The test assets of the United Kingdom are likely to suffer more “pain” after the Bank of England warned of a recession, in the most ominous forecast of any major central bank, according to Bloomberg.
The pound has slipped to its weakest price since June 2020 and foreign exchange traders are increasingly betting on further losses. The bank’s strategic analysts expect that shares focused on the domestic economy will continue to underperform, while a measure of corporate debt risk is rising sharply.
The market outlook has become more negative, with the BOE saying last week that it expects inflation to exceed 10% this year, leading to job losses and stagnation. This is such a bad prospect that investors are turning to UK short-term government bonds as a safe haven, as they bet that policymakers will cut interest rates to support the economy.
“The second half of the year will be much weaker than the first half,” Steven Major, global head of fixed income research at HSBC Holdings Plc, said in an interview with Bloomberg Television. He said BOE Governor Andrew Bailey was “refreshingly honest” about the risks of a recession and that the window for more interest rate hikes may not be open for long.
Investors will look at the latest UK GDP data on Thursday to see if there is any sign of further weakness. Bloomberg economists warn that the measure for March is likely to highlight a loss of momentum that could see the economy shrink in the second quarter.
This shows how difficult it will be to “navigate” at this juncture for policymakers. They will have to balance the weight of their speeches in the markets – especially in the pound, as it threatens to fuel even more inflation by weakening it – as they prepare investors for the road ahead. The following are four charts that show what traders in the UK’s health care today.
Investors will look at the latest UK GDP data on Thursday. Bloomberg economists warn that the measure for March is likely to highlight a loss of momentum that could see the economy shrink in the second quarter.
This shows how difficult it will be to navigate at this juncture for policymakers. They will have to balance the weight of their speeches in the markets – especially in the pound, as it threatens to fuel even more inflation by weakening it – as they prepare investors for the road ahead. Here are four charts that show what traders in the UK think about health today.
The pound fell below $ 1.23 on Friday to levels last seen during the 2020 pandemic market turmoil. A $ 1.21 test suddenly seems feasible, according to Joe Tuckey, a currency analyst. Argentex.
Options traders are already betting on a drop in the coming months. An indicator of momentum, called the “fear-greed” indicator, suggests that sellers have not controlled prices as much since the early days of the pandemic shock.
“The feeling remains weak and there does not seem to be much on the horizon to reverse the boat,” Tuckey said.
UK government bonds initially slipped after the BOE raised interest rates again to 1% on Thursday, although short-term debt has since rallied on the prospect that policymakers will limit themselves to further increases.
Money markets continue to see bank interest rates rise above 2%, although they have reduced bets on further increases since the BOE meeting. And then, by 2024, negotiators see that the BOE will have to cut interest rates to support the economy.
“The Bank of England has become a reluctant hiker as it becomes increasingly concerned about growth prospects,” said Peder Beck-Friis, a portfolio manager at Pacific Investment Management Co.
That should make UK government bonds more resilient to wider market sales compared to eurozone debt, as the European Central Bank is expected to start raising interest rates, according to Citigroup Inc. It aims to reduce the 10-year gilts premium yield against German bonds to 60 basis points, from about 85 basis points now.
The FTSE 100 index is also increasingly emerging as a safe haven, especially compared to the corresponding FTSE 250 mid-cap index. overseas revenue protects it from the UK cost of living crisis.
Strategic analysts Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Barclays Plc are unanimous that they prefer UK stocks with international exposure to domestic ones. The country’s weak economic outlook, high inflation, declining government incentives and BOE interest rate hikes are among the negatives for local equities.
The corporate debt market is also sending a message of growing caution to domestic companies. A measure of risk in the sterling junk bond sector, which mainly includes local borrowers, rose more than 500 basis points this week, the highest since November 2020.
Rising borrowing costs will add to the range of challenges facing companies, including declining consumer demand and higher energy prices. An additional concern is the BOE’s plan to start selling its 20 20 billion ($ 24.9 billion) corporate bond portfolio in September.