Latest News

Britain heading for IMF bailout, warns Dr Doom

0

S&P 500

3,693.23

-64.76(-1.72%)

Dow 30

29,590.41

-486.27(-1.62%)

Nasdaq

10,867.93

-198.88(-1.80%)

Russell 2000

1,679.59

-42.72(-2.48%)

Crude Oil

79.43

-4.06(-4.86%)

Gold

1,651.70

-29.40(-1.75%)

Silver

18.83

-0.78(-3.99%)

EUR/USD

0.9693

-0.0145(-1.47%)

10-Yr Bond

3.6970

-0.0110(-0.30%)

GBP/USD

1.0857

-0.0398(-3.54%)

USD/JPY

143.3300

+0.9950(+0.70%)

BTC-USD

19,088.21

+173.78(+0.92%)

CMC Crypto 200

434.61

-9.92(-2.23%)

FTSE 100

7,018.60

-140.92(-1.97%)

Nikkei 225

27,153.83

-159.30(-0.58%)

Dr Droom Pound Sterling Dollar Parity

Liz Truss’s ?45bn tax cutting spree has set Britain on course for a bailout from the International Monetary Fund, a leading economist dubbed Dr Doom has warned, as fears grow that the pound could fall to parity with the dollar.

Nouriel Roubini, an economist who famously predicted the financial crisis, has warned that British investments are trading “like an emerging market” as he drew parallels with the economic chaos of the 1970s.

Mr Roubini said on Twitter that Britain is heading “back to the 1970s” and “eventually the need to go and beg for an IMF bailout” following huge tax cuts unveiled by Kwasi Kwarteng in his mini-Budget.

It came as Crispin Odey, one of Britain’s best-known hedge fund tycoons, warned that sterling risks heading to dollar parity for the first time ever after the Chancellor’s announcement contributed to a market rout on Friday.

The UK turned to the IMF for a bailout in 1976 after a plunge in the pound and tax cuts by then-chancellor Anthony Barber stoked inflation. The $4bn (?3.7bn) loan was granted in return for spending cuts and higher interest rates.

Mr Roubini, who earned the nickname “Dr Doom” for his frequently gloomy forecasts, won plaudits for forecasting the coming financial crisis in a paper in 2006. But he has also made mistakes, including a prediction that Greece would fall out of the eurozone and repeated suggestions of coming global recessions that failed to materiailise.

On Twitter, he said: “Truss and her cabinet are clueless.”

The unfunded cuts have stoked worries about a flood of debt and rising inflation, dragging sterling to its lowest level in 37 years against the dollar.

Fears are growing that the pound could slip to a record low and even parity with the dollar after it plunged by more than 3pc and UK borrowing costs soared by more than ever on Friday.

Mr Odey said: “The pound has been vulnerable all year and it must be odds on that it hits parity but there is much that I like in Kwasi’s budget. It is bravely Tory.”

However, the trader – who reportedly has been shorting UK debt – said he will become “long term optimistic” on UK assets if a Labour government is avoided.

Meanwhile, Mr Bailey is expected to discuss the market chaos from the mini-Budget with the Chancellor in the coming days at their newly instated bi-weekly meetings.

The historic rout in the pound and UK debt is likely to be near the top of the agenda at the meeting after it stoked speculation of emergency action by the Bank.

Some City analysts have warned the Bank of England could be forced to intervene to shore up sterling before the next scheduled monetary policy meeting in November.

Threadneedle Street declined to comment on the speculation. Its chief economist Huw Pill could provide the first hints of how the Bank will respond on Tuesday when he appears on a panel to speak about monetary policy at a Barclays event.

Markets are now betting that the Bank will increase rates by 1 percentage point in November, the biggest rise since Black Wednesday in 1992, to head off inflationary pressures.

Investors are rushing to protect themselves against wild swings in sterling in the coming weeks as bets on the currency reaching new record lows against the dollar increase. On Friday, one-month implied volatility in the pound – a market-based gauge of investors’ expectations for swings in the currency – jumped to its highest level since the start of the pandemic.

Speculators have also been ramping up their opposition to sterling this month. New weekly trading data has revealed that investors have amassed a ?3.4bn bet against sterling, though short positions predicting a plunge have eased off the September high.

Derek Halpenny, head of global markets research at MUFG, said the Chancellor’s “additional surprise income tax cuts have reinforced concerns over adding stimulus to an economy currently running the highest inflation rate across G10”.

He said: “There is certainly no ‘happy-feel’ to this fiscal give-away and appears if anything to have increased the level of uncertainties that were already very elevated.”

Confidence has drained away for the pound and UK assets in recent weeks as market worries are fuelled by a combination of recession fears and higher borrowing.

Financial contracts data suggests investors now believe the odds of sterling tumbling to a record low of $1.05 by the end of 2022 are 50/50, compared to just 3.5pc at the start of the year. The market-based probability of the pound reaching parity with the dollar within the next 12 months is 40pc.

City analysts likened the pound’s slump to that of an emerging market currency as it coincided with a rise in bond yields.

Adam Hoyes, market economist at Capital Economics, said: “This is a pattern more often associated with emerging markets, and looks like a signal that investors are becoming more concerned about the new UK government’s approach, with fiscal and monetary policy increasingly working in opposite directions.”

Jane Foley, currency strategist at Rabobank, said the pound’s slump has fuelled speculation that the Bank of England will be forced into “huge emerging market style rate hikes to prevent further sharp losses”.

Advertisement

Reuters

Britain sends investors fleeing with historic tax cuts and borrowing

LONDON (Reuters) -Britain’s new finance minister Kwasi Kwarteng unleashed historic tax cuts and huge increases in borrowing on Friday in an economic agenda that floored financial markets, sending sterling and British government bonds into freefall. Kwarteng scrapped the country’s top rate of income tax, cancelled a planned rise in corporate taxes and for the first time put a price tag on the spending plans of Prime Minister Liz Truss, who wants to double Britain’s rate of economic growth. Investors dumped short-dated British government bonds as fast as they could, with the cost of borrowing over five years seeing its biggest one-day rise since 1991, while the pound slumped more than 3% against the dollar to levels last seen 37 years ago.

Yahoo Finance Video

Investors consider the odds and impact of a recession in 2023

Yahoo Finance columnist Rick Newman discusses the debate over the possibility of a soft landing following the Fed’s latest rate hike and whether or not the U.S. economy is headed for a recession.

Bloomberg

European Industry Buckles Under Weight of Soaring Energy Prices

(Bloomberg) — Europe’s industrial giants have fretted for months that gas shortages this winter will cripple production. But even with fuel available, companies are discovering they can’t afford it.Most Read from BloombergBank of England Says Paper Banknotes Only Good for One More WeekLiz Truss’s Historic Gamble With the UK Economy Is Already UnravelingLeaked Study Shows Exxon, Partners Overspent by $138 BillionRisk Assets Crushed With Few Signs Drama Is Over: Markets Wrap”It’s not about shutdo

MarketWatch

Don’t panic about your 401(k)

It’s been a heckuva turbulent ride, including Russian defaults, emerging market crises, dot-com disasters, terrorist atrocities, global financial meltdowns, a U.S. housing collapse that rivaled the Great Depression, inflation panics, deflation panics, energy crises, sovereign debt crises, and a global pandemic. Read: What is a bear market? The people who panic and sell the stocks in their retirement portfolios right here will end up kicking themselves.

MarketWatch

Planning to retire? Here’s a list of at least 14 things to account for first

Retirement requires an enormous amount of planning, affecting not only how much money to put aside for old age but how to spend and maintain it. Retirement Tip of the Week: When planning for retirement, especially if you plan to retire soon, make a list of expenses you expect to have — as well as any other variables that will affect your financial picture. Anything can happen in retirement, especially since for many of us this chapter of life could span decades.

MarketWatch

A psychologist’s 5 steps to stop panicking about your 401(k)

BRETT ARENDS’S ROI In the fall of 2008, when global stock markets were imploding, I happened to be in New York. I switched on the TV in my hotel room and saw financial commentator Suze Orman on Larry King Live.

Bloomberg

Fed Finally Vanquishes Stocks From Asset Allocation Throne

(Bloomberg) — For years, asset allocators had it easy: Buy the biggest American tech companies and watch the returns rack up. Most Read from BloombergBank of England Says Paper Banknotes Only Good for One More WeekLiz Truss’s Historic Gamble With the UK Economy Is Already UnravelingLeaked Study Shows Exxon, Partners Overspent by $138 BillionRisk Assets Crushed With Few Signs Drama Is Over: Markets WrapThose days are gone, buried under a crush of central bank rate hikes that are rewriting the pl

Yahoo Finance Video

Millennial and Gen Z investors ‘need human financial advisors’ now more than ever: Researcher

Gen Z Researcher and Author Jason Dorsey sits down with Yahoo Finance Live to discuss the withdrawal of younger investors from brokerage accounts, the guidance of in-person financial advisors, and breaks down results from a study on Gen Z’s aspirational perspectives.

Reuters

Russia’s SWIFT alternative expanding quickly this year, says central bank

The reach of Russia’s alternative to the SWIFT international messaging system has grown at record pace this year, the central bank said on Friday, as Moscow ramps up efforts to resolve financial shortcomings wrought by sanctions. Sweeping Western sanctions on many of Russia’s top banks in the wake of Russia sending tens of thousands of troops into Ukraine have sorely limited lenders’ access to the global financial system. Alla Bakina, director of the central bank’s national payment system department, said 50 new entities had joined Russia’s alternative system this year, taking the total number to 440, of which more than 100 are non-residents.

Investopedia

Estate Planning: 16 Things to Do Before You Die

Estate planning goes beyond drafting a will. Use this pre-death checklist to account for your assets and ensure they are dispersed as you wish,

Reuters

Steel makers fear deepening crisis from energy crunch as output halted

Spiralling energy costs have forced steel makers to cut output across Europe, threatening mass plant shutdowns some warn could be permanent in a sector that employs more than 300,000 and contributes tens of billions of euros to the region’s economy. Even with four wind turbines and over 50,000 solar panels at its site in eastern Belgium, stainless steel maker Aperam has been forced to halt production as surging energy prices bite. The company is now paying for energy in a month what it used to pay in a year and has idled a facility that would normally be melting stainless steel scrap and converting it into giant slabs, employing about 300 workers.

Britain’s new vision leaves onlookers with nightmares

Previous article

How to survive the worst bear market of all time

Next article

You may also like

Comments

Leave a reply

Your email address will not be published. Required fields are marked *

More in Latest News