Newsflash: The Bank of England has warned that financial markets remain at risk of a sharp correction.
In its latest financial stability report, the BoE says that high inflation, or geopolitical risks, could trigger a selloff.
The Bank says risks to the UK financial system are “broadly unchanged” since the first quarter of the year.
But some asset prices have continued to rise, it points out, while the risk of a sharp correction persists.
European markets are up around 8% so far this year, while the US Nasdaq Composite index has surged by 18%.
The report, which is designed to track the stability of the financial system, says:
The prices of many assets such as shares and bonds remain high relative to historical norms, and some have continued to rise. This suggests that investors in financial markets are continuing to expect the economy to recover and inflation to fall. They are placing less weight on risks, such as geopolitical developments or continued high inflation, that might cause weaker growth or interest rates to stay higher than expected.
These risks make it more likely that there could be a sharp correction in asset prices that could ultimately make it more costly and difficult for UK households and businesses to borrow.
The report also warns that
Global risks are material, including geopolitical risks, which remain high.
Overall, UK households and businesses have remained resilient to the impact of higher interest rates.
The UK banking system is strong enough to support households and businesses, even if the economy does worse than expected.
Filters BETA
The Bank of England also warns that “significant downside risks remain” from China’s property market.
Today’s financial stability report points out that activity in the mainland Chinese residential property sector continues to decrease, with the prices of new and existing homes falling this year:
Disorderly defaults by property developers have been avoided so far, the Bank of England says, even though some large Chinese property developers have missed bond payments without agreed extensions.
Chinese authorities have put various measures into place to support the housing market, which has helped support housing demand.
The Bank warns, though, that the ongoing market adjustment will weigh on China’s economy for some time – and could potentially spill over to the UK economy, saying:
The adjustment in the property sector, alongside broader structural trends, is likely to weigh on growth in China for some time. Property accounts for a significant proportion of household wealth in China; much higher than in the US, for example. That means falls in sales and residential property prices are likely to continue to impact Chinese consumption and growth.
There have been limited spillovers to the UK so far from the adjustment in mainland China’s property market. However, significant downside risks remain. More widespread crystallisation of risks in mainland China could lead to spillovers to the UK and other countries, and could be larger if the crystallisation of property sector vulnerabilities were to spread to other sectors in the Chinese economy. Risks could spill over to the UK financial system through channels including weaker trade, financial markets, and global risk sentiment.
Today’s Bank of England’s report shows high borrowing costs still pose a threat to the stability of the financial system, points out Karim Haji, global and UK head of financial services at KPMG.
Haji adds that banks need to keep supporting customers who need help:
“While there are signs that a brighter economic outlook is starting to feed through to resilient consumers and businesses, the Bank of England’s report shows high borrowing costs still pose a threat to the stability of the financial system.
The good news is UK banks are in rude health, with strong capital and liquidity positions allowing them to support people even if the economy does worse than expected. It is incumbent on them to continue supporting vulnerable customers.”
The Bank of England is concerned that the flurry of elections taking place this year could cause financial instability.
Today’s report says:
Geopolitical risks remain high and there is policy uncertainty associated with elections set to take place globally. This could make the global economic outlook less certain and lead to financial market volatility.
The Bank cites the drop in French government bond prices, and shares in Paris, this month after Emmanuel Macron called snap parliamentary elections.
They say:
Markets responded to the unexpected announcement that French parliamentary elections would be held on 30 June and 7 July. For example, the spread between French and German 10-year government bond yields rose to its highest level since 2017.
The US presidential elections, in November, are also an obvious source of risk and uncertainty, with Joe Biden and Donald Trump due to face off in a debate tonight.
The City has been unspooked by the UK election next week, though, with JP Morgan suggesting that a Labour election victory will be a “net positive” for financial markets.
If markets suffer a sharp correction, it would hurt the cost and availability of finance to the real economy through two main channels.
The BoE says.
First, a sharp market correction would make it more costly and difficult for corporates to refinance maturing debt, including by reducing the value of collateral. This is particularly relevant given the large proportion of leveraged lending and high-yield market-based corporate debt that is due to mature by the end of 2025.
Second, it could interact with vulnerabilities in market-based finance, which may amplify the correction. For example, it may cause large losses for leveraged market participants, which could further reduce risk appetite, or it may lead to a spike in liquidity demand and a deterioration in the functioning of core markets.
Millions of UK households will be hit by rising mortgage costs over the next two years, the Bank of England says, even though interest rates may have peaked.
Its new Financial Stability Reprt shows that around 30% of mortgagors are likely to see mortgage costs rise by more than £100 a month by the end of 2026.
That’s because borrowers will continue to come to the end of their fixed-rate deals, meaning they’ll have to refinance onto higher rates.
Today’s Report says:
With continued strong income growth and low unemployment, the aggregate amount of debt held by UK households relative to their income has fallen further since Q1. That said, many UK households, including renters, are still facing pressures from the increased cost of living and higher interest rates.
The share of households spending a high proportion of their income on mortgage payments is still expected to increase slightly over the next two years. But the overall share of households who are behind in paying their mortgages remains low by historical standards.
The Bank also predicts that mortgage arrears will increase further, but are likely to remain well below their early 1990s and post-GFC peaks of 4.0% and 2.4%, respectively.
This is despite interest rates having risen by more since 2021 Q4 than in past tightening cycles, it adds.
The Bank of England also warns that some firms will struggle with the impact of higher interest rates in the years ahead.
But most UK businesses remain ‘resilient’ to the economic outlook, today’s financial stability report says:
We still expect most UK businesses to continue to be resilient to the economic outlook, including high interest rates. However some firms are likely to struggle with higher borrowing costs in the coming years.
Firms with a large amount of market-based debt which still needs to be refinanced, and where a high proportion of income is being spent on repayments, are likely to come under the most pressure.
Newsflash: The Bank of England has warned that financial markets remain at risk of a sharp correction.
In its latest financial stability report, the BoE says that high inflation, or geopolitical risks, could trigger a selloff.
The Bank says risks to the UK financial system are “broadly unchanged” since the first quarter of the year.
But some asset prices have continued to rise, it points out, while the risk of a sharp correction persists.
European markets are up around 8% so far this year, while the US Nasdaq Composite index has surged by 18%.
The report, which is designed to track the stability of the financial system, says:
The prices of many assets such as shares and bonds remain high relative to historical norms, and some have continued to rise. This suggests that investors in financial markets are continuing to expect the economy to recover and inflation to fall. They are placing less weight on risks, such as geopolitical developments or continued high inflation, that might cause weaker growth or interest rates to stay higher than expected.
These risks make it more likely that there could be a sharp correction in asset prices that could ultimately make it more costly and difficult for UK households and businesses to borrow.
The report also warns that
Global risks are material, including geopolitical risks, which remain high.
Overall, UK households and businesses have remained resilient to the impact of higher interest rates.
The UK banking system is strong enough to support households and businesses, even if the economy does worse than expected.
The French stock market has dipped this morning, with the CAC40 share index down 0.2%.
Traders are jittery ahead of the first round of voting in the national assembly elections this weekend.
Joshua Mahony, chief market analyst at Scope Markets, says:
European markets have kicked off a somewhat indecisive start to the day, with the German DAX providing the one glimmer of light as the likes of the FTSE 100 and CAC head lower.
While we saw early gains for French stocks, the fact that we are seeing them fade once again comes as no surprise as we approach the weekend election. Yesterday saw yet another poll that pointed towards further gains for the far-right National Rally party, with a Macron loss becoming increasingly likely.
Nonetheless, while the Bloomberg poll of polls has NR and its allies at 36% of the vote, the fact that this remains well below the 50% marker highlights the fact that we will likely have to wait until next Sunday to find out the result. With that in mind, traders should expect a jittery period ahead, with the fears of a fresh surge in borrowing costs and financial instability driving potential CAC and euro weakness.
Over in Tokyo, the government has warned that high interest rates in the United States and Europe are hurting the yen, and risking economic damage.
In a monthly report, a cabinet office official flagged that “fluctuations” in the marketss should be watched closely.
The report says:
“The Japanese economy is recovering at a moderate pace, although it recently appears to be pausing.
“The economy could face downside risks from the effects of continued high interest rate levels in the United States and Europe.
Full attentions should be given to fluctuations in the financial and capital markets.”
Some analysts are forecasting that Tokyo could intervene to support the yen if it fell as low as 165 to the dollar.
ING point out that the intervention two months ago was triggeed by a 10 yen move in USD/JPY.
They told clients:
In April, USDI/JPY had risen from a low of 150 to a high of just below 160 over a little less than a month when Japan intervened…
In the past 30 days, the low was 154.60, which would by the same logic place the intervention level at 164/165.
The yen is still trading over 160 to the dollar, above this new “line in the sand” of 165….
The number of job openings at UK companies has dropped by a fifth compared with a year ago, hiring platform Indeed reports.
In its Mid-Year Labour Market Update, Indeed shows job postings are slowing as the labour market cools.
The technology industry, and the beauty & wellness sector, are among those seeing the fastest slowdown in hiring.
The report also found, though, that wage pressures remain strong, particularly in lower-paid roles.
Here’s the key points:
Foreign jobseeker interest is up— the share of searches for UK jobs from abroad is up 40% from its pre-Covid average.
Roles remain hard-to-fill despite foreign interest - the jobs foreign jobseekers are most drawn to are software development, engineering and mathematics. However, engineering and software development roles remain some of the hardest-to-fill in the UK, meaning barriers remain in hiring this talent.
Wage pressures still persist — Despite the labour market cooling, the Indeed Wage Tracker shows that posted wage growth rose to a four-month high of 6.5% year-on-year in May, driven by lower-paid roles, with childcare wages up the most at 8.6% year-on-year.
Flexibility is a mainstay — the share of job postings mentioning remote or hybrid work has remained steady at around 15% of job postings in 2024, up from 13% in May 2022. Around 2.4% of jobseeker searches contained remote/hybrid terminology with the share remaining stable since 2022.
Jack Kennedy, Indeed’s senior economist, says:
“The UK labour market has continued its adjustment in recent months, though it remains somewhat tight and still competitive for employers in many sectors. Highly skilled jobs tend to always be harder to recruit for as they are naturally relevant to a smaller candidate pool. However, there is strong foreign interest in some of these jobs, meaning UK businesses may want to look at jobseekers from outside the country to fill gaps.
While lower-paid jobs are generally easier to recruit for as the candidate pool is larger, persistently higher inactivity post-pandemic and post-Brexit immigration policy have made it harder than it used to be for employers to fill these roles. Tackling inactivity, a longer-term skills strategy and the role of immigration in addressing labour shortages will be agenda items for the elected government.
The London stock market is a little subdued this morning, with the FTSE 100 down 8 points or 0.1% at 8217 points.
Packaging firm DS Smith are the top riser, up 6.7%. Its takeover by US rival International Paper appears to be on track, after Brazil’s Suzano dropped its plans to merge with International Paper.
Pharmaceuticals firm GSK is the top faller, down 5.2%, after US health officials recommended restricting vaccination with its RSV vaccine to people who are older and more at risk. That could reduce the market for the UK drugmaker’s blockbuster shot.
SpaceX’s new valuation of $210bn is a record for an American private company:
https://news.google.com/rss/articles/CBMifGh0dHBzOi8vd3d3LnRoZWd1YXJkaWFuLmNvbS9idXNpbmVzcy9saXZlLzIwMjQvanVuLzI3L2phcGFuLWZyZXNoLXdhcm5pbmdzLXllbi0zOC15ZWFyLWxvdy1zcGFjZXgtdmFsdWVkLTIxMGJuLWJ1c2luZXNzLWxpdmXSAXxodHRwczovL2FtcC50aGVndWFyZGlhbi5jb20vYnVzaW5lc3MvbGl2ZS8yMDI0L2p1bi8yNy9qYXBhbi1mcmVzaC13YXJuaW5ncy15ZW4tMzgteWVhci1sb3ctc3BhY2V4LXZhbHVlZC0yMTBibi1idXNpbmVzcy1saXZl?oc=5
2024-06-27 06:47:00Z
CBMifGh0dHBzOi8vd3d3LnRoZWd1YXJkaWFuLmNvbS9idXNpbmVzcy9saXZlLzIwMjQvanVuLzI3L2phcGFuLWZyZXNoLXdhcm5pbmdzLXllbi0zOC15ZWFyLWxvdy1zcGFjZXgtdmFsdWVkLTIxMGJuLWJ1c2luZXNzLWxpdmXSAXxodHRwczovL2FtcC50aGVndWFyZGlhbi5jb20vYnVzaW5lc3MvbGl2ZS8yMDI0L2p1bi8yNy9qYXBhbi1mcmVzaC13YXJuaW5ncy15ZW4tMzgteWVhci1sb3ctc3BhY2V4LXZhbHVlZC0yMTBibi1idXNpbmVzcy1saXZl
Tidak ada komentar:
Posting Komentar