WASHINGTON — The number of available jobs in the U.S. plummeted in August compared with July, a sign that businesses may pull back further on hiring and potentially cool chronically high inflation.
There were 10.1 million advertised jobs on the last day of August, the government said Tuesday, down a huge 10% from 11.2 million openings in July. In March, job openings had hit a record of nearly 11.9 million.
Layoffs ticked up in August but remained at a historically low level. And slightly more people quit their jobs.
The sharp drop in job openings will be welcomed by the Federal Reserve. Fed officials have cited the high level of openings as a sign of strong labor demand that has compelled employers to steadily raise pay to attract and keep workers.
Smaller pay raises, if sustained, should ease inflationary pressures. In their effort to combat the worst inflation in 40 years, the central bank has raised its key short-term interest rate to a range of 3% to 3.25%, up sharply from nearly zero as recently as March.
Chair Jerome Powell and other Fed officials hope that their interest rate hikes — the fastest in roughly four decades — will cause employers to pull back on their efforts to hire more people. Fewer job openings, in turn, could reduce the pressure on companies to raise pay to attract and keep workers.
Tuesday’s figures arrive the same week that a key report on jobs and the unemployment rate is set to be released Friday. Economists forecast that it will show that employers added 250,000 jobs in September and that the unemployment rate remained 3.7% for a second straight month.
TOKYO — Asian shares rose Tuesday, encouraged by a rally in U.S. shares after some weak economic data raised hopes that the Federal Reserve might ease away from aggressive interest rate hikes.
Japan’s benchmark Nikkei 225 added 2.8% in afternoon trading to 26,959.25. South Korea’s Kospi gained 2.5% to 2,209.98.
Australia’s S&P/ASX 200 jumped 3.8% to 6,699.30 after its central bank boosted its benchmark interest rate for a sixth consecutive month to a nine-year high of 2.6%. The Reserve Bank of Australia’s increase of a quarter percentage point to the cash rate was smaller than those at recent monthly meetings.
When the bank lifted the rate by a quarter percentage point at its board meeting in May, it was the first rate hike in more than 11 years. It’s now at its highest point since August 2013, when the bank cut the rate from 2.75% to 2.5%.
Markets in Hong Kong and Shanghai were closed for holidays.
“Asian equities were positive on Tuesday after a corrective session as traders eye potentially oversold market conditions,” Anderson Alves at ActivTrades said in a report.
On Monday, Wall Street soared to its best day in months in a widespread relief rally after some unexpectedly weak data on the economy raised the possibility that the Federal Reserve won’t have to be so aggressive about hiking interest rates.
The S&P 500’s leap of 2.6% to 3,678.43 was its biggest since July, the latest swing for a scattershot market that’s been mostly falling this year on worries about a possible global recession.
The Dow Jones Industrial Average jumped 2.7%, to 29,490.89, and the Nasdaq composite gained 2.3% to 10,815.43.
Stocks took their cue from the bond market, where yields fell to ease some of the pressure that’s been battering markets this year. The yield on the 10-year Treasury, which helps set rates for mortgages and many other kinds of loans, fell to 3.62% from 3.83% late Friday. It got as high as 4% last week after starting the year at just 1.51%.
A report on U.S. manufacturing came in weaker than expected, along with data showing a drop off in construction spending from July to August. That may seem discouraging, but could mean the Federal Reserve can ease off on raising interest rates to beat down the high inflation damaging households’ finances.
By raising rates, the Fed is making it more expensive to buy a house, a car or most anything else purchased on credit. The hope is to slow the economy just enough to starve inflation of the purchases needed to keep prices rising so quickly.
The Fed has already pulled its key overnight interest rate to a range of 3% to 3.25%, up from virtually zero as recently as March. Most traders expect it to be more than a full percentage point higher by early next year.
But stresses are building in financial markets and corporate profits have weakened as central banks around the world hike rates in concert.
The yield on the two-year Treasury, which more closely tracks expectations for Fed action, fell to 4.11% from 4.27% following the weaker-than-expected reports on the economy.
Besides stocks, lower rates also boost prices for everything from cryptocurrencies to gold, which can suddenly look a bit more attractive when bonds are paying less in income.
Stocks of high-growth companies and particularly risky or expensive investments have been the most affected by changes in rates. Bitcoin rallied Monday with the reprieve in yields, while technology stocks did the heaviest lifting to carry the S&P 500. Apple and Microsoft both rose more than 3%.
Monday’s rally came despite an 8.6% drop for Tesla, one of the most influential stocks on Wall Street because of its massive market value. The maker of electric vehicles delivered fewer vehicles from July through September than investors expected.
The latest update on the U.S. jobs market comes on Friday. Along with reports on inflation, the jobs report is one of the most highly anticipated pieces of data on Wall Street each month.
It will be the last jobs report before the Fed makes its next decision on interest rates, scheduled for Nov. 2. Continued strength would give the central bank more leeway to keep hiking. Traders say the likeliest move is a fourth straight increase of a whopping three-quarters of a percentage point, triple the usual move.
In energy trading, benchmark U.S. crude added 23 cents to $83.86 a barrel. It jumped Monday amid speculation big oil-producing countries could soon announce cuts to production. Shares of energy-producing companies made big gains. Exxon Mobil leaped 5.3%, and Chevron climbed 5.6%. Brent crude, the international standard, added 42 cents to $89.28 a barrel.
In currency trading, the U.S. dollar inched up to 144.84 Japanese yen from 144.81 yen. The euro cost 98.28 cents, inching down from 98.40 cents.
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Yuri Kageyama is on Twitter https://twitter.com/yurikageyama
BIRMINGHAM, England — So in the end, Liz Truss was for turning. But the damage to her faltering administration may already have been done.
On Monday, Truss’ Chancellor Kwasi Kwarteng bowed to pressure from Conservative Party colleagues and dumped his flagship cut to the top rate of tax from 45p to 40p — a central component of last month’s so-called mini-budget.
Later it emerged he will also bring forward an announcement on how the tax cuts will be funded, having initially insisted the public — and the markets — must wait until November 23.
A parliamentary insurrection, which was rapidly gaining pace as MPs met for their annual party conference in Birmingham on Sunday, appears to have been quelled, for now.
Asked if he would now support the mini-budget in parliament following the abandonment of its most controversial measure, rebel ringleader Michael Gove said: “Yeah I think so, on the basis of everything that I know. There were lots of good things that they announced … The debate over the 45p tax increase obscured that.”
The market reaction was also mildly positive, with the bond and currency markets rallying somewhat following the announcement.
But most MPs and delegates in Birmingham believe it will take significantly more than a single U-turn to rebuild the political and fiscal credibility of the fledgling Truss administration, with some MPs fearful a revival is already out of reach.
“She started very poorly, and in my experience, what you see is what you get. People aren’t mysteriously really shit, and then become really good,” one senior Tory MP said.
Pissed-off
While a Tory rebellion appears to have been averted for now, few MPs believe it will be the last Truss faces in the difficult weeks and months ahead.
Even before Kwarteng’s now-infamous ‘fiscal event,’ Truss had plenty of detractors on Conservative benches. Only around a third of her own MPs backed her in the leadership contest, and after taking office she almost exclusively chose loyalists for her ministerial ranks. Those who backed her opponent Rishi Sunak were left out in the cold.
“Her party management has pissed people off,” the senior Tory MP quoted above said, with many of what they described as talented MPs questioning whether it was even worth backing the government in the long-term.
But while the “lightning rod” of the 45p tax rate had now been “neutralized,” according to one minister, backbenchers could soon find another hot topic and “push on that next.”
Chancellor Kwasi Kwarteng | Ian Forsyth/Getty Images
Two potential major flashpoints will be the new government’s approach to welfare payments, and funding public services. Ministers are currently undecided over whether to uprate benefits in line with inflation — as pledged by Boris Johnson’s administration — while also dropping heavy hints that cuts to the state are on their way.
The opposition Labour Party, now surging ahead in the polls, see political capital too in Truss’ stated plans to lift the cap on bankers’ bonuses and abandon a hike to corporation tax.
“They’ve still got a totally unfunded £17 billion [corporation] tax giveaway for the wealthiest businesses at a time when people and businesses are struggling with the cost of living.” one Labour official said, in a taste of the messaging Tory MPs will likely be up against at the next election.
Few Tory MPs are optimistic Truss can turn things around.
“Politics works as a pendulum. If it swings towards the middle it’s possible to pull it back. But if it swings too far it can become irreversible,” the minister quoted above said.
Writing for POLITICO, Boris Johnson’s former No. 10 comms chief Lee Cain said it was “unlikely” Truss’ reputation would ever recover.
“It didn’t need to be this way,” he wrote. “Many of the unforced errors could have been avoided if the PM had understood how to talk to the audience that matters most — the electorate.:
Benefit of the doubt
But voters may yet be more forgiving than some of Truss’ critics in the party, according to pollsters and focus group experts keeping a close eye on public opinion.
“We consistently find voters don’t mind a U-turn on an unpopular policy,” said Luke Tryl, director of the More in Common consultancy, which regularly hosts focus groups across the country.
“In fact one of the things we found during the leadership contest was that people quite liked the fact that Liz Truss changed her mind, because they felt that’s what normal people do,” he said.
But he cautioned that while voters don’t mind U-turns as one-offs, “a series of them starts to look chaotic and will worry voters about whether the government knows what it is doing to see the country through the turmoil.”
Fiscal credibility
Crucially, reversing just £2 billion of the proposed £45 billion of unfunded tax cuts seems insufficient, in isolation, to restore trust in the U.K. economy and bring down spiraling interest rates.
“When market trust has been shattered, as we saw last week, the uphill task of restoring credibility is extremely hard and even harder when strategies shift,” Charles Hepworth, investment director at GAM, said.
“The market currently has little faith that the prime minister and chancellor can restore credibility in the short term, and this puts further renewed pressure on U.K. risk assets.”
Neil Birrell, chief investment officer at Premier Miton Investors, agreed the U-turn would not solve the turmoil in financial markets.
“High inflation and high interest rates are not going away quickly, and economic growth is under severe threat,” he said.
“Markets still need to hear how the package will be funded,” added Iain Anderson, executive chairman at H/Advisers Cicero, who said the next fiscal statement planned for November 23 must be brought forward as a matter of urgency.
The first senior Tory MP quoted above lamented that the market turmoil following the mini-budget meant the Tory party would now “own interest rate rises — a lot of which were going to happen anyway.”
“I cannot remember in my life when any politician has recovered from such a savage self-inflicted wound,” Giles Wilkes, a senior fellow at the Institute for Government and partner at Flint Global, said.
“Gordon Brown recovered somewhat from the multiple slip-ups of 2007-08 with his commanding response to the global financial crisis, but even that wasn’t enough.”
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US manufacturing activity grew at its slowest pace in almost two and a half years last month, according to the Institute for Supply Management.
United States manufacturing activity grew at its slowest pace in nearly two and a half years in September as new orders contracted while interest rates were aggressively hiked to cool demand and tame inflation.
The Institute for Supply Management (ISM) said on Monday that its manufacturing purchasing managers’ index or PMI dropped to 50.9 in September, the lowest reading since May 2020, from 52.8 in August.
A reading above 50 indicates expansion in manufacturing, which accounts for 11.9 percent of the US economy. Economists polled by Reuters news agency had forecast the index slipping to 52.3.
Some of the slowdown in manufacturing reflects the rotation of spending from goods to services. Government data last Friday showed spending on long-lasting manufactured goods barely rose in August, while outlays on services picked up.
The US Federal Reserve has since March hiked its policy rate from near zero to the current range of 3 percent to 3.25 percent, and last month signalled more large increases were on the way this year.
The higher borrowing costs are undercutting spending on big-ticket items such as household appliances and furniture, which are typically bought on credit.
The ISM survey’s forward-looking new orders subindex fell to 47.1 last month, also the lowest reading since May 2020, from 51.3 in August. It was the third time this year that the index has contracted. Order backlogs are also being whittled down. While that pointed to a further slowdown in manufacturing, it was also a function of easing bottlenecks in the supply chain.
The ISM’s measure of supplier deliveries fell to 52.4 from 55.1 in August. A reading above 50 percent indicates slower deliveries to factories.
With supply chains loosening, inflation pressures at the factory gate continued to subside.
A measure of prices paid by manufacturers dropped to 51.7, the lowest reading since June 2020, from 52.5 in August. The continued slowdown is being driven by retreating commodity prices. Annual consumer and producer inflation decelerated in August, raising hope that prices had peaked.
The ISM survey’s measure of factory employment dropped to 48.7 from a five-month high of 54.2 in August. It was the fourth time this year that the index has contracted. The index has been a poor predictor of manufacturing payrolls in the government’s closely watched employment report. Those have consistently grown despite the gyrations in the ISM employment gauge.
Though job growth is slowing, demand for workers remains strong. There were 11.2 million unfilled jobs across the US economy at the end of July, with two job openings for every unemployed worker.
European far-right politicians just stormed to victory in Italy, after achieving historic results in France and Sweden.
“Everywhere in Europe, people aspire to take their destiny back into their own hands!” said Marine Le Pen, the leader of France’s far-right National Rally Party.
But if you think there is a new wave of right-wing radicalism sweeping Europe, you’d be wrong. Something else is going on.
Analysis by POLITICO’s Poll of Polls suggests far-right parties in the region on average did not increase their support by even one percentage point between the start of Russia’s invasion in Ukraine in February and today.
POLITICO looked at the median and average increase of all parties organized in right-wing European Parliament groups of Identity and Democracy, the European Conservatives and Reformists or unaffiliated parties with political far-right positions.
Overall, the results indicate that if an increase in support occurred for far-right parties, it happened several years ago.
The Sweden Democrats’ first surge happened after the 2014 election, when the party grew from around 10 percent to 20 percent, the same one-fifth share of the vote they received in this year’s election. The far-right Alternative for Germany AfD in Germany grew fast in 2015 and 2016 reaching 14 percent in POLITICO’s polling tracker. In Italy, the Northern League overtook Forza Italia for the first time in early 2015, and peaked in 2019 at 37 percent before starting a downward trend ending on 9 percent in last month’s election. In the Italian election, voters mostly switched between rival right-wing camps.
The far-right has moved from the fringes of politics into the mainstream, not only influencing the political center but also entering the arena of power.
“There is a normalization of far-right parties as an integral part of the political landscape,” said Cathrine Thorleifsson, who researches extremism at the University of Oslo. “They have been accepted by the electorate and also by other, conventional parties.”
Cooperation between the center-right and the extreme-right has become less taboo.
“The rise of far-right parties is only part of the story. The facilitating and mainstreaming of far-right parties as well as the adoption of far-right frames and positions by other parties is at least as important,” tweeted Cas Mudde, a leading scholar on the issue.
This may risk destabilizing Europe even more than winning a couple of percentage points in the polls.
Italy’s far-right firebrand Giorgia Meloni is a clear-cut example. While her party draws its origin from groups founded by former fascists, she’ll now lead the EU’s third-largest economy.
Leader of Italian far-right party “Fratelli d’Italia” (Brothers of Italy), Giorgia Meloni | Pitro Cruciatti/AFP via Getty Images
In Sweden, the center-right party has started coalition talks for a minority government which would have to draw on opposition support, most likely from the far-right Swedish Democrats. Far-right parties have also entered governments in Austria, Finland, Estonia and Italy. Other countries are likely to follow.
George Simion, the leader of Romania’s far-right party, Alliance for the Union of Romanians (AUR), celebrated Meloni’s win in Italy, saying his party is likely to follow in their footsteps.
Spain heads to the ballot box next year and socialist Prime Minister Pedro Sánchez may have a tough time winning re-election. The conservative People’s Party is between five and seven points ahead of the Spanish socialists in all the published polls, but it is unlikely to garner enough votes to secure a governing majority outright.
That means it may have to come to an agreement with far-right party Vox, whose leader, Santiago Abascal, is an ally of Meloni’s. While the People’s Party previously refused to govern with Vox, last spring its newly elected leader, Alberto Núnez-Feijóo, greenlit a coalition agreement with the ultranationalist group in Spain’s central Castilla y León region.
Tom Van Grieken, the right-wing Belgian politician, also pointed to Spain as the next likely example, especially because of the possible cooperation with the PP. “All over Europe, we see conservative parties who are considering breaking the cordon sanitaire,” he said, referring to the refusal of other parties to work with the far-right. “They are tired of compromising with their ideological counterparts, the parties at the left end of the spectrum.”
Chairman of Vlaams Belang party Tom Van Grieken | Stephanie Le Coqc/EFE via EPA
This didn’t happen overnight. The far-right worked hard to shrug off their extremist, neo-Nazi image.
“In some of the reporting on the Swedish Democrats, you’d think they’ll deport people on trains as soon as they’re in power. Come on, these parties have changed,” said one EU official with right-wing affiliations.
The far-right invested in “image adjustment and trying to tread carefully with some issues, while unashamedly catering to others,” said Nina Wiesehomeier, a political scientist at the IE University of Madrid. “This is particularly obvious in Italy right now, with Meloni sticking to the slogan of ‘God, homeland, family,’ as a continuation, while having tried to purge the party from more radical elements.”
In Belgium’s northern region of Flanders, the right-wing Vlaams Belang (Flemish Interest) explicitly dismisses the label “extreme-right.” Just like his counterparts in Italy, Sweden and France, Van Grieken, the party’s president, denounced the more extremist positions of his group’s founding fathers and moderated his political message to make voting for the far-right socially acceptable.
Overt racism is taboo. Instead, the rhetoric changes to criticizing an open-door migration policy. By carefully catering to centrist voters, the far-right aims for a bigger slice of the cake, while still riding on the anti-establishment discontent.
“There is a clear fault line between the winners of globalization and the nationalists,” Van Grieken told POLITICO. “This comes on top on the concerns about mass migration, whether it’s in Malmö, Rome or other European cities.”
Perfect storm
Now, the time is right to capitalize on that transformation.
As Europe is battling record inflation and Europeans fear exorbitant heating bills, governments warn about the political implications of a “winter of discontent.”
“It’s a massive drainage of European prosperity,” Belgian Prime Minister Alexander De Croo told POLITICO recently. “In the current situation, it’s hard to believe in progress, it’s very hard to make progress. So there’s a very pessimistic feeling.”
The current war in Ukraine is the latest in a succession of crises — in global finance, migration and the pandemic. Experts argue that this is key to understanding the rising support for the far-right.
“Such existential crises have a destabilizing effect and lead to fear,” said Carl Devos, a professor in political science at Ghent University. “Fear is the breeding ground for the far-right. People tend to translate that fear and outrage into radical voting behaviour.”
Migration and identity politics are less prominent in the media because of the Ukraine war and rising energy prices, but they’re still key issues in right-wing debate.
In Austria, the coalition parties fought over whether or not asylum seekers should receive climate bonuses. In the Netherlands, the death of a baby at the asylum center Ter Apel led to a renewed debate over the overcrowded migration centers.
The combination of those issues is likely to feed into more right-wing wins across the continent. “The far-right offers nationalist, protectionist solutions to the globalized crises, said Thorleifsson. “We see how the migration issue was momentarily off the agenda during the pandemic, but now it’s back.”
Aitor Hernández-Morales, Camille Gijs and Ana Fota contributed reporting.
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.
New York CNN Business
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Investors, economists and members of the Federal Reserve will be poring over the September jobs report on Friday morning for clues about the health of the economy. But one figure may matter more than most…and it’s not the number of jobs added or the unemployment rate. It’s wage growth.
Inflation is not just a function of the price of oil and other commodities and production costs like manufacturing and shipping. How much workers take home in their paychecks is also a big part of the inflation picture.
When people have more money in their wallets (virtual or good old-fashioned leather ones), they tend to be more willing to spend it. That gives companies additional flexibility to raise prices.
Average hourly wages rose 5.2% over the past 12 months according to the August jobs report. That’s down from a 2022 peak growth rate of 5.6% in March.
Companies can’t raise prices as much if workers are making less or they risk big destruction in demand.
The problem is that wage growth above 5% is still historically high. Before the pandemic, wages typically rose just 3% year-over-year. But labor shortages, due to Covid-19 and people dropping out of the workforce, shifted power from employers to employees when it came to worker pay.
That’s another reason why companies have continued to raise prices: To offset rising costs.
The government reported Friday that its preferred inflation metric, personal consumption expenditures (PCE), rose 6.2% from a year ago in August. That was lower than July’s reading.
But the so-called core PCE figure, which excludes food and energy prices, rose 4.9% through August, up from a 4.7% increase in July.
What’s more, the Fed typically is looking for just a 2% growth rate in the headline PCE number as a sign of price stability. That’s not going to happen anytime soon. In fact, the Fed’s latest forecasts suggest that the central bank thinks PCE will rise 5.4% this year, up from projections of 5.2% in June.
“I don’t see anything in the near-term to give the Fed tons of comfort that inflation is on the trajectory to 2%,” said David Petrosinelli, senior trader with InspireX. “Wages will remain elevated and that will keep the Fed in a pickle.”
“Wages are a real pain point. People are paying more but not making more,” said Marta Norton, chief investment officer of the Americas with Morningstar Investment Management. With that in mind, Norton said there is a “higher probability of stagflation.”
Stagflation is the nasty economic combination of stagnant growth and persistent inflation.
Retail sales have held up relatively well despite inflation pressures, but Norton warns that can’t last forever. American shoppers would eventually reach their breaking point and just start buying essentials. A slowdown in consumption will inevitably lead to lower prices…but also slower economic growth.
“Inflation is its own cure. Consumers have the power to spend or not spend,” she said.
The third quarter is mercifully over. It’s been another doozy for the market. September in particular was bleak. It was the worst month for the Dow since the start of the pandemic in March 2020.
But even though we’re seemingly in a bear market for everything as bonds, gold and bitcoin have all tumbled this year as well, there are some hopeful signs for the next few months.
The fourth quarter is typically a festive time on Wall Street. Investors tend to buy stocks in anticipation of robust consumer shopping during the holidays. Businesses typically spend more as well to flush out those yearly budgets. And major companies also often give rosy guidance in October about earnings expectations for the coming year.
“October has been a turnaround month—a ‘bear killer’ if you will,” said Jeff Hirsch, editor-in-chief of the Stock Trader’s Almanac, in a recent blog post.
Hirsch added that a dozen bear markets since World War II have ended in the month of October. And of those twelve, seven market bottoms happened during midterm election years.
Traders will definitely be keeping close tabs on Washington this fall to see if Republicans gain control of the House. That could lead to more gridlock in DC, which investors tend to like.
Whether or not Corporate America and investors are going to be so bullish this October is up for debate given the concerns about inflation, interest rates and the global economy. After all, October is also famous for huge crashes, most recently in 2008 but also in 1987 and, of course, 1929.
So stocks definitely could take another turn for the worse. But experts are hopeful that the end of the bear market is in sight.
“We’re nearer to a bottom,” said Christopher Wolfe, chief investment officer of First Republic Private Wealth Management. “A lot of quality companies are on sale. It’s a time to be patient and reposition.”
Monday: US ISM manufacturing; China stock markets closed all week
Tuesday: US job openings and labor turnover (JOLTS); Japan inflation; Australia interest rate decision
Wednesday: US ADP private sector jobs; US ISM services; OPEC+ meeting
Thursday: US weekly jobless claims; earnings from ConAgra
(CAG), Constellation Brands
(STZ), McCormick
(MKC) and Levi Strauss
(LEVI)
Friday: US jobs report; Germany industrial production; earnings from Tilray
(TLRY)
British Prime Minister Liz Truss admitted mistakes had been made with her government’s controversial “mini-budget” announced last week – which sent the pound to historic lows and sparked market chaos – but stood by her policies.
Speaking to the BBC’s Laura Kuenssberg on Sunday morning Truss said: “I do accept we should have laid the ground better and I’ve learned from that, and I’ll make sure I’ll do a better job of laying the ground in the future.”
She said that she wanted “to tell people I understand their worries about what happened this week and I stand by the package we announced and I stand by the fact we announced it quickly.”
Last week, Truss’ government announced that they would cut taxes by £45 billion ($48 billion) in a bid to get the UK economy moving again, with a package that includes scrapping the highest rate of income tax for top earners from 45% to 40% and a big increase in government borrowing to slash energy prices for millions of households and businesses this winter.
Many leading economists described the unorthodox measures as a reckless gamble, noting that the measures came a day after the Bank of England warned that the country was already likely in a recession.
Truss said the reforms were not agreed by her cabinet, but were a decision made by Chancellor Kwasi Kwarteng. “It was a decision the chancellor made,” she told the BBC.
She doubled down on that decision however, saying that her government made the “right decision to borrow more this winter to face the extraordinary consequences we face,” referring to the energy crisis caused by the war in Ukraine. She claimed that the alternative would be for people to pay up to £6,000 in energy bills, and that inflation would be 5% higher.
“We’re not living in a perfect world, we are living in a very difficult world, where governments around the world are taking tough decisions,” Truss said.
Regarding the rising cost of living in the UK, namely the rise of mortgage rates, Truss said that is mostly driven by interest rates and is “a matter for the independent Bank of England.”
The Bank of England said Wednesday it would buy UK government debt “on whatever scale is necessary” in an emergency intervention to halt a bond market crash that it warned could threaten financial stability.
Meanwhile, Credit Suisse said that UK house prices could “easily” fall between 10% and 15% over the next 18 months if the Bank of England aggressively hikes interest rates to keep inflation in check.
The fallout could make it harder for people to get approved for mortgages, and encourage prospective buyers to delay their purchases. A drop in demand would lead to falling prices.
The party is bitterly divided, with its poll ratings sinking lower than they were even under the disgraced leadership of Boris Johnson.
On Sunday, that chill was evident, as Nadine Dorries, the former culture secretary who backed Truss to be prime minister, accused Truss of throwing Chancellor Kwasi Kwarteng “under a bus” in her BBC interview, when she said the tax cut decision were made by him and not the Cabinet.
“One of @BorisJohnson faults was that he could sometimes be too loyal and he got that. However, there is a balance and throwing your Chancellor under a bus on the first day of conference really isn’t it. [Hope] things improve and settle down from now,” Dorries said on Twitter.
Conservative members of parliament fear the combination of tax cuts along with huge public spending to help people cope with energy bills, rising inflation, rising interest rates and a falling pound are going to make winning the next general election impossible.
Wall Street is at its worst levels in almost two years Friday as the end nears for what’s been a miserable month for markets around the world.
The S&P 500 closed down 1.5%, at 3,585, after flipping between small losses and gains through the morning. It’s at its lowest level since the early 2020 coronavirus crash and its third straight losing quarter.
The Dow Jones Industrial Average closed down 500 points, or 1.7%, and the Nasdaq composite was down 1.5%.
The main reason for this year’s struggles for financial markets has been fear of a possible recession, as interest rates soar in hopes of beating down the highest inflation in 30 years.
The Federal Reserve has been at the forefront of the global campaign to slow economic growth and hurt job markets just enough to undercut inflation but not so much that it causes a recession. More data arrived Friday to suggest the Fed will keep its foot firmly on the brakes of the economy, raising the risk it will bring on a downturn.
The Fed’s preferred measure of inflation showed it was worse last month than economists expected. That should keep the Fed on track to keep raising rates and hold them at high levels for some time, as it’s loudly and repeatedly promised to do.
Vice Chair Lael Brainard was the latest Fed official on Friday to insist the central bank won’t pull back on rates prematurely, dashing Wall Street’s hopes for a “pivot” toward easier rates as the economy slows.
“The Fed isn’t about to ‘pivot’ and there is more monetary tightening to come (both domestically and internationally),” said analyst Adam Crisafulli of Vital Knowledge in a research note.
Crisafulli argued the Fed’s aggressive moves are working, and that prices are about to stabilize. “The disinflationary pressures already evident throughout the economy are growing more powerful,” Crisafulli said. “Housing, rents, shipping, commodities, apparel, autos, etc. – all these categories … are now witnessing intense disinflation (or outright deflation).
Other analysts have a less positive outlook.
“At this point, it’s not a matter of if we’ll have a recession, but what type of recession it will be,” said Sean Sun, portfolio manager at Thornburg Investment Management.
With the exception of financial companies such as banks, brokerages or mortgage companies, higher interest rates generally knock down stock prices. The other market lever that also looks to be under threat is earnings, as the slowing economy, high interest rates and other factors weigh on record-high corporate profits.
Cruise ship operator Carnival dropped 21% for one of Wall Street’s worst losses after it reported a bigger loss for its latest quarter than analysts expected and revenue that fell short of expectations.
Nike slumped 12.1% in what could be its worst day in two decades after it said its profitability weakened during the summer because of discounts needed to clear suddenly overstuffed warehouses. The amount of shoes and gear in Nike’s inventories swelled by 44% from a year earlier.
The U.S. dollar’s powerful surge against other currencies also hurt Nike. Its worldwide revenue rose only 4%, instead of the 10% it would have if currency values had remained the same.
Glimmers of hope
Nike isn’t the only company to see its inventories balloon. So have several big-name retailers — but such bad news for businesses could actually mean some relief for shoppers if overstocks lead to more discounts. Friday’s report on the Fed’s preferred gauge of inflation had some glimmers of enocuragement — showing slowing inflation for goods, even as price gains accelerated for services.
Another report on Friday also offered some good news. A measure of consumer sentiment showed U.S. expectations for future inflation came down in September. That’s crucial for the Fed because tightly held expectations for higher inflation can create a debilitating, self-reinforcing cycle that worsens it.
Treasury yields eased a bit on Friday, letting off some of the pressure that’s built on markets.
The yield on the 10-year Treasury fell to 3.75% from 3.79% late Thursday. The two-year yield, which more closely tracks expectations for Fed action, sank to 4.16% from 4.19%.
Still, a long list of other worries continues to hang over global markets, including increasing tensions between much of Europe and Russia following the invasion of Ukraine. A controversial plan to cut taxes by the U.K. government also sent bond markets spinning recently on fears it could make inflation even worse. Bond markets calmed a bit only after the Bank of England pledged mid-week to buy however many U.K. government bonds are needed to bring yields back down.
The stunning and swift rise of the U.S. dollar against other currencies, meanwhile, raises the risk of creating so much stress that something cracks somwhere in global markets.
Stocks around the world were mixed after a report showed that inflation in the 19 countries that use Europe’s euro currency spiked to a record and data from China said that factory activity weakened there.
NEW YORK — Wall Street is drifting around its worst levels in almost two years Friday as the end nears for what’s been a miserable month for markets around the world.
The S&P 500 was virtually unchanged in midday trading after flipping between small losses and gains through the morning. It’s hovering around its lowest level since November 2020, and it’s on pace to close out its sixth weekly loss in the last seven, one of its worst months since the early 2020 coronavirus crash and its third straight losing quarter.
The Dow Jones Industrial Average was down 95 points, or 0.3%, at 29,130, as of noon Eastern time, and the Nasdaq composite was 0.4% higher.
The main reason for this year’s struggles for financial markets has been fear about a possible recession, as interest rates soar in hopes of beating down the high inflation that’s swept the world.
The Federal Reserve has been at the forefront of the global campaign to slow economic growth and hurt job markets just enough to undercut inflation but not so much that it causes a recession. More data arrived Friday to suggest the Fed will keep its foot firmly on the brakes on the economy, raising the risk of its going too far and causing a downturn.
The Fed’s preferred measure of inflation showed prices rising even faster than economists expected last month, while spending by consumers rebounded. That should keep the Fed on track to keep raising rates and hold them at high levels a while, as it’s loudly and repeatedly promised to do.
Vice Chair Lael Brainard was the latest Fed official on Friday to insist it won’t pull back on rates prematurely. That helped to keep snuffed out hopes on Wall Street for a “pivot” toward easier rates as the economy slows.
“At this point, it’s not a matter of if we’ll have a recession, but what type of recession it will be,” said Sean Sun, portfolio manager at Thornburg Investment Management.
Higher interest rates knock down one of the main levers that set prices for stocks. The other also looks to be under threat as the slowing economy, high interest rates and other factors weigh on corporate profits.
Nike slumped 11.8% in what could be its worst day in two decades after it said its profitability weakened during the summer because of discounts needed to clear suddenly overstuffed warehouses. The amount of shoes and gear in Nike’s inventories swelled by 44% from a year earlier. This year’s powerful surge for the U.S. dollar against other currencies also hurt the company. Its worldwide revenue rose only 4%, instead of the 10% it would have if currency values had remained the same.
Nike isn’t the only company to see its inventories balloon. So have several big-name retailers, and such bad news for businesses could actually mean some relief for shoppers if it leads to more discounts. It echoed some glimmers of encouragement buried within Friday’s report on the Fed’s preferred gauge of inflation. That showed some slowing of inflation for goods, even as price gains kept accelerating for services.
Another report on Friday also offered a glimmer of hope. A measure of consumer sentiment showed U.S. expectations for future inflation came down in September. That’s key for the Fed because expectations for higher inflation among households can create a debilitiating, self-reinforcing cycle that worsens it.
Treasury yields eased a bit on Friday, letting off some of the pressure that’s built on markets.
The yield on the 10-year Treasury fell to 3.73% from 3.79% late Thursday. The two-year yield, which more closely tracks expectations for Fed action, sank to 4.13% from 4.19%.
Still, a long list of other worries continues to hang over global markets, including increasing tensions between much of Europe and Russia following the invasion of Ukraine. A controversial plan to cut taxes by the U.K. government also sent bond markets spinning on fears it could make inflation even worse. Bond markets calmed a bit after the Bank of England pledged mid-week to buy however many U.K. government bonds are needed to bring yields back down.
The stunning and swift rise of the U.S. dollar against other currencies, meanwhile, raises the risk of creating so much stress that something cracks somwhere in global markets.
Stocks around the world were mixed after a report showed that inflation in the 19 countries that use Europe’s euro currency spiked to a record and data from China said that factory activity weakened there.
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AP Business Writers Joe McDonald and Matt Ott contributed.
FILE – Reserve Bank of India (RBI) Governor Shaktikanta Das gestures during a press conference after RBI’s bi-monthly monetary policy review meeting in Mumbai, India, on Feb. 6, 2020. India’s central bank on Friday, Sept. 30, 2022, raised its key interest rate by 50 basis points to 5.90% in its fourth hike this year and said the economies of developing countries were confronted with challenges of slowing growth, elevated food and energy prices, debt distress and currency depreciation. (AP Photo/Rajanish Kakade, File)
India’s central bank has raised its key interest rate to 5.90% and said developing economy were facing slowing growth, elevated food and energy prices, debt distress and currency depreciation
NEW DELHI — India’s central bank on Friday raised its key interest rate by 50 basis points to 5.90% in its fourth hike this year and said developing economies were facing challenges of slowing growth, elevated food and energy prices, debt distress and currency depreciation.
Reserve Bank of India Governor Shaktikanta Das projected inflation at 6.7% in the current fiscal year which runs to next March. June was the sixth consecutive month with inflation above the central bank’s tolerance level of 6%, he said in a statement after a meeting of the bank’s monitoring committee.
He said the central bank will remain focused on the withdrawal of the accommodative monetary policy.
The bank’s monetary committee slashed the real economic growth forecast to 7% for the current financial year from 7.2% forecast in August. The economic growth for the first quarter of the next financial year is expected around 6.7%.
Das said the world has been confronted with one crisis after another, but India has withstood shocks from the coronavirus pandemic and the conflict in Ukraine.
Das also said the Indian rupee has depreciated by 4% since April against 14% appreciation in the U.S. dollar. “The rupee has fared better than many other currencies” and the Reserve Bank Of India’s foreign exchange reserves umbrella remains strong, he said.
The Indian rupee has plunged to an all-time low of 81.58 rupees to one U.S. dollar.
Stocks plunged on Wall Street Thursday as bond yields marched higher and put the squeeze back on markets.
The S&P 500 dropped 79 points, or 2.1%, to 3,640. Nearly every stock in the benchmark index lost ground. The Dow Jones Industrial Average dropped 458 points, or 1.5%, to 29,225 and the Nasdaq fell 2.8%.
The slide marked a reversal from Wednesday, when stocks jumped and bond yields tumbled in relief after the Bank of England moved forcefully to keep borrowing rates in the United Kingdom from spiking further. That relief was short-lived, however, with Wall Street still focused on the Federal Reserve’s push to ratchet up interest rates and cool inflation.
“The primary driver of today’s slump is the U.K. as [Prime Minister Liz] Truss defended her government’s fiscal agenda, calling it the ‘right plan’ and vowing to press forward with its implementation,” analyst Adam Crisafulli of Vital Knowledge said in a research note. “Not until Truss yields on her plans (or provides additional details) will gilts and the [British pound] truly settle,” he said.
U.S. bond yields jumped. The yield on the 2-year Treasury, which tends to follow expectations for Federal Reserve action, fell to 4.23% from 4.14% late Wednesday. It is trading at its highest level since 2007. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.80% from 3.73%.
Russia’s war in Ukraine
“The situation with Russia remains a source of concern, too,” added Crisafulli.
Russia confirmed on Thursday it will formally annex parts of Ukraine where occupied areas held Kremlin-orchestrated “referendums” on living under Moscow’s rule.
“The referendums could bring a stalemate to the fighting, but this isn’t necessarily a ‘positive’ as Europe’s energy crisis grows more acute,” Crisafulli said.
However, the United States and its Western allies have sharply condemned the votes as “sham referenda” and vowed never to recognize their results. German Foreign Minister Annalena Baerbock on Thursday joined other Western officials in denouncing the referendums.
“Under threats and sometimes even (at) gunpoint people are being taken out of their homes or workplaces to vote in glass ballot boxes,” she said at a conference in Berlin.
Recession fears bolstered by jobs report
A better-than-expected government report on U.S. layoffs only bolstered expectations that the Fed will keep hiking interest rates and investors are worried that it could hit the brakes on the economy too hard and cause a recession.
The U.S. economy has already contracted for two consecutive quarters, which is one informal measure of a recession. But, the employment market remains strong and consumers continue spending. That has helped bolster the economy and is making it more difficult to get inflation under control.
In a wide-ranging conversation with Scott Pelley, President Biden answers questions on Taiwan, inflation, the classified documents found in former President Trump’s home and more.
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WASHINGTON — The number of Americans filing for jobless benefits dropped last week, a sign that few companies are cutting jobs despite high inflation and a weak economy.
Applications for unemployment benefits for the week ending Sept. 24 fell by 16,000 to 193,000, the Labor Department reported Thursday. That is the lowest level of unemployment claims since April. Last week’s number was revised down by 4,000 to 209,000.
Jobless aid applications generally reflect layoffs. The current figures are very low historically and suggest Americans are benefiting from an unusually high level of job security. A year ago this week, 376,000 people applied for benefits.
The economy shrank in the first half of the year, the government said in a separate report Thursday on gross domestic product, the broadest measure of the economy’s output.
Yet employers, who have struggled to rehire after laying off 22 million workers at the height of the pandemic, are still looking to fill millions of open jobs. There are currently roughly two open positions for every unemployed worker, near a record high.
With companies desperate for workers, they are much more likely to hold onto their current staff.
Employers are also offering higher pay and benefits to attract and keep employees. Those higher salaries are contributing to inflation pressures.
The Federal Reserve is aiming to bring down inflation by rapidly raising its key interest rate, which is currently in a range of 3% to 3.25%. A little more than six months ago, that rate was near zero. The sharp rate hikes have pushed up mortgage rates and other borrowing costs. The Fed hopes that higher interest rates will slow borrowing and spending and drive inflation down towards its 2% target.
Fed officials are increasingly warning that the unemployment rate will likely have to rise as part of their fight against rising prices. If the number of unemployment claims drops, as it did last week, it suggests the Fed may have to raise rates even higher than it plans to slow the economy.
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This has been corrected to show that the level of unemployment benefits applications is the lowest since April, rather than May.
SOFIA, Bulgaria — Bulgarians will go to the polls for the fourth time in less than two years in a general election overshadowed this time by the war in Ukraine, rising energy costs and galloping inflation.
Pollsters expect that voters’ fatigue and disillusionment with the political system will result in low turnout and a fragmented parliament where populist and pro-Russia groups could increase their representation.
The early election comes after a coalition led by pro-Western Prime Minister Kiril Petkov lost a no-confidence vote in June. He claimed that Moscow used “hybrid war” tactics to bring down his government after it refused to pay gas bills in rubles and ordered the expulsion of 70 Russian diplomatic staff from Bulgaria.
The latest opinion polls suggest that up to seven parties could pass the 4% threshold to enter parliament in a contested vote on Sunday.
Despite a decrease in support for the GERB party of ex-Prime Minister Boyko Borissov in previous elections, it is tipped now to finish first. Analysts explain that the shift is likely because of voters’ reluctance to accept change in times of crises and a preference to chose a party they are familiar with.
Parvan Simeonov, a Sofia-based political analyst for Gallup International, said that the war in Ukraine has a strong influence on this election.
“While at previous polls the division was for and against the model of governance of the last 10 years personified by GERB and Boyko Borissov, the main issues now are stabilization, keeping prices low and dealing with the consequences of the war,” Simeonov told The Associated Press.
“The main division in the country now is between East and West on the political map, rather than between status quo and change,” he added.
Still, the predicted percentage won’t be enough for Borissov’s party to form a one-party government, and the chances for a GERB-led coalition are slim as it is blamed for corruption by almost all other opponents.
A recent Gallup International survey ranked GERB first with 25.9%, followed by its main rival — Petkov’s We Continue the Change party with 19.2%.
Borissov, addressing party activists at the last campaign event in Sofia, was positive that GERB would score a convincing victory.
“That’s the only solution for Bulgaria. We have the rare chance to have a stable government,” said the 63-year-old ex-premier, who is vying for a fourth term in office.
His main rival, Kiril Petkov, is also confident that Sunday’s vote will yield positive results for his party.
“I certainly expect us to be the first political power. The goal is to have a majority in the next parliament together with the other two parties — Democratic Bulgaria and the Socialist Party,” he told the AP.
The war in Ukraine was among the main topics in the campaign and calls by the leader of the pro-Russia party Vazrazhdane, Kostadin Kostadinov, for “full neutrality” of Bulgaria in this war are attracting many voters as latest opinion polls predict that the group would gain 11.3% of the votes, up from 4.9% at the previous election.
Deep conflicts between the main parties make it almost impossible to form a viable coalition government, which would prolong the political impasse and add more economic woes in the poorest European Union member country.
Simeonov sees a possible solution in forming a Cabinet of experts with a limited term.
“The other possible option would be no government and go to new elections,” he said.
The Biden administration, including the Treasury Department, is concerned by the UK’s tax-cut plan, an administration official familiar with the matter told CNN Thursday.
The risk for the United States is that any trouble on the other side of the Atlantic could spill over to the global financial system and world economy.
US Commerce Secretary Gina Raimondo criticized Truss’s plan Wednesday, pointing out that the British pound has “plummeted” since the proposal was unveiled.
“The policy of cutting taxes, and simultaneously increasing spending, isn’t one that is going to fight inflation in the short term or put you in good stead for long-term economic growth,” Raimondo said in response to a question at an event held by The Hamilton Project at the Brookings Institution.
Raimondo sought to contrast the UK’s approach with that of the Biden administration.
“We’re pursuing a different strategy … We’re taking inflation seriously, letting the Federal Reserve do its job, watching deficit spending,” she said. “Investors, businesspeople want to see world leaders taking inflation very seriously. And it’s hard to see that out of this new government.”
Biden officials have conveyed their worries about the UK plan through the International Monetary Fund, according to Bloomberg News, which previously reported on the concerns of US officials.
The United States is the largest shareholder in the IMF, which issued a rare criticism of the UK plan this week and urged the country’s officials to “reevaluate” the tax cuts.
“Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy,” an IMF spokesperson said earlier this week.
Truss defended her tax plan, telling CNN’s Jake Tapper last week that her government is incentivizing businesses to invest and helping ordinary people with their taxes.
Some US officials have been careful not to directly criticize their UK counterparts.
US Treasury Secretary Janet Yellen on Tuesday declined to comment directly on the UK economic plan, though she noted the UK is dealing with “significant inflation problems” — just like the United States.
Asked if she is concerned about disorderly markets, Yellen said “markets are functioning well” and she hasn’t seen liquidity problems emerge.
Yet the large swings in bond and currency markets raise questions about just how well markets are functioning.
A day after Yellen’s comments, the Bank of England announced an emergency intervention. The central bank promised to buy UK government debt “on whatever scale is necessary” to prevent a bond market crash and ease “dysfunction” in financial markets.
A week ago, the Bank of England took a stab in the dark. It raised interest rates by a relatively modest half a percentage point to tackle inflation. It couldn’t know the scale of the storm that was about to break.
Less than 24 hours later, the government of new UK Prime Minister Liz Truss unveiled its plan for the biggest tax cuts in 50 years, going all out for economic growth but blowing a huge hole in the nation’s finances and its credibility with investors.
The pound crashed to a record low against the US dollar on Monday after UK finance minister Kwasi Kwarteng doubled-down on his bet by hinting at more tax cuts to come without explaining how to pay for them. Bond prices collapsed, sending borrowing costs soaring, sparking mayhem in the mortgage market and pushing pension funds to the brink of insolvency.
Financial markets were already in a febrile state because of the rising risk of a global recession and the gyrations caused by three outsized rate increases from a US central bank on the warpath against inflation. Into that “pressure cooker” stumbled the new UK government.
“You need to have strong, credible policies, and any policy missteps are punished,” said Chris Turner, global head of markets at ING.
After verbal assurances by the UK Treasury and Bank of England failed to calm the panic — and the International Monetary Fund delivered a rare rebuke — the UK central bank pulled out its bazooka, saying Wednesday it would print £65 billion ($70 billion)to buy government bonds between now and October 14 — essentially protecting the economy from the fallout of the Truss’ growth plan.
“While this is welcome, the fact that it needed to be done in the first place shows that the UK markets are in a perilous position,” said Paul Dales, chief UK economist at Capital Economics, commenting on the bank’s intervention.
The emergency first aid stopped the bleeding. Bond prices recovered sharply and the pound steadied Wednesday against the dollar. But the wound hasn’t healed.
The poundtumbled 1%, falling back below $1.08 early Thursday. UK government bonds were under pressure again, with the yield on 10-year debt climbing to 4.16%. UK stocks fell 2%.
“It wouldn’t be a huge surprise if another problem in the financial markets popped up before long,” Dales added.
The next few weeks will be critical. Mohamed El-Erian, who once helped run the world’s biggest bond fund and now advises Allianz
(ALIZF), said that the central bank had bought some time but would need to act again quickly to restore stability.
“The Band-Aid may stop the bleeding, but the infection and the bleeding will get worse if they do not do more,” he told CNN’s Julia Chatterley.
The Bank of England should announce an emergency rate hike of a full percentage point before its next scheduled meeting on November 3. The UK government should also postpone its tax cuts, El-Erian said.
“It is doable, the window is there, but if they wait too long, that window is going to close,” he added.
The UK government has previewed rolling announcements in the coming weeks about how it plans to change immigration policy and make it easier to build big infrastructure and energy projects to boost growth, culminating in a budget on November 23 at which it has promised to publish a detailed plan for reducing debtover the medium term.
But it shows no sign of backing away from the fundamental policy choice of borrowing heavily to fund tax cuts that will mainly benefit the rich at a time of high inflation. And the UK Treasury says it won’t bring forward the November announcement.
Truss, speaking publicly for the first time since the crisis erupted, blamed global market turmoil and the energy price shock from Russia’s invasion of Ukraine for this week’s chaos.
“This is the right plan that we’ve set out,” she told local radio on Thursday.
One big problem identified by investors, former central bankers and many leading economists is that her government only set out half a plan at best. It went ahead without an independent assessment from the country’s budget watchdog of the assumptions underlying the £45 billion ($48 billion) annual tax cuts, and their longer term impact on the economy. It fired the top Treasury civil servant earlier this month.
Charlie Bean, former deputy governor at the Bank of England, told CNN Business that the government was guilty of “really stupid” decisions. His former boss at the bank, Mark Carney, accused the government of “undercutting” UK economic institutions, saying that had contributed to the “big knock” suffered by the country’s financial system this week.
“This is an economic crisis. It is a crisis… that can be addressed by policymakers if they choose to address it,” he told the BBC.
British newspapers have started to speculate that Truss will have to fire Kwarteng, her close friend and political soulmate, if she wants to regain the political initiative and prevent her government’s dire poll ratings from plunging even further.
“Every single problem we have now is self-inflicted. We look like reckless gamblers who only care about the people who can afford to lose the gamble,” one former Conservative minister told CNN.
But for now she’s trying to tough it out, and cling onto the Reaganite experiment.
“Raising, postponing, or abandoning tax cuts will be avoided by Truss at all costs as such a reversal would be humiliating and could leave her looking like a lame duck prime minister,” wrote Mujtaba Rahman and Jens Larson at political risk consultancy Eurasia Group.
The only alternative left to balance the books would be to slash government spending, and that would prove equally politically difficult as the country enters a recession with its public services under enormous strain and a restive workforce that has shown it’s ready to strike in large numbers over pay.
“Truss and Kwarteng are now facing a severe economic crisis as the world’s financial markets wait for them to make policy changes that they and the Conservative party will find unpalatable,” the Eurasia analysts wrote.
The foreign investors who keep the British economy solvent are left scratching their heads for another eight weeks, leaving plenty of time for doubts to surface again about the UK government’s commitment to responsible fiscal policymaking.
“The message of financial markets is that there is a limit to unfunded spending and unfunded tax cuts in this environment and the price of those is much higher borrowing costs,” Carney said.
That leaves the Bank of England in a tight spot. A week ago it was pressingthe brakes on the economy to take the heat out of price increases, even as the government tried to juice growth. The task got even harder this week when it was forced to dust off its crisis playbook and bail out the government.
It may not be long before it has to intervene again, this time with an emergency rate hike.
“[Wednesday’s] intervention is designed to stabilize UK government bond prices, keep the bond market liquid and prevent financial instability but that won’t necessarily stop sterling falling further, with its attendant inflationary consequences,” Bean, the former central banker, told CNN Business.
“I think there is still a good chance they will need to act ahead of the November meeting,” he added.
— Julia Horowitz, Luke McGee, Anna Cooban, Rob North, Livvy Doherty and Morgan Povey contributed to this article.
BEIJING — Asian stock markets followed Wall Street higher Thursday after Britain’s central bank moved forcefully to stop a budding financial crisis.
Market benchmarks in Hong Kong, Seoul and Sydney added more than 1%. Shanghai and Tokyo also rose. Oil prices edged lower after jumping by more than $3 per barrel the previous day.
Wall Street’s benchmark S&P 500 index surged 2% on Wednesday for its biggest gain in seven weeks after the Bank of England announced it would buy as many government bonds as needed to restore order to financial markets.
That helped to calm investor fears that planned British tax cuts would push up already high inflation. That had caused the value of the British pound to fall to its lowest level since the 1970s and bond prices to plunge.
The Shanghai Composite Index rose 0.8% to 3,068.87 and the Nikkei 225 in Tokyo gained 0.6% to 26,341.76. The Hang Seng in Hong Kong jumped 1.3% to 17,477.97.
The Kospi in Seoul gained 1.1% to 2,193.82 and Sydney’s S&P ASX 200 rose 1.6% to 6,566.80.
New Zealand and Southeast Asian markets also advanced.
On Wall Street, the S&P 500 rose to 3,719.04 after the Bank of England said it would buy bonds over the next two weeks to stop a slide in prices. Investors were rattled by plans for 45 billion pounds ($48 billion) of tax cuts with no spending reductions.
The central bank earlier warned crumbling confidence in the economy posed a “material risk to U.K. financial stability.” The International Monetary Fund took the rare step of urging a member of the Group of Seven advanced economies to abandon its plan for tax cuts and more borrowing.
The Dow Jones Industrial Average rallied 1.9% to 29,683.74. The Nasdaq composite climbed 2.1% to 11,051.64.
Despite Wednesday’s gain, the S&P 500 is down more than 20% from its Jan. 3 record, which puts it in what traders call a bear market.
Forecasters see more turbulence ahead due to worries about a possible recession, higher interest rates and even higher inflation.
The yield on the 10-year U.S. Treasury, or the difference between its market price and the payout if held to maturity, briefly exceeded 4% on Wednesday, its highest level in a decade.
Investor fears are growing that aggressive interest rate hikes this year by the Federal Reserve and central banks in Europe and Asia to cool inflation that is at multi-decade highs might tip the global economy into recession.
The investment giant Vanguard puts the chance of a U.S. recession at 25% this year and at 65% next year if the Fed follows through on expectations it will raise rates again and keep them elevated through next year.
In energy markets, benchmark U.S. crude lost 32 cents to $81.83 per barrel in electronic trading on the New York Mercantile Exchange. The contract surged $3.65 on Wednesday to $82.15. Brent crude, the price basis for international oils, shed 30 cents to $87.75 per barrel in London. It gained $3.05 the previous session to $89.32.
The dollar gained to 144.32 yen from Wednesday’s 143.96 yen. The euro declined to 96.82 cents from 97.43 cents.
WASHINGTON (AP) — For the first time in a decade, Americans will pay less next year on monthly premiums for Medicare’s Part B plan, which covers routine doctors’ visits and other outpatient care.
The rare 3% decrease in monthly premiums is likely to be coupled with a historically high cost-of-living increase in Social Security benefits — perhaps 9% or 10% — putting hundreds of dollars directly into the pockets of millions of people.
“That’s something we may never see again in the rest of our lives,” said Mary Johnson, the Social Security and Medicare policy analyst for The Senior Citizens League. “That can really be used to pay off credit cards, to restock pantries that have gotten low because people can’t afford to buy as much today as they did a year ago and do some long-postponed repairs to homes and cars.”
Medicare paid less for that drug than it expected this year, helping shore up reserves that allowed the agency to set the Part B premiums lower for 2023, the Centers for Medicaid and Medicare said in a statement Tuesday. Spending on other Medicare services and items was lower than expected, too. The annual deductible for the Part B program will also decrease $7 to $226.
President Joe Biden lauded the lower Medicare premiums during a Rose Garden speech Tuesday.
As the midterm elections near and Biden’s administration struggles to contain the painful side effects of inflation, the White House has increasingly trumpeted its work around curtailing health care costs.
“(To) millions of seniors and people with disabilities on Medicare, that means more money in their pockets while still getting the care they need,” Biden said.
The bill received no support from congressional Republicans, a talking point the White House has frequently pushed in speeches and across its social media accounts in recent weeks.
Republicans have a different slant on the subject.
“Desperation is setting in at the White House,” the Republican National Committee said in response to Biden’s speech Tuesday. “Voters have a clear choice in the midterms as they know Biden and the Democrats sent costs for groceries soaring, created a recession and increased taxes.”
The lower Medicare premiums were announced as 66 million Americans await the announcement of next year’s Social Security cost-of-living increase for 2023. Analysts estimate that it could be historic, roughly between 9% and 10%. The exact amount will be announced next month.
Warning lights are flashing in the global economy as high inflation, drastic rate hikes and the war in Ukraine take their toll.
There is currently a 98.1% chance of a global recession, according to a probability model run by Ned Davis Research.
The only other times that recession model was this high has been during severe economic downturns, most recently in 2020 and during the global financial crisis of 2008 and 2009.
“This indicates that the risk of a severe global recession is rising for some time in 2023,” economists at Ned Davis Research wrote in a report last Friday.
Seven out of 10 economists surveyed by the World Economic Forum consider a global recession at least somewhat likely, according to a report published Wednesday. Economists dialed back their forecasts for growth and expect inflation-adjusted wages to keep falling the rest of this year and next.
Given surging food and energy prices, there are concerns that the high cost of living could lead to pockets of unrest. Seventy-nine percent of the economists surveyed by the World Economic Forum expect rising prices to trigger social unrest in low-income countries, compared to a 20% expectation in high-income economies.
Investors are also getting more concerned, with the Dow Jones Industrial Average sinking into a bear market Monday for the first time since March 2020.
“Our central case is a hard landing by the end of ’23,” billionaire investor Stanley Druckenmiller said at the CNBC Delivering Alpha Investor Summit Wednesday. “I will be stunned if we don’t have a recession in ’23.”
Even Federal Reserve officials have conceded there is a growing risk of a downturn.
Still, there are clearly bright spots, especially in the United States, the world’s largest economy.
The US jobs market remains historically strong, with the unemployment rate sitting near the lowest levels since 1969. Consumers continue to spend money and corporate profits are sturdy.
There are also hopes that the worst US inflation in 40 years will cool off in the coming months as supply catches up with demand.
The Ned Davis researchers said that although recession risks are rising, its US recession probability model is “still at rock-bottom levels.”
“We do not have conclusive evidence that the US is currently in recession,” the researchers wrote in the report.
