of

experience and lots of treasury

experience, too. Now, that means he's

sort of in that role where he's got to

deliver on the defense spending that he

wanted and resigned over home secretary

Shabbana Mahmood stays on in that role

sort of trying to fend off Nigel Farav

far reform UK. So 11 cabinet members

gone. Um but then Bernham also did keep

on a few people who were considered good

at their jobs. I mean take the AI

minister Keshka Narian you know staying

on in that role. So I think lots of sort

of interesting things that you can

extract from what Andy Burnham's cabinet

looked like and it went late into the

evening making all of those

appointments. The thing that it does not

change though is the maths for this UK

government. Yeah, indeed. And and I

would note as well an appointment being

watched closely here in Brussels. Hamish

Falner is the new minister for European

affairs taking over for Nick Thomas

Simmons as well. Um he has a a

background in the foreign office. So

that'll be of course an appointment

people expecting to see plenty of him

around Brussels too. Um let's get into

though perhaps some of those

announcements by the prime minister on

the economic front and how they're going

to be import interpreted by markets.

Just this morning the government

announcing that it's going to cut taxes

on electricity bills from the 1st of

October. that's being funded by the

cancellation of a digital ID program

saving an estimated 1.8 billion pounds.

The government says the removal of VAT

will take4 off the yearly price cap set

by the regulator off just one

announcement fresh this morning on the

economic front. Let's bring in our UK

economist Matt Bunny for more from

Bloomberg economics. Matt, good morning.

Just I wonder first of all we've only

just had this announcement on energy

bills but this idea that you can cut VAT

on energy uh that'll bring down costs

for people in the broad scope of of cost

of living help for consumers. What is

the implication of making an

announcement like this when you're

thinking about the strained fiscal

situation

>> on cost of living relief? Bonham really

had two broad options. It was either

lifting incomes or bearing down on

prices. So uh the announcement this

morning uh shows that they're leaning

towards the latter option which is what

we expected. So essentially directly

cutting people's energy bills. What this

means is it directly lowers inflation as

well. So uh that basically makes the

Bank of England's job easier in fighting

inflation in the near term. So uh

whereas the other option of of uh of

lifting incomes could potentially

generate an inflation response which is

not what uh Bernham would like. Uh the

question of of how it's funded. So they

mentioned um uh the the cutting of the

digital ID scheme. Uh so I mean the

fiscal space is tight. So for any kind

of additional measures that Bernard's

want to going to want to introduce,

he'll need to find the money somewhere

either by cutting existing spending or

raising taxes.

Yeah, exactly. And that's that's the

whole difficulty, isn't it? What signal

then does appointing John Healey as

chancellor send to investors, Matt?

>> So, John Hilly's appointment was a

surprise. Expectations had had really

coalesed around Shabbana mood. Uh, and

we don't know a great deal about

Healey's position on economic policy. I

mean, we know he was a defense minister

in Kama's government and that he

recently resigned over a disagreement

about military funding.

uh we know that he was voted the second

most friendly uh market friendly

candidate for chancellor uh in a recent

Bloomberg poll second to west streeting.

So in that sense uh you know the news

would be would be welcome. In terms of

the specifics on policy I mean we don't

really know beyond perhaps that he will

probably be pushing for more uh more

defense spending. Broadly speaking

though, he looks to be of course guided

by the same fiscal rules as Rachel

Reeves and Healey will have a tight rope

to walk to navigate the limited fiscal

space on offer while delivering Andy

Burnham's priorities which include

greater public ownership of essential

services and more home building. When

Andy Bernham talks about wanting to seek

flexibility within the fiscal rules, I

mean, what what would that look like and

how do you do it without worrying

markets?

This is the big question. So, in

committing to the fiscal rules and

Labour's manifesto commitments on tax,

which rules out any of the big revenue

raises, uh Bernham is quite constrained.

So, he's looking for ways to raise

spending uh without alarming investors.

uh we do think there is some capacity to

boost capital spending within the

current framework via lending to public

corporations. So the current debt metric

that the government targets uh is called

public sector net financial liabilities.

Effectively uh this means lending to

public corporations is scored as both an

asset and liability under this metric.

So uh effectively it leaves the debt

measure unchanged. So there's some scope

there for the government to boost

lending this way. I I guess the thing

that will be important is is that there

is guard rails around any of that

additional spending. So markets will

want to be convinced that these

investments are delivering returns.

However, I mean we saw already yesterday

there were market jitters around

Bernham's statement about seeking

flexibility uh in the bond deals. uh and

we assess that there is in fact uh a

pre-existing premium on government

borrowing uh for the UK uh that was that

operated under the Reeves estama

government. Uh so and who Marcus would

say I would say perceived to be more

fiscally prudent than than Burnham. So

effectively Bernham and Healey are

really going to need to earn their

credibility with investors. Yeah, it's

going to be very interesting, isn't it?

When Andy Bernham has also talked about

uh bringing the biggest changes in the

last 40 years to Britain. How does he do

that when, as you say, Matt, you know,

the fiscal position, the situation for

government finances is is so difficult.

Thank you so much for being with us. Our

UK economist Matt Bunny.

Stay with us. More from Bloomberg

Daybreak Europe coming up after this.

The United States has carried out

another night of strikes on Iran even as

mediators proposed a new truce in the

war. And there's the Iranback militants

uh the Houthi militants in Yemen

threatened a blockade in the Red Sea.

Bloomberg has learned of the huge

bonuses the ship owners are offering

crews to sail through the straight of

Hormuz. Steven Stapchinsky who leads our

team covering energy in Asia joins us

now for more. Stephen, what sort of

incentives are these ship owners

offering?

>> A whole bunch of money. Um so what we're

what we're seeing here is that at least

for one ship owner uh they're offering

for a journey to go through uh the

street of four moves and back. Uh so

it's like a shuttle service. Um they're

offering 6 months extra salary and

that's for a journey that would take

about a month total. Uh so that's quite

a bit of money. Um you know you have to

remember that uh these seafarers aren't

on a ship all year round. And usually

the contracts are for 6 to9 months, but

during that period, you're essentially

off getting if if they're if they're

doing this route, getting six times what

they would normally earn. Um, now that

isn't to say there aren't risks. Uh,

there's been uh an acceleration of

attacks, just the last one being on July

uh 20th uh through through the waterway.

And it does seem that basically any any

ship that's going through could be a

target. Um, so not even even though the

money is is quite impressive, not

everyone is is agreeing to to these

terms.

>> Yeah. Okay. So, I mean, a huge amount of

danger money then. And and I note that

in your story, you know, you talk about

maybe the most junior sailor being on

about $1,500 a month all the way up to

the captain who might be earning

something like $15,000

a month. Um so in terms of the risks

though I suppose uh in exchange for for

this sort of money what are the risks

now for crews sailing through the

straight of Hormuz and are people

actually going to take up this kind of

offer? So I what's been really

interesting in my reporting that I've

done over the last uh 3 or 4 months is

I've talked to uh so many seafares and

one thing that I've I've learned is that

many of the weathered seafares I'm

talking about people who have been on on

these ships sometimes the same ships for

years uh are are asking to leave. Um

they they don't want to take the risk.

They they realize that there's risk of

being attacked. uh drones, missiles, um

they they're especially VLCC's, very

large crude carriers are are easy

targets and this is something that has

come up again and again. Um but for

every person that wants to leave,

there's another seafare often times in

Indonesia or other developing countries

that is willing to take the spot because

of the money. Um so just because um a

crew doesn't want to go through doesn't

mean that the ship will stop. Sometimes

it means changing crew. We we reported

on one LNG vessel that was near the

Rosafon uh plant in Qatar uh that was u

hit by a missile attack in March. The

the ship full of uh seafarers from the

Philippines, they wanted to leave and

they got out, but they were quickly

replaced by an Indonesian crew that just

a few weeks after they got on went

through the street of Hormuz dark and uh

and now they came back in again. So uh

there's always a a willing participant

uh if the price is high enough. And just

on a related story, Stephen, the this

threat by the Houthis in Yemen to

blockade the Red Sea, does that pose

much of a risk to energy supplies? It

does. Um, unfortunately, now the oil

market isn't responding to it at the

moment. Uh, oil prices around $88 for

Brent are are basically flat day on day

since this threat came out. But the risk

is that if if you do see the Houthis

start to target Saudi oil tankers, then

that removes a really big workaround

that Saudi Arabia had developed uh to to

deal with the Persian Gulf supplies

being disrupted. They depended on the

East West pipeline to get their oil out

of the Persian Gulf into the Red Sea and

in the Red Sea through the Babel Mandub

Strait to go to the um their customers.

is now Babel Mandub straight. Um that is

the area. It's a very tight waterway

similar to the straight of Hormuz where

the Houthi rebels in the past have

attacked vessels and if they do close

this this means that it's again one more

waterway that Saudi Arabia is unable to

use and that's one more way that they're

unable to get their oil to the market

further tightening crude.

>> Thanks for listening to Bloomberg

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