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☆ Moody's warns UK unfunded tax cuts are 'credit negative'
▼ + stars: | 2022-09-28 | by ( ) www.reuters.com time to read: +1 min

SYDNEY, Sept 28 (Reuters) - Global ratings agency Moody's has warned the British government that plans for unfunded tax cuts could lead to larger budget deficits and higher interest rates, threatening the country's credibility with investors. In a blunt release the agency said large unfunded tax cuts were "credit negative", leading to structurally higher deficits amid rising borrowing costs, a weaker growth outlook and acute public spending pressure. "A sustained confidence shock arising from market concerns over the credibility of the government's fiscal strategy that resulted in structurally higher funding costs could more permanently weaken the UK's debt affordability," Moody's said. The pound tumbled to an all-time low of $1.0327 on Monday while bond yields surged as investors demanded a higher risk premia for holding British assets. Register now for FREE unlimited access to Reuters.com RegisterReporting by Wayne Cole Editing by Shri NavaratnamOur Standards: The Thomson Reuters Trust Principles.

☆ Wild UK market swings 'opportunity of a lifetime' for hedge funds
▼ + stars: | 2022-09-28 | by ( Nell Mackenzie | ) www.reuters.com time to read: +3 min

British pound coins are seen in front of displayed stock graph in this illustration taken, November 9, 2021. REUTERS/Dado Ruvic/IllustrationSept 28 (Reuters) - The wild swings seen in British markets provided an "opportunity of a lifetime" to trade currencies and bonds, hedge funds and traders said on Wednesday. The BoE said it would buy 65 billion pounds ($71 billion) of UK bonds as needed between now and Oct. 14 to stabilise markets. Taylor said he was short sterling and had been for most of the year. Year to date, hedge funds that trade on macroeconomic signals were up on average, 6.47% according to HFRX, a daily reporting index of hedge fund performance from HFR.

☆ The British pound falls again after the IMF's stinging attack on the UK's $48 billion tax-cutting plan
▼ + stars: | 2022-09-28 | by ( George Glover | ) www.businessinsider.com time to read: +3 min

The pound slid Wednesday after the International Monetary Fund sharply criticized the UK's plan for tax cuts. The UK's currency hit a record low Monday, as the UK tax plan roiled financial markets. In a rare intervention Tuesday, the global financial institution sharply criticized the planned debt-financed tax cuts, worth 45 billion pounds ($48 billion). Meanwhile, global ratings agency Moody's warned Tuesday the largely unfunded tax cuts were "credit negative", and could lead to higher interest rates and larger budget deficits, Reuters reported. Read more: Decades-high inflation has triggered a 'reverse currency war' as a soaring dollar leaves central banks scrambling to catch up

☆ The 'disorderly' moves in the pound and loss of confidence in UK policy makers is historic, and point to the paradigm shift markets are headed towards, Mohamed El-Erian says
▼ + stars: | 2022-09-28 | by ( Jennifer Sor | ) www.businessinsider.com time to read: +3 min

The drop in the pound and the loss of confidence in policy makers is part of a larger paradigm shift, Mohamed El-Erian said. It points to the paradigm shift we're going through and the fragility of markets," he added. El-Erian has previously warned markets of the paradigm shift, pointing to central banks' pivot from quantitative easing to quantitative tightening as inflation continues to climb. To combat the potential for higher inflation, the UK will have to hike interest rates to keep inflation under control. But that could also cause enormous financial pain to households, causing unemployment and floating mortgage rates to skyrocket.

☆ London stocks slide amid economic "tug-of-war"
▼ + stars: | 2022-09-28 | by ( Johann M Cherian | ) www.reuters.com time to read: +2 min

The blue-chip index (.FTSE) dropped 1.6%, while the more domestically oriented FTSE 250 (.FTMC) shed 2.5%. The International Monetary Fund (IMF) and ratings agency Moody's criticised Britain's new economic strategy, with the latter warning that unfunded UK tax cuts would be "negative" for the country's credit standing. read more"There is an economic tug-o-war taking place between the Bank of England and the government," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. Burberry Group (BRBY.L) rose 4.1% after announcing Daniel Lee would be its new chief creative officer, replacing Riccardo Tisci, who is stepping down. read moreRegister now for FREE unlimited access to Reuters.com RegisterReporting by Johann M Cherian in Bengaluru; editing by Uttaresh.V and Savio D'SouzaOur Standards: The Thomson Reuters Trust Principles.

☆ Bank of England intervenes in bond market after historic sell-off
▼ + stars: | 2022-09-28 | by ( Elliot Smith | ) www.cnbc.com time to read: +1 min

LONDON — The Bank of England will suspend the planned start of its gilt selling next week and begin temporarily buying long-dated bonds in order to calm the market chaos unleashed by the new government's so-called mini-budget. In a statement Wednesday, the central bank said it was monitoring the "significant repricing" of U.K. and global assets in recent days, which has hit long-dated U.K. government debt particularly hard. "Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. "In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses." As of Wednesday, the bank will begin temporary purchases of long-dated U.K. government bonds in order to "restore orderly market conditions," and said these will be carried out "on whatever scale necessary" to soothe markets.

The blue-chip index (.FTSE) slipped 0.3% after dropping as much as 2.1% earlier in the session, while the more domestically focused FTSE 250 (.FTMC) eased 1.4%. The Bank of England said it would buy as many long-dated government bonds as needed between now and Oct. 14 to stabilise financial markets. read moreThe battered pound briefly dropped as much as 1% against the dollar, before paring some losses. Retailers (.FTNMX404010) slipped 0.5%, with online fashion retailer Boohoo Group (BOOH.L) slumping 6.4% after it cut its full-year outlook. read moreBurberry Group (BRBY.L) rose 4.3% after announcing Daniel Lee would be its new chief creative officer, replacing Riccardo Tisci, who is stepping down.

☆ Billionaire investor Ray Dalio says UK’s economic plan 'suggests incompetence'
▼ + stars: | 2022-09-28 | by ( Hannah Ward-Glenton | ) www.cnbc.com time to read: +1 min

Ray Dalio, founder of Bridgewater Associates LP, speaks during a panel session on day three of the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday, May 25, 2022. The financial market turmoil resulting from the U.K. government's spending plan "suggests incompetence," according to billionaire investor Ray Dalio. "I can't imagine that this is intended – and if it's not intended then it's an understanding question," Dalio said on BBC Radio 4′s "Today" program Wednesday. The measures included large swathes of unfunded tax cuts that have drawn global criticism, including from the International Monetary Fund. "It doesn't stimulate the economy, productivity is what stimulates the economy over the long run," Dalio said.

☆ Morning Bid: Mini budget, major turmoil
▼ + stars: | 2022-09-28 | by ( ) www.reuters.com time to read: +2 min

REUTERS/Henry NichollsA look at the day ahead in European and global markets from Anshuman DagaWhat was meant to be a mini-budget is still thundering across financial markets. read moreAsian stocks markets and currencies extended their downward journey, burdened by the gloomy growth outlook, while dollar bulls pushed the currency to yet another two-decade high. "Indeed a recession in Europe in particular is already well anticipated, with 92% of our European Fund Manager survey respondents expecting one in the coming 12 months," BofA said. Elsewhere, the energy crisis in Europe intensified as European authorities investigated what Germany, Denmark and Sweden said were attacks which had caused major leaks into the Baltic Sea from two Russian gas pipelines. The energy crisis between Europe and Moscow has already battered major Western economies, sent gas prices surging and sparked a hunt for alternative supplies.

London CNN Business —One of the world’s leading multilateral financial institutions has joined a chorus of criticism of huge tax cuts announced by the UK government last week that sent the pound plunging to a record low. In a rare and stinging rebuke for such a large developed economy, the International Monetary Fund warned that the tax cuts — the biggest in Britain since the early 1970s — would likely increase inflation and inequality. “We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures,” an IMF spokeperson said. UK finance minister Kwasi Kwarteng has shown no signs of backing down, despite the market crash. Yields on 10-year UK government bonds fell sharply after the Bank of England’s announcement on Wednesday but remain elevated.

☆ Breakingviews: BoE’s bond-buying U-turn is worth the risk
▼ + stars: | 2022-09-28 | by ( Neil Unmack | ) www.reuters.com time to read: +5 min

The fallout makes it even harder for Governor Andrew Bailey to convince markets he can tighten monetary policy. His decision on Wednesday to buy UK government debt and delay plans to sell down its 857 billion pound ($915 billion) bond portfolio carries big risks. Bailey’s goal is to cut holdings by 80 billion pounds over the next year. UBS analysts reckon issuance of gilts, after factoring in sales and redemptions from QT, will reach 355 billion pounds in the year ending March 2024. If Bailey can now tighten monetary policy without freaking out investors, his U-turn will have been worth the risk.

☆ Bank of England to buy 65 billion pounds of UK bonds to stem rout
▼ + stars: | 2022-09-28 | by ( David Milliken | ) www.reuters.com time to read: +4 min

Citing potential risks to UK financial stability, the BoE also said it would delay the start of a programme to sell down its 838 billion pounds ($891 billion) of government bond holdings, which had been due to begin next week. "Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the BoE said. "This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy." "There are schemes running out of cash at the moment," one pensions consultant said before the BoE intervention. The BoE's intervention reduced long-dated bond yields back to their level at the end of Friday - after the initial negative reaction to Kwarteng's statement - but shorter-dated yields were still higher.

☆ Sterling slips after IMF and Moody's rebuke Britain over tax plans
▼ + stars: | 2022-09-28 | by ( Harry Robertson | ) www.reuters.com time to read: +3 min

LONDON, Sept 28 (Reuters) - Sterling resumed its fall on Wednesday after the International Monetary Fund (IMF) and ratings agency Moody's scolded Britain over its new spending plans. The pound was down 0.56% to $1.068 with renewed dollar strength also weighing on the currency. Sterling tumbled to an all-time low against the dollar of $1.0327 on Monday as investors dumped UK assets after finance minister Kwasi Kwarteng unveiled plans to slash taxes and ramp up borrowing. Ratings agency Moody's said the unfunded tax cuts were "credit negative" and were likely to weigh on growth. UK pound coins plunge into water coloured with the European Union flag colours in this illustration picture, October 26, 2017.

☆ The Truss tax plan cushions the wealthy while pushing borrowers toward a financial cliff
▼ + stars: | 2022-09-27 | by ( Allison Morrow | ) edition.cnn.com time to read: +7 min

That’s because the Bank of England is now widely expected to hike interest rates even further to tackle inflation that will be exacerbated by the government’s sweeping tax cuts. That means many as 1.8 million borrowers are now hurtling toward a financial cliff as they prepare to refinance next year, when the mortgage rate may well have doubled. The vast majority (nearly two-thirds) of the tax gains go to the wealthiest one-fifth of households, according to one think tank estimate. According to the US Treasury, tax cuts reduced federal revenues by about 9% in the first couple of years. However, Congress eventually decided the sweeping tax cuts were unsustainable and, with Reagan’s approval, raised taxes by a lot in 1982.

☆ Premarket stocks: Ronald Reagan's tax lesson for Britain
▼ + stars: | 2022-09-27 | by ( Nicole Goodkind | ) edition.cnn.com time to read: +7 min

Citibank analysts called the decision a “huge, unfunded gamble for the UK economy.” Markets dropped precipitously on the news. But much like Truss, Reagan argued that massive tax cuts and deregulation would stimulate productivity and he championed a sweeping tax cut that was passed by Congress that year. According to US Treasury estimates, Reagan’s tax cuts reduced federal revenues by about 9% in the first couple of years. A lesson from history: “When tax cuts are really too big to be sustainable, they’re often followed by tax increases,” wrote David Wessel, director of The Hutchins Center on Fiscal and Monetary Policy. The US dollar appreciated during the Reagan tax cuts because it benefits from global reserve currency status.

☆ Plunging pound pauses as investors await policy response
▼ + stars: | 2022-09-27 | by ( Tom Westbrook | ) www.reuters.com time to read: +3 min

On Friday and again on Monday the pound plunged, finding a record low of $1.0327 as investors question Britain's economic gambit of unfunded tax cuts to spur growth. Sterling has dropped 5% since Thursday and 21% this year against a backdrop of an ever stronger dollar. As the pound fell on Monday, the dollar surged to new highs on the euro and many more. "Everyone's got this hope that the dollar is peaking and peaking and peaking, but it's just been far too premature," said Paul Mackel, global head of FX research at HSBC in Hong Kong. China's yuan also hit a 2-1/2 year low on Monday and was steady at 7.1639 on Tuesday.

☆ Sterling higher as BoE, Treasury seek to calm markets
▼ + stars: | 2022-09-27 | by ( Samuel Indyk | ) www.reuters.com time to read: +3 min

UK pound coins plunge into water coloured with the European Union flag colours in this illustration picture, October 26, 2017. The BoE "will not hesitate" to raise interest rates if needed to meet its 2% inflation target, governor Andrew Bailey said on Monday. "The BoE saying it won't change course has helped the recovery in sterling as it conveys a message that there's no sense of panic at the central bank," Cole added. "UK markets will now be hyper-sensitive to any communication from UK policymakers," said ING head of markets Chris Turner in a note. Pill voted with the majority to raise interest rates by 50 basis points at last week's policy meeting.

☆ Pound rebounds as traders turn to BoE response
▼ + stars: | 2022-09-27 | by ( Tom Westbrook | ) www.reuters.com time to read: +3 min

As the dollar eased, the pound rose 1% in Asia to $1.0805 and is up nearly 5% from Monday's low at $1.0327. The kiwi also rose 1%, its first gain in seven sessions, the euro rose 0.5% and the Aussie rose 0.7%. "More BoE rate hikes could only briefly boost the pound but not on a sustainable basis," said Gao. As the pound fell on Monday, the dollar surged to new highs on the euro and many more. The Aussie and kiwi hit 2-1/2 year lows on Monday and were due for a rebound, with the Aussie up 0.6% to $0.6500 and the kiwi up 1.2% to $0.5703.

☆ Morning Bid: Unstable cable
▼ + stars: | 2022-09-26 | by ( ) www.reuters.com time to read: +5 min

Supercharging an already rampant U.S. dollar around the globe, the sterling/dollar rate - nicknamed 'cable' by traders - went into virtual freefall at one point early on Monday. The pound's plunge comes ahead big auctions of both long-term and inflation-linked British government bonds this week and increasing liquidity issues in the gilt markets. read moreThe scale of the pound's losses and fiscal fears has many traders speculating about emergency rate rises by the Bank of England. Rate futures now price in a three-quarters-of-a-point hike to 3% on or before the BoE's next meeting on Nov. 2. read moreChina also acted in a different way on Monday to rein in yuan ongoing slump against the dollar.

☆ Pound tanking, massive tax cuts and talk of emergency hikes. Here's what's going on in the UK
▼ + stars: | 2022-09-26 | by ( Elliot Smith | ) www.cnbc.com time to read: +6 min

Jim O'Neill, former Goldman Sachs Asset Management chairman and a former U.K. Treasury minister, said the pound's fall shouldn't be misinterpreted as dollar strength. The announcement Friday featured a volume of tax cuts not seen in Britain since 1972 and an unabashed return to the "trickle-down economics" promoted by the likes of Ronald Reagan and Margaret Thatcher. The radical policy moves set the U.K. at odds with most major global economies against a backdrop of sky-high inflation and a cost-of-living crisis. Ibrahim added that this would imply further suffering for U.K. financial markets due to the "unfavorable policy mix" over the near term. The British lender expects the government to clarify its plans to balance the books through "spending cuts and reform outcomes" ahead of the November budget statement, which Montagne suggested "should help to deflect immediate concerns relating to large unfunded tax cuts."

☆ Morning Bid: Pounded
▼ + stars: | 2022-09-26 | by ( ) www.reuters.com time to read: +2 min

Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020. On Friday, gilts suffered their heaviest selling in decades, and before that, the yen and U.S. interest rate futures have been roiled. Global tension is also mounting over the war in Ukraine, as Russia holds widely-criticised votes aimed at annexing territory it has taken by force. Besides sterling, Asian stock markets fell on Monday. European futures fell 0.3% and S&P 500 futures fell 0.6%.

An employee is seen walking over a mosaic of pound sterling symbols set in the floor of the front hall of the Bank of England in London, in this March 25, 2008 file photograph. Yet the rapid rise in yields investors now receive for owning UK bonds hasn't helped sterling much. Pound slumps and UK borrowing costs surgePredicting the short-term direction of currencies is notoriously hard. Against the euro the pound is only at two-year lows, although it is down 3% since Friday. "People will look at the UK and think that that's not a market that is stable," said Payne at Janus Henderson.

Finance minister Kwasi Kwarteng's plans will require an extra 72 billion pounds ($79 billion) of government borrowing over the next six months alone, and - a particular concern for investors - cement permanent tax cuts costing 45 billion pounds a year. But to bond investors, they bring the prospect of more persistent inflationary pressures - at a time when inflation is already near a 40-year high - as well as tighter Bank of England (BoE) policy. Government borrowing is likely to total 218 billion pounds this financial year and 229 billion pounds in 2023/24, Citi predicted, and it expects benchmark 10-year British government bond yields to rise to 4.25%. Adding to the pressure, on Thursday the BoE confirmed it planned to reduce its own 838 billion pounds of gilt holdings by 80 billion pounds over the coming year. "That is a strong indication that domestic and overseas investors are losing confidence in the UK's inflation-fighting credibility," he said.

☆ UK's mini budget slashes taxes and borrows heavily as recession hits
▼ + stars: | 2022-09-23 | by ( Anna Cooban | ) edition.cnn.com time to read: +4 min

London CNN Business —A huge gamble by the UK government aimed at rescuing the economy from recession and boosting long-term growth sent the pound plunging on Friday. Paul Johnson, director of the Institute for Fiscal Studies, an independent think tank, called the government’s plans “extraordinary.”“It’s half a century since we’ve seen tax cuts announced on this scale,” he said in a tweet. The pound sank almost 2% to $1.10 on Friday after Kwarteng’s announcement to its lowest level since 1985. The measures come a day after the Bank of England warned that the country was already likely in a recession. ‘Unfunded giveaways’News of the heavy additional government borrowing rattled investors already concerned that the country is spending beyond its means.

British Pound Sterling and U.S. Dollar notes are seen in this June 22, 2017 illustration photo. Income tax cuts, a drop in property taxes, tax-free shopping for overseas visitors and the scrapping of a planned corporation tax rise are all aimed by the government at giving households and businesses a boost. It was last down 1.36% against the dollar at 1.1106 , a new low since 1985. The FTSE 100 (.FTSE) dropped 1.3%, hitting its weakest level since July 15, but shares in UK homebuilders jumped after Kwarteng announced changes to property stamp duty. Register now for FREE unlimited access to Reuters.com RegisterReporting by Alun John Editing by Alexander Smith and Frances KerryOur Standards: The Thomson Reuters Trust Principles.

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