Pulling out for fear of interest rates: There is a fashionable view that inflation may be at its peak, but Putin is the elephant in the room, says ALEX BRUMMER
Housing and the associated consumer spending are a huge driver of the economy.
Anyone with a mortgage or wanting to join home democracy should be concerned about the gold market tantrum.
Since most Britons have moved from standard floating rate and tracker mortgages to fixed rates since the financial crisis, they were thought to be buying stability.
Rising rates: Anyone with a mortgage or wanting to join home-owning democracy should worry about the gold market tantrum
But the speed at which hundreds of deals were pulled off the market last week, leaving homeowners facing a huge cliff, is terrifying.
No one will be over-excited about the return of two-year fixes at companies like NatWest, Virgin and Nationwide at 5.75 percent.
There are questions about whether lenders are overpaying things and seizing an opportunity to bolster interest margins and earnings.
Indicators indicate that bond markets have outpaced central banks and official interest rates may not rise as high or as fast as predicted.
Few analysts look to the Reserve Bank of Australia for leadership, but its decision to raise key interest rates by 0.25 percentage points to a nine-year peak of 2.6 percent is seen as a decline from the projected 0.5 percentage point point. to rise. Elsewhere, US Treasury yields on five-year, 10-year and 30-year bonds are declining.
Strategists from the likes of Deutsche Bank and City Index speculate that central banks may be tipping over and peak rates will be lower than previously thought. This view has permeated the foreign exchanges where one-sided dollar positions – pushing the dollar upwards further and further – are unwinding.
There is a fashionable view that inflation in the West may be at or near its peak. Supply-side bottlenecks after Covid-19 have been resolved.
Oil prices have fallen, although Saudi Arabia and Russia are talking about cutting stocks. And Europe is adapting to liquefied natural gas (LNG) faster than anticipated. The elephant in the room is Vladimir Putin and threats of military, even nuclear, escalation in Ukraine, under which conditions no one will worry about mortgage solutions.
Andrew Bailey and the Bank of England have been criticized, not least in this area, for failing to raise interest rates by 0.75 percent last month in the face of Liz Truss’s expensive energy bailout and the falling pound.
Perhaps the Office for Budget Responsibility’s take on the fiscal event, when released this month, will put an end to the gilt-market jitters.
Robert Stheeman, who heads the UK’s Debt Management Office, is calm and tells Reuters that while there has been high volatility in government bonds not unlike at the start of the pandemic, dealers have managed to keep trading.
He is confident that the market can absorb the additional debt, which may need to be issued following Kwasi Kwarteng’s tax cut initiative.
Crisis, which crisis?
Shares of Legal & General rose 5.9 percent in latest trading after the insurance and pension giant reassured markets that they had the cash they need to withstand the shock of liability-driven investments (LDIs), prompting the Bank of England to lead a temporary rescue operation.
Potential spending of £65bn (up to £5bn a day) shows that £3.66bn was spent in the first four days.
Retirees will be relieved by L&G’s statement and so far modest bailout. All this should not detract from the regulatory failure of the Bank and the Pension Supervisor, which has seen the use of precarious LDIs boom in a market where safety should come first.
Talking about avoiding mounting bankruptcies can only be scary. Since the great financial crisis of 2007-09, financial stability reports from official bodies have become all the rage.
The latest document released by the International Monetary Fund warns of the dangers of the $41 trillion in “open-end” mutual funds, many of which allow daily redemptions.
The IMF is making proposals to make this asset class more secure. But as we’ve learned from the LVI fear, regulators are hopelessly slow to protect investors.
Roll camera action
Amid the gloom over UKplc, our creative industries are doing well. A competitive pound along with great production facilities is attracting more and more filmmakers to Britain.
Hollywood studios are expected to spend an additional £3 billion in the coming months, on top of the £5.6 billion earned last year. That should be worthy of a modest cheer.