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Sterling remains under pressure, trading 0.3% lower against the dollar at $1.1069.
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UK government bonds sold off heavily yesterday ahead of the end of the Bank of England’s emergency bond-buying programme on Friday, as the central bank ruled out extending it and the governor Andrew Bailey told pension funds they had just three days to fix liquidity problems.
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The sell-off pushed yields (or interest rates) on 20- and 30-year gilts to their highest levels since 2002, with both rising above 5.1%. This morning, they have fallen back a bit, with the 20-year yield at 4.88% and the 30-year yield at 4.78%. Long-dated bond yields have also risen in other countries, but the moves have been the most severe in Britain.
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However, there are expectations that the Bank will continue to provide some liquidity to the market, as the economist Mohamed El-Erian, who used to run the world’s biggest bond fund Pimco, said this morning.
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Analysts from RBC said:
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Despite governor Bailey’s comments to the contrary, it seems likely to us given current gilt market volatility that it will be necessary for the Bank of England to continue intervening in the long end of the curve beyond the end of this week.
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Pension funds have scrambled to raise cash since the government’s mini-budget on 23 September sparked a selloff in bond markets, forcing funds to stump up emergency collateral in liability-driven investments, after gilts plummeted in value. The Bank of England stepped in the following Wednesday with an emergency bond-buying programme to calm the market and prevent a collapse of pension funds. That programme is due to end tomorrow.
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The Bank of England is likely to continue to provide liquidity after the end of its bond-buying programme tomorrow, said Mohamed El-Erian, president at Queens’ College Cambridge and part-time chief economic advisor at Europe’s biggest insurer Allianz.
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Speaking on BBC radio 4’s Today programme, he also said the UK cannot wait until the end of the month for Kwasi Kwarteng’s budget announcement and the independent forecasts from the fiscal watchdog.
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A lot of people and I would agree that when push comes to shove, the Bank of England is likely to continue providing liquidity support. A central bank is like a doctor. If the patent is really ill and even if the patient has misbehaved it is very difficult for a doctor to walk away. So the reality of central bank emergency interventions is that they tend to continue for longer than what is expected and central banks simply will not walk away.
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Asked whether the government understands the gravity of the situation, he said:
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I think they’re getting there, but they are not there yet. So they now understand that you can’t resolve the issue by cutting spending heavily that that simply won’t work. There’s starting to be some talk among backbenchers that perhaps we need a reset of the mini-budget and particularly the unfunded tax cuts. And ultimately that is a necessary condition to get us out of this mess.
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Everybody will acknowledge that the fluid global conditions have contributed to this; the main cause has been the mini-budget. And there are ways to measure this. Just look at the interest rate differential between the UK and Germany, the UK and the US, you will see that that differential widens quite a bit on the announcement of the mini-budget so there is definitely a domestic driver, it is not the only driver there certainly are global factors. There is a worldwide increase in yields but it has been much bigger in the UK than it has been in other countries.
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The chancellor now plans to make his budget announcement on 31 October, which was brought forward from 23 November, alongside independent forecasts from the Office for Budget Responsibility, but El-Erian says we cannot wait until then.
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We should not wait until the end of the month. There is a lot of damage being created right now, the high interest rate structure is getting embedded into the economy, the mortgage market is coming under pressure. People’s confidence and business confidence is coming down. So if we wait another three weeks, there will be more damage not just to actual growth but also potential growth.
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Finally, El-Erian provided some reassurance about pensions – while mortgages are another matter.
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You shouldn’t be worried about your pensions because that is going to be supported one way or the other. You should be worried if you’ve got a mortgage coming up because that is unlikely to come back to the sorts of levels where we were at a few weeks ago, it will take time. Then longer term we should all be worried that unless we can restore confidence and private sector buying for the government policy package it’s going to be harder to grow at a time when the global economy is facing significant headwinds.
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BST”,”blockLastUpdated”:1665645468000,”blockLastUpdatedDisplay”:”08.17 BST”,”blockFirstPublished”:1665645468000,”blockFirstPublishedDisplay”:”08.17 BST”,”blockFirstPublishedDisplayNoTimezone”:”08.17″,”title”:”Economist: Bank of England likely to provide liquidity after Friday’s deadline”,”contributors”:[],”primaryDateLine”:”Thu 13 Oct 2022 08.34 BST”,”secondaryDateLine”:”First published on Thu 13 Oct 2022 07.38 BST”},{“id”:”6347a60f8f08253e9d65a4e4″,”elements”:[{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
The UK chancellor, Kwasi Kwarteng, is meeting world leaders at the autumn meetings of the International Monetary Fund in Washington today. His first major international appearance comes at a critical time, as he is under huge pressure at home to reverse his mini-budget of unfunded tax measures, which sent the pound sliding, government borrowing costs soaring and pushed up mortgage rates.
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Britain’s energy regulator will urge consumers to reduce their gas and electricity use “where possible”, the Financial Times reports. The Ofgem boss Jonathan Brearley will say in a speech in London that cutting back on energy is “not only the most direct way of reducing our bills [but] it directly helps with security of supply, contributes to decarbonisation, and saves money for the public finances”.
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However, he will also play down the threat of energy shortages this winter, saying that a supply emergency is not likely.
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Michael Hewson, chief market analyst at CMC Markets UK, sums up yesterday’s moves in the financial markets.
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It was another disappointing session for the FTSE 100 yesterday as the UK blue chip closed at an 18-month low, dragged lower by a sharp fall in banks and house builders as a result of a sharp rise in long term [bond] yields.
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This rise in yields has been driven over concerns about the fiscal plans of the UK government as well as the prospect of a bumper rate hike by the Bank of England in November.
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US markets also underwent a difficult session with the S&P 500 languishing close to 18-month lows, along with the Nasdaq 100.
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Last night’s Federal Reserve minutes contained little in the way of surprises, with central bank officials indicating that rate hikes were likely to continue, given that inflation remained unacceptably high, and that it was likely to remain higher for longer than expected.
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A little surprisingly, yields slipped back in the aftermath of the release of the minutes despite there being little sign of any shift in thinking, with the expectation that another 75 basis point rate hike is coming at the beginning of November.
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This morning, the yen is hovering near a fresh 24-year low while sterling slipped as investors awaited US inflation figures today and the end of the Bank of England’s emergency bond-buying programme on Friday. The pound dropped 0.2% to $1.1076.
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The yen fell to 146.98 per dollar, close to the 147.64 low hit in August 1998, and well past last month’s low of 145.90 per dollar which prompted Japanese to step in to buy the yen.
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Asian stocks weakened ahead of US inflation, which could determine the pace of further interest rate hikes from the Federal Reserve. Japan’s Nikkei fell 0.5%, Hong Kong’s Hang Seng dropped 0.8% and the South Korean Kospi lost 1.3%.
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The Agenda
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9am BST: IEA Oil market report
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9.30am BST: Bank of England Credit conditions survey
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1.30pm BST: US inflation for September (forecast: 6.5%)
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Important events
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Sterling remains under pressure, trading 0.3% lower against the dollar at $1.1069.
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UK government bonds sold off heavily yesterday ahead of the end of the Bank of England’s emergency bond-buying programme on Friday, as the central bank ruled out extending it and the governor Andrew Bailey told pension funds they had just three days to fix liquidity problems.
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The sell-off pushed yields (or interest rates) on 20- and 30-year gilts to their highest levels since 2002, with both rising above 5.1%. This morning, they have fallen back a bit, with the 20-year yield at 4.88% and the 30-year yield at 4.78%. Long-dated bond yields have also risen in other countries, but the moves have been the most severe in Britain.
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However, there are expectations that the Bank will continue to provide some liquidity to the market, as the economist Mohamed El-Erian, who used to run the world’s biggest bond fund Pimco, said this morning.
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Analysts from RBC said:
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Despite governor Bailey’s comments to the contrary, it seems likely to us given current gilt market volatility that it will be necessary for the Bank of England to continue intervening in the long end of the curve beyond the end of this week.
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Pension funds have scrambled to raise cash since the government’s mini-budget on 23 September sparked a selloff in bond markets, forcing funds to stump up emergency collateral in liability-driven investments, after gilts plummeted in value. The Bank of England stepped in the following Wednesday with an emergency bond-buying programme to calm the market and prevent a collapse of pension funds. That programme is due to end tomorrow.
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The Bank of England is likely to continue to provide liquidity after the end of its bond-buying programme tomorrow, said Mohamed El-Erian, president at Queens’ College Cambridge and part-time chief economic advisor at Europe’s biggest insurer Allianz.
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Speaking on BBC radio 4’s Today programme, he also said the UK cannot wait until the end of the month for Kwasi Kwarteng’s budget announcement and the independent forecasts from the fiscal watchdog.
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A lot of people and I would agree that when push comes to shove, the Bank of England is likely to continue providing liquidity support. A central bank is like a doctor. If the patent is really ill and even if the patient has misbehaved it is very difficult for a doctor to walk away. So the reality of central bank emergency interventions is that they tend to continue for longer than what is expected and central banks simply will not walk away.
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Asked whether the government understands the gravity of the situation, he said:
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I think they’re getting there, but they are not there yet. So they now understand that you can’t resolve the issue by cutting spending heavily that that simply won’t work. There’s starting to be some talk among backbenchers that perhaps we need a reset of the mini-budget and particularly the unfunded tax cuts. And ultimately that is a necessary condition to get us out of this mess.
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Everybody will acknowledge that the fluid global conditions have contributed to this; the main cause has been the mini-budget. And there are ways to measure this. Just look at the interest rate differential between the UK and Germany, the UK and the US, you will see that that differential widens quite a bit on the announcement of the mini-budget so there is definitely a domestic driver, it is not the only driver there certainly are global factors. There is a worldwide increase in yields but it has been much bigger in the UK than it has been in other countries.
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The chancellor now plans to make his budget announcement on 31 October, which was brought forward from 23 November, alongside independent forecasts from the Office for Budget Responsibility, but El-Erian says we cannot wait until then.
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We should not wait until the end of the month. There is a lot of damage being created right now, the high interest rate structure is getting embedded into the economy, the mortgage market is coming under pressure. People’s confidence and business confidence is coming down. So if we wait another three weeks, there will be more damage not just to actual growth but also potential growth.
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Finally, El-Erian provided some reassurance about pensions – while mortgages are another matter.
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You shouldn’t be worried about your pensions because that is going to be supported one way or the other. You should be worried if you’ve got a mortgage coming up because that is unlikely to come back to the sorts of levels where we were at a few weeks ago, it will take time. Then longer term we should all be worried that unless we can restore confidence and private sector buying for the government policy package it’s going to be harder to grow at a time when the global economy is facing significant headwinds.
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BST”,”blockLastUpdated”:1665645468000,”blockLastUpdatedDisplay”:”08.17 BST”,”blockFirstPublished”:1665645468000,”blockFirstPublishedDisplay”:”08.17 BST”,”blockFirstPublishedDisplayNoTimezone”:”08.17″,”title”:”Economist: Bank of England likely to provide liquidity after Friday’s deadline”,”contributors”:[],”primaryDateLine”:”Thu 13 Oct 2022 08.34 BST”,”secondaryDateLine”:”First published on Thu 13 Oct 2022 07.38 BST”},{“id”:”6347a60f8f08253e9d65a4e4″,”elements”:[{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
The UK chancellor, Kwasi Kwarteng, is meeting world leaders at the autumn meetings of the International Monetary Fund in Washington today. His first major international appearance comes at a critical time, as he is under huge pressure at home to reverse his mini-budget of unfunded tax measures, which sent the pound sliding, government borrowing costs soaring and pushed up mortgage rates.
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Britain’s energy regulator will urge consumers to reduce their gas and electricity use “where possible”, the Financial Times reports. The Ofgem boss Jonathan Brearley will say in a speech in London that cutting back on energy is “not only the most direct way of reducing our bills [but] it directly helps with security of supply, contributes to decarbonisation, and saves money for the public finances”.
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However, he will also play down the threat of energy shortages this winter, saying that a supply emergency is not likely.
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Michael Hewson, chief market analyst at CMC Markets UK, sums up yesterday’s moves in the financial markets.
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It was another disappointing session for the FTSE 100 yesterday as the UK blue chip closed at an 18-month low, dragged lower by a sharp fall in banks and house builders as a result of a sharp rise in long term [bond] yields.
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This rise in yields has been driven over concerns about the fiscal plans of the UK government as well as the prospect of a bumper rate hike by the Bank of England in November.
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US markets also underwent a difficult session with the S&P 500 languishing close to 18-month lows, along with the Nasdaq 100.
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Last night’s Federal Reserve minutes contained little in the way of surprises, with central bank officials indicating that rate hikes were likely to continue, given that inflation remained unacceptably high, and that it was likely to remain higher for longer than expected.
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A little surprisingly, yields slipped back in the aftermath of the release of the minutes despite there being little sign of any shift in thinking, with the expectation that another 75 basis point rate hike is coming at the beginning of November.
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This morning, the yen is hovering near a fresh 24-year low while sterling slipped as investors awaited US inflation figures today and the end of the Bank of England’s emergency bond-buying programme on Friday. The pound dropped 0.2% to $1.1076.
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The yen fell to 146.98 per dollar, close to the 147.64 low hit in August 1998, and well past last month’s low of 145.90 per dollar which prompted Japanese to step in to buy the yen.
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Asian stocks weakened ahead of US inflation, which could determine the pace of further interest rate hikes from the Federal Reserve. Japan’s Nikkei fell 0.5%, Hong Kong’s Hang Seng dropped 0.8% and the South Korean Kospi lost 1.3%.
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The Agenda
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9am BST: IEA Oil market report
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9.30am BST: Bank of England Credit conditions survey
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1.30pm BST: US inflation for September (forecast: 6.5%)
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Filters BETA
Inventories fall, gold yields recover slightly
European stock markets opened lower again. The FTSE 100 fell 23 points to 6,802, down 0.36%, while Germany’s Dax fell 0.5%, France’s CAC lost 0.67% and Italy’s FTSE MiB was flat.
Sterling remains under pressure and is trading 0.3% lower against the greenback at $1.1069.
UK government bonds sold off heavily yesterday ahead of the end of the Bank of England’s emergency bond-buying program on Friday, as the central bank ruled out extending it and governor Andrew Bailey told pension funds they had just three days to fix the liquidity problems.
The sell-off pushed yields (or yields) on the 20-year and 30-year portfolio to their highest levels since 2002, with both rising above 5.1%. This morning they are down a bit, with the 20-year yield at 4.88% and the 30-year yield at 4.78%. Long-term bond yields have also risen in other countries, but the moves have been sharpest in Britain.
However, there are expectations that the Bank will continue to provide some liquidity to the market, as economist Mohamed El-Erian, who managed the world’s largest bond fund Pimco, said this morning.
Analysts from RBC said:
Despite Governor Bailey’s comments to the contrary, it seems likely to us, given the current volatility of the gold market, that it will be necessary for the Bank of England to continue to intervene at the long end of the curve beyond the end of this week.
Pension funds have been scrambling to raise cash since the government’s mini-budget on Sept. 23 sparked a sell-off in bond markets, forcing funds to raise emergency collateral in liability-based investments after their value fell. The Bank of England stepped in next Wednesday with an emergency bond-buying program to calm the market and prevent a collapse of pension funds. This program is expected to be completed tomorrow.
Economist: Bank of England likely to provide liquidity after Friday deadline
The Bank of England is likely to continue providing liquidity after its bond-buying program ends tomorrow, said Mohamed El-Erian, president at Queens’ College Cambridge and part-time chief financial adviser at Europe’s biggest insurer Allianz.
Speaking on BBC Radio 4’s Today programme, he also said the UK could not wait until the end of the month for Kwasi Kwarteng’s budget announcement and independent forecasts from the financial watchdog.
Many people and I would agree that when push comes to shove, the Bank of England is likely to continue to provide liquidity support. A central bank is like a doctor. If the patent is really sick and even if the patient has behaved badly, it is very difficult for a doctor to turn away. So the reality of emergency central bank interventions is that they tend to go on longer than expected and central banks simply won’t go away.
Asked if the government understands the gravity of the situation, he said:
I think they’re getting there, but they’re not there yet. So, they now understand that you can’t solve the problem by cutting spending heavily it just won’t work. There has been talk among supporters that we may need to bring back the mini-budget and especially the unfunded tax cuts. And finally this is a necessary condition to get out of this mess.
Everyone will recognize that fluid world conditions have contributed to this. the main reason was the mini budget. And there are ways to measure that. Just look at the interest rate differential between the UK and Germany, the UK and the US, you’ll see that that gap widens quite a bit with the mini budget announcement, so there’s definitely a domestic driver, it’s not the only driver there’s definitely global factors. There is a global increase in yields, but it has been much greater in the UK than in other countries.
The chancellor now plans to make his budget announcement on October 31, which has been presented since November 23, along with independent forecasts from the Office for Budget Responsibility, but El-Erian says we cannot wait until then.
We don’t have to wait until the end of the month. Right now a lot of damage is being done, the high interest rate structure is embedded in the economy, the mortgage market is under pressure. People’s confidence and business confidence is falling. So if we wait another three weeks, there will be more damage not only to actual growth but also to potential growth.
Finally, El-Erian provided some reassurance on pensions – while mortgages are another matter.
You don’t have to worry about your pensions because they will be supported one way or the other. You should be worried if you have a mortgage because it is unlikely to get back to the levels we were at a few weeks ago, it will take time. Then, longer term we should all be concerned that if we cannot restore confidence and buy the private sector into the government policy package, it will be harder to grow at a time when the global economy is facing significant headwinds.
Mark Sweney
UK homeowners will struggle to make mortgage repayments and repossessions will increase next year as rising interest rates and falling prices signal the end of a 13-year housing boomaccording to a sobering report by the Royal Institution of Chartered Surveyors (RICS).
The number of inquiries from potential homebuyers fell for a fifth consecutive month in September, while sales fell to their lowest level since May 2020, when the housing market nearly ground to a halt during the early stages of the coronavirus pandemic.
The number of new instructions to sell has continued to fall – stock levels are at historic lows with estate agents listing an average of just 34 homes on their books.
Introduction: Kwarteng meets world leaders at the IMF. Ofgem is urging consumers to reduce their energy use
Good morning and welcome to our rolling coverage of business, the global economy and financial markets.
UK Chancellor Kwasi Kwarteng is meeting world leaders at the International Monetary Fund’s autumn meetings in Washington today. His first major international appearance comes at a critical time as he is under huge pressure at home to overturn the mini-budget of unfunded tax measures that have sent the pound into a tailspin, soaring government borrowing costs and pushing up mortgage rates. loans.
Britain’s energy regulator will urge consumers to reduce their gas and electricity use “where possible”. the Financial Times reports. Ofgem boss Jonathan Brearley will say in a speech in London that cutting energy is not only the most direct way to reduce our bills [but] It directly helps security of supply, contributes to decarbonisation and saves money for public finances.”
But it will also play down the threat of energy shortages this winter, saying a supply emergency is unlikely.
Michael Hewson, chief market analyst at CMC Markets UK, summarizes yesterday’s movements in the financial markets.
It was another disappointing session for the FTSE 100 yesterday as the UK blue chip closed at an 18-month low, dragged lower by sharp declines in banks and housebuilders as a result of a sharp rise in longer [bond] returns.
This rise in yields is due to concerns over the UK government’s fiscal plans as well as the prospect of a significant rate hike by the Bank of England in November.
US markets also had a rough session with the S&P 500 falling near 18-month lows, along with the Nasdaq 100.
Last night’s Federal Reserve minutes contained few surprises, with central bank officials saying rate hikes were likely to continue as inflation remained unacceptably high and was likely to stay higher for longer than expected.
Surprisingly, yields fell after the minutes were released, despite the fact that there is little sign of a change in thinking, with the expectation that another rate hike of 75 basis points will come in early November.
This morning, the yen is hovering near a fresh 24-year low, while sterling fell as investors awaited US inflation data today and the end of the Bank of England’s emergency bond-buying program on Friday. The pound fell 0.2% to $1.1076.
The yen fell to 146.98 yen per dollar, close to a low of 147.64 hit in August 1998 and well past last month’s low of 145.90 per dollar, prompting the Japanese to step in to buy the yen. .
Asian shares fell on the prospect of US inflation, which could set the pace for further rate hikes by the US Federal Reserve. Japan’s Nikkei fell 0.5 percent, Hong Kong’s Hang Seng fell 0.8 percent and South Korea’s Kospi lost 1.3 percent.
THE AGENDA
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9 a.m. BST: IEA Oil Market Report
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9.30 am BST: Bank of England Credit Conditions Survey
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1.30 p.m. BST: US Inflation for September (Forecast: 6.5%)
