Economy

The Federal Reserve may have no choice but to wage a relentless inflation fight, but countries rich and poor are feeling the pain of plunging currencies.The Federal Reserve’s determination to crush inflation at home by raising interest rates is inflicting profound pain in other countries — pushing up prices, ballooning the size of debt payments and increasing the risk of a deep recession.Those interest rate increases are pumping up the value of the dollar — the go-to currency for much of the world’s trade and transactions — and causing economic turmoil in both rich and poor nations. In Britain and across much of the European continent, the dollar’s acceleration is helping feed stinging inflation.On Monday, the British pound touched a record low against the dollar as investors balked at a government tax cut and spending plan. And China, which tightly controls its currency, fixed the renminbi at its lowest level in two years while taking steps to manage its decline.Weakening CurrenciesHow the values of global currencies have changed against the U.S. dollar from three months ago

Data through 3 p.m. Eastern time MondaySource: FactSetBy The New York TimesIn Nigeria and Somalia, where the risk of starvation already lurks, the strong dollar is pushing up the price of imported food, fuel and medicine. The strong dollar is nudging debt-ridden Argentina, Egypt and Kenya closer to default and threatening to discourage foreign investment in emerging markets like India and South Korea.“For the rest of the world, it’s a no-win situation,” said Eswar Prasad, an economics professor at Cornell and author of several books on currencies. At the same time, he said, the Fed has no choice but to act aggressively to control inflation: “Any delay in action could make things potentially even worse.”Policy decisions made in Washington frequently reverberate widely. The United States is a superpower with the world’s largest economy and hefty reserves of oil and natural gas. When it comes to global finance and trade, though, its influence is outsize.That is because the dollar is the world’s reserve currency — the one that multinational corporations and financial institutions, no matter where they are, most often use to price goods and settle accounts. Energy and food tend to be priced in dollars when bought and sold on the world market. So is a lot of the debt owed by developing nations. Roughly 40 percent of the world’s transactions are done in dollars, whether the United States is involved or not, according to a study done by the International Monetary Fund.And now, the value of the dollar compared with other major currencies like the Japanese yen has reached a decades-long high. The euro, used by 19 nations across Europe, reached 1-to-1 parity with the dollar in June for the first time since 2002. The dollar is clobbering other currencies as well, including the Brazilian real, the South Korean won and the Tunisian dinar.One reason is the string of crises that have rocked the globe including the coronavirus pandemic, supply chain chokeholds, Russia’s invasion of Ukraine and the series of climate disasters that have imperiled the world’s food and energy supply. In an anxious world, the dollar has traditionally been a symbol of stability and security. The worse things get, the more people buy dollars. On top of that, the economic outlook in the United States, however cloudy, is still better than in most other regions.In Britain, the pound touched a record low against the dollar.Andrew Testa for The New York TimesMillions are at risk of famine in Somalia, which is facing extreme drought and a jump in food prices.Ed Ram/Getty ImagesChina set its currency at the lowest point in two years on Monday.Mark R Cristino/EPA, via ShutterstockRising interest rates make the dollar all the more alluring to investors by ensuring a better return. That, in turn, means they are investing less in emerging markets, which puts further strains on those economies.Inflation F.A.Q.Card 1 of 5What is inflation? More

Good evening,The pound’s fall to a record low today triggered turmoil in financial markets and a late statement from the Bank of England and Treasury did little to settle investor nerves.The central bank said it would assess the turbulence in UK financial assets at its next planned meeting in November after sterling lost as much as 4.7 per cent to trade as low as $1.035 against the dollar earlier today.The market jitters also led the government to issue a statement bringing forward plans for a new “medium-term fiscal plan” to be published on November 23.UK government bonds remain under heavy selling pressure, with the 10-year gilt dropping in price, pushing yields up by 0.38 percentage points to 4.2 per cent. Two-year yields, which are particularly sensitive to interest rate expectations, have surged to 4.5 per cent, from 3 per cent at the end of August.While the investor sentiment following UK chancellor Kwasi Kwarteng’s vow to stick with his debt-financed tax cuts and energy subsidies is clear, the fiscal shift has prompted mixed reactions among Conservative MPs.Many have expressed fears about the effect on sterling, with former chancellor George Osborne saying: “You can’t just borrow your way to a low-tax economy . . . you can’t have small-state taxes and big-state spending.” However, farming minister Mark Spencer praised the agenda as “ambitious” and said it would “stimulate growth within the economy that benefits us all”.Meanwhile, Paul Marshall, chief investment officer of Marshall Wace, accused the BoE of having “lost control of the UK bond market”, adding: “Its timidity is now having an impact on both the gilt market and sterling. That is the essential context for the market reaction to the mini-Budget. Once you lose market confidence, it is doubly hard to win it back.”But finance and economics commentator Toby Nangle put the blame for the market reaction squarely at the feet of Kwarteng. “It largely reflected financial markets getting increasingly concerned about the direction of UK macroeconomic policy,” he said. “Nothing in gilt markets in the past 35 years — not the UK’s ejection from the Exchange Rate Mechanism, 9/11, the financial crisis, Brexit, Covid or any Bank of England move — compares with the price moves in reaction to the chancellor’s mini-Budget,” he added.

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European equity and fixed income markets also fell today as investors fretted over the impact on the global economy of aggressive interest rate rises, as policymakers try to stamp out soaring inflation.“Markets picked up today where they left off on Friday as Monday morning started on a ‘risk off’ footing, with yields making fresh highs around the world without much relief in sight,” said analysts at Citigroup.Latest newsEnrico Letta to stand down as leader of Italy’s Democratic party after poll defeatOECD cuts global forecasts and cautions on European economyAldi vows to do ‘whatever it takes’ to keep UK price advantageFor up-to-the-minute news updates, visit our live blogNeed to know: the economySusan Collins, president of the Federal Reserve’s Boston branch, has warned that the US economy is at risk of tipping into a recession as its central bank seeks to ensure high inflation does not become more deeply entrenched. “A significant economic or geopolitical event could push our economy into a recession as policy tightens further,” said Collins in her first public remarks since taking up the position.Meanwhile in Germany, recession fears have dragged business confidence to 28-month low in Europe’s largest economy. The Ifo Institute’s index of business confidence slipped to 84.3 points, down from 88.6 last month and below the 87.1 forecast given by a group of economists in a Reuters poll. “The German economy is now clearly in a downturn,” said Melanie Debono, an economist at Pantheon Macroeconomics.But there is some positive economic news, according to Ruchir Sharma, FT contributing editor and chair of Rockefeller International. There are seven countries, including Vietnam and Saudi Arabia, that “defy the prevailing pessimism” and “share some combination of relatively strong growth, moderate inflation or strong stock market returns”.Latest for the UK and EuropeThe Kremlin has sought to calm Russian society after President Vladimir Putin’s decision to mobilise the army’s reserves led to protests and prompted people to flee across the few remaining open borders. Images of crowded airports and queues of cars at Russia’s land borders have undermined the Kremlin’s portrayal of the call-up as a widely accepted measure.Italy has elected its first female prime minister and put Giorgia Meloni’s arch-conservative Brothers of Italy on course to lead the country’s first far-right government since the second world war. Global latestThe Supreme Court’s ruling to overturn Roe vs Wade is upending US midterm elections by energising Democrats and presenting challenges to Republicans. As our Big Read explains, volunteers found the topic “dominating doors” during recent canvassing operations.China’s decision to end Hong Kong’s Covid quarantine measures on Friday has led business people to ask what does Beijing’s relaxing of the rules mean for the mainland’s zero-Covid policy?Elon Musk’s Starlink has activated its satellite broadband service in Iran after the US allowed private companies to offer uncensored internet access to the country amid protests that have caused more than 40 deaths. Starlink users are able to bypass a country’s terrestrial communications networks, freeing them from internet censorship, but a special terminal is needed to receive a signal.Need to know: businessApple has begun producing its iPhone 14 model in India. The company, which makes most of its iPhones in China, has been shifting some of its production elsewhere as geopolitical tensions rise between Washington and Beijing and China’s harsh pandemic policies disrupt business.The boss of KPMG’s United Arab Emirates business has attempted to shore up his position by sending the firm’s biggest clients a statement signed by its 30 capital partners swearing their unity and allegiance to the firm. The client note, seen by the Financial Times, comes on the back of a series of leaks from inside KPMG Lower Gulf alleging serious problems at the accounting firm, including nepotism, cronyism and a culture of fear.Alan Jope is to retire as chief executive of Unilever at the end of 2023, following investor discontent over a lacklustre performance during his time leading one of the world’s largest consumer goods groups.The World of WorkDespite surging inflation and recession fears, every sector — from tech to hospitality — is facing a fight for the top candidates. Management editor Anjli Raval explores the talent wars, including 40 per cent pay rises and free gym membership.Young entrepreneurs are exploiting TikTok’s influence to build viable businesses in real life, or IRL as the kids say. Teen influencers are making thousands of pounds by joining up with peers to hold pop-up events.Some good news . . . If you need a distraction from today’s market turmoil, FT Alphaville has you covered with this fun piece.Alternatively, if you’re more of a practical person, in a recent review of over 100 studies, scientists have determined that exposure to cold water and air is truly good for you. Experts say cryotherapy could prevent or reduce diabetes, obesity and cardiovascular disease. (Good News Network)

Taking cold water swims or baths during winter has been found to reduce the risk of diabetes © Reuters More

France’s finance minister has pledged additional aid for larger companies hit by high energy prices, as the head of the eurozone’s central bank warned that the region was facing “unprecedented shocks”. Bruno Le Maire, France’s economy minister, vowed his government would help to shield businesses from spiralling gas and electricity prices, saying he would push to double the state aid available for industrial companies and other medium-sized businesses struggling with energy bills to up to €100mn. The measure requires sign-off from Brussels, but a €3bn pot already earmarked for helping companies will be rolled into 2023. “Inflation is a poison for democracies, history has shown that,” Le Maire said as he outlined a budget for next year dominated by price-busting measures. France has already shielded households and smaller businesses from the surge in energy prices, capping increases at 15 per cent. Russia’s invasion of Ukraine has squeezed gas supplies to Europe, pushing up prices of fuel, food and many other products, eroding household spending and hitting industrial production. Inflation is expected to reach a new eurozone record of 9.7 per cent when pricing data for September is published on Friday, while concerns intensify that the region will enter recession next year.Christine Lagarde, president of the European Central Bank, told lawmakers on Monday that growth would “slow substantially” in the coming quarters. However, with inflation almost five times the ECB’s target of 2 per cent, the European parliament heard that monetary policymakers would not be deterred from raising rates. The central bank has already increased borrowing costs by 1.25 percentage points since July. The OECD warned on Monday that Europe risked being pushed into a recession next year if a harsh winter exacerbates the region’s energy shortages and natural gas consumption is not reduced at least 10 per cent to avoid it being rationed for power-hungry industrial groups. The Paris-based organisation representing the world’s richest countries said Europe would be the hardest-hit region as it slashed its forecasts for global growth next year by 0.6 percentage points to 2.2 per cent.Its forecast for eurozone growth was cut from 1.6 per cent to 0.3 per cent and it predicted Germany, the eurozone’s largest economy, would contract 0.7 per cent next year, down from its forecast for growth of 1.7 per cent three months ago.EU gas storage, even at its current levels of about 80 to 90 per cent of capacity, might be insufficient to tide the bloc over a typical winter without it falling to dangerously low levels, the OECD added.If governments are forced to ration gas supplies it would knock a further 1.25 percentage points off eurozone growth next year, it said, while adding 1.5 percentage points to its baseline forecast for inflation in the bloc to be slightly above 6 per cent next year.Concerns about the energy crisis and a looming recession caused German business confidence to fall for the fourth consecutive month to a new 28-month low, according to the Ifo Institute’s benchmark survey of 9,000 companies.

The Ifo index of business confidence, published on Monday, dropped to 84.3 points, down from 88.6 last month. Economists polled by Reuters had expected a smaller decline to 87.1.Clemens Fuest, president of Ifo, said the economy was “slipping into recession”. “Pessimism regarding the coming months has grown decidedly; in retail, expectations have fallen to a record low.” France, the region’s second-largest economy, is expected to grow 0.6 per cent next year, according to the OECD, which cut its forecast from 1.4 per cent in June.The French government has budgeted a net €16bn to cap increases in electricity and gas prices for consumers and some of the smallest businesses at 15 per cent next year. It follows roughly €24bn spent this year on the so-called price shield.Paris has delayed some difficult decisions on spending with a goal to keep the public sector deficit steady at 5 per cent of gross domestic product next year. It aims to bring it down to 3 per cent, or within EU-imposed limits, by 2027, according to the budget plans. More

Sterling fell to its lowest level ever against the dollar on Monday, prompting analysts to compare its trajectory to that of an emerging market currency. The drop followed sterling’s plunge in the wake of UK chancellor Kwasi Kwarteng’s £45bn tax-cutting package on Friday. But the British pound has risen and fallen against the US dollar in the past, and since the second world war the direction has been consistently downward. In the postwar Bretton Woods system of fixed but adjustable exchange rates, sterling was initially set at $4.03 but the UK was unable to sustain the rate because of persistent trade deficits and currency outflows. A large devaluation in 1949 was followed by another in 1967, and there were regular sterling crises with fixed exchange rates until the Bretton Woods system collapsed in 1971. In 1985, when the dollar was unsustainably strong, the pound reached its previous post-Bretton Woods low of just over $1.05. Below, the FT looks at the significance of the current sterling crisis. Why is sterling under pressure now?Over the past 70 years, the persistent depreciation of sterling against the US dollar mostly reflects higher inflation in the UK than in the US, requiring a lower exchange rate to equalise price levels in both countries. There is no doubt that recent falls in sterling represent the perception of a problem with the UK’s currency rather than simply US dollar strength. Sterling has gone down almost 3 per cent against the euro over the past week and more than 7 per cent against the currencies of the UK’s main trading partners since the start of August.

That perception in international financial markets reflects a view that the UK’s economic policy is moving in the wrong direction, just as it did after Brexit when sterling lost 10 per cent of its value. The view holds that borrowing for permanent tax cuts is a reckless gamble by the government of Prime Minister Liz Truss that will increase the UK’s trade deficit, push up inflation and do little for growth. Robert Wood, UK economist at Bank of America, said: “UK asset prices reacted to the fiscal package in a way more akin to an emerging market, with sterling and gilts selling off.”The government has responded by saying it will not hold a spending review to raise public service expenditure this autumn in a bid to demonstrate fiscal responsibility. But markets are more focused on what ministers have announced rather than with their promises. Should we worry? Financial markets reflect the opinion of the vast majority of orthodox economists that initiating the largest tax cuts for 50 years is the wrong policy when unemployment is low and there is little spare capacity in the economy for additional non-inflationary growth. The concern about Truss’s repeated pledge to ditch Treasury “orthodoxy” is that a rapidly falling pound will have unpleasant effects for most people in the UK and will curtail the government’s ambitions. The falling value of sterling will increase inflation. The Bank of England has a rule of thumb that 60-90 per cent of the drop in the exchange rate would be felt in higher import prices. A 7 per cent depreciation in sterling’s value, therefore, should add 1.5 to 2 per cent to prices over two to three years. This will exacerbate the UK’s already high inflation and its cost of living crisis. The higher rate of inflation and the need to attract foreign investment to finance the UK’s gaping trade deficit will also require higher interest rates. Financial markets now expect the BoE to raise rates to over 5 per cent next year, and the cost of government borrowing has shot up. Two-year borrowing costs have risen from 0.4 per cent a year ago to almost 4 per cent. These higher borrowing costs will hit households and companies thinking about investment. Though exporters will gain from UK products being cheaper in international markets, the government’s borrowing for growth might even have the reverse effect. Sushil Wadhwani, an asset manager and former BoE policymaker, said at the weekend: “It is very easy to see how the Truss-Kwarteng fiscal expansion leads to growth falling [with] a combination of interest rates having to go up a lot in response to a markets crisis and falling confidence.”What can be done?There are four possible avenues available to the UK authorities if they want to stem the decline in sterling. First, the government could order the BoE to intervene in currency markets, buying sterling with foreign currency reserves. This is problematic, according to Sir John Gieve, former deputy governor of the Bank of England. “We don’t have very many reserves compared to the scale of currency market so I think that is not seen as an effective weapon,” he told the BBC on Monday. The second is for the government to reverse its fiscal policy changes, but that would be extremely difficult for a new chancellor and prime minister. Third, the BoE could raise interest rates to increase the return available to people holding money in the UK, much like many emerging economies have done this year. The central bank has indicated that further interest rate rises will be coming at its November meeting, but financial markets want action more quickly. Fourth, senior officials at the BoE could seek to reassure markets by making clear that they will take immediate action if inflation or public borrowing get out of control. Talking up the pound, especially with the promise of higher interest rates to come, could be an effective weapon in restoring confidence. What will the government do? Kwarteng does not intend to reverse the debt-fuelled tax-cutting plan he set out last Friday. Indeed, he said on Sunday that there was “more to come” in terms of cutting the tax burden.Chloe Smith, work and pensions secretary, on Monday reiterated that the chancellor would not change course. “The government is absolutely focused on delivering the growth package as we set out,” she said.In an attempt to reassure markets that Kwarteng did not intend to ramp up spending ahead of a general election — further adding to debt — the Treasury said on Sunday that it would stick to current spending plans until 2025.“It’s more important than ever that departments work efficiently to manage within existing budgets, focusing on unlocking growth and delivering high quality public services,” it said.Gerard Lyons, who has been advising the new Truss government on economic policy, said on Monday that Kwarteng should stick to his course and that the BoE should put up rates to move away from “cheap money”. More

(Reuters) -U.S. stock indexes headed for a lower open on Monday as investors worried that the Federal Reserve’s aggressive push to curb inflation may tip the country’s economy into recession.At 8:32 a.m. ET, Dow e-minis were down 139 points, or 0.47%, S&P 500 e-minis were down 21 points, or 0.57%, and Nasdaq 100 e-minis were down 51 points, or 0.45%.The Fed’s latest signal that high interest rates could last through 2023, sent the three major U.S. stock indexes tumbling between 4% and 5% last week, with the Dow Jones index coming within spitting distance of a bear market on Friday.”The Fed seems to be alluding to the fact that they can raise rates, halt inflation from rising without creating a recession … they were totally wrong the first time on inflation and unfortunately, they’re going be wrong on avoiding a recession,” Peter Cardillo, chief market economist at Spartan Capital Securities, said.In premarket trading on Monday, cyclical stocks traded lower on worries that such sharp rate hikes could rattle the economy.Boeing (NYSE:BA) Co, Chevron Corp (NYSE:CVX), Caterpillar Inc (NYSE:CAT) and JPMorgan Chase & Co (NYSE:JPM) fell more than 1% each, while growth stocks including Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) Inc shed between 0.3% and 1.3%.The benchmark S&P 500 index on Friday briefly dipped below its mid-June closing low of 3,666, erasing a sharp summer rebound in U.S. stocks, before paring losses and closing above that level.The index will be seen testing its lowest level since late December 2020, if it continues to decline past the opening bell, a sign that Cardillo said could trigger another bout of selling as investors focus on the technical aspect of the market.Sentiment across global markets was bleak after the sterling briefly touched all-time lows earlier in the session on worries that the new British government’s fiscal plan threatened to stretch the country’s finances to their limits. [MKTS/GLOB]In a bright spot, shares of casino operators Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS) Corp and Melco Resorts & Entertainment (NASDAQ:MLCO) jumped between 5.4% and 10.8% after Macau planned to open to mainland Chinese tour groups in November for the first time in almost three years.The CBOE Volatility index, also commonly known as Wall Street’s fear gauge, hovered near three month highs. More

GUILIN, China (Reuters) – For six months, home for Ms. Xu has been a room in a high-rise apartment in the southern Chinese city of Guilin that she bought three years ago, attracted by brochures touting its riverfront views and the city’s clean air. Her living conditions, however, are far from those promised: unpainted walls, holes where electric sockets should be and no gas or running water. Every day she climbs up and down several flights of stairs carrying heavy water bottles filled with a hose outside.”All the family’s savings were invested in this house,” Xu, 55, told Reuters from the Xiulan County Mansion complex, her room bare except for a mosquito net-covered bed, a few necessities and empty bottles on the floor. She declined to give her full name, citing the sensitivity of the matter.Xu and about 20 other buyers living in Xiulan County Mansion share a makeshift outdoor toilet and gather during the day at a table and benches in the central courtyard area.They are part of a movement of home buyers around China who have moved into what they call “rotting” apartments, either to pressure developers and authorities to complete them or out of financial necessity, as numerous cash-strapped builders halt construction amid the country’s deep real estate slump. Shanghai E-House Real Estate Research Institute estimated in July that stalled projects accounted for 3.85% of China’s housing market in the first half of 2022, equivalent to an area of 231 million square metres.While some local governments have taken steps to prop up the property market by setting up bailout funds, buyers like Xu, who paid deposits in advance and are on the hook for mortgages, remain in limbo.MORTGAGE STRIKESThe proliferation of unfinished apartments has sparked unprecedented collective disobedience, fuelled by social media: in late June, thousands of home buyers in at least 100 cities threatened to halt mortgage payments to protest stalled construction.The overall property market is highly sensitive to cases of unfinished apartments because 90% of new houses bought in China are purchased “off plans” while still under construction, said Yan Yuejin, research director at Shanghai E-House.”If this issue is not resolved, it will affect property transactions, the government’s credibility, and it could exacerbate the developers’ debt problems,” he said.China’s deep property slump, along with disruptions caused by strict anti-COVID measures, are dragging on the world’s second largest economy just as the ruling Communist Party gears up for its once-in-five-years Congress next month.’CRASHING FROM PARADISE’Xu bought her two-bedroom, 70 square metre flat in early 2019, about a year after its developer, Jiadengbao Real Estate, started construction and began marketing apartments for around 6,000 yuan ($851) per square metre, which they said would come with facilities such as floor heating and a shared swimming pool. Work progressed quickly at first, with blocks in the planned 34 tower complex going up one after another. But in June 2020, Jiadengbao Real Estate hit the headlines after a court accused its parent company of illegal fund-raising and seized 340 million yuan worth of its properties, including a number of flats in Xiulan County Mansion. Construction stopped in mid-2020, which Xu found out months later, describing her feelings at the time as “crashing from paradise”.Jiadengbao Real Estate did not respond to a request for comment from Reuters.Since the debt crisis erupted in 2021, thousands more home buyers have been caught in similar predicaments as cash-strapped developers went into bankruptcy or abandoned struggling projects.FENCING AND UNDERGROWTHOn a recent day, the main block of buildings at Xiulan County Mansion was surrounded by a tall blue fence while the clubhouse, touted in promotional materials, was covered in a dense undergrowth. Cement mixers, iron poles, and piles of debris lay strewn around.Xu, who is unemployed, said she bought the apartment for her only son, with the hope that he would be able to raise a family there. She said her son and her husband, who live far away in the northern province of Hebei, blame her for their financial predicament, and no longer speak to her. “We don’t know how long we will have to live here because the government has not said anything officially,” she said.She hopes the Guilin government will step in to help.The city government did not respond to a request for comment from Reuters.Housing authorities in Baoding, the northern city where Xu is from and where Jiadengbao Real Estate’s parent company is registered, said last November the city government and Communist Party committee had set up a group to resolve the issue.”If the government really wants to protect people’s livelihoods, and resume construction, we will go back home,” Xu said. ($1 = 7.0508 Chinese yuan renminbi)(This story corrects name of expert in paragraph 9 to Yuejin) More

LONDON (Reuters) – The pound plunged to a record low against the dollar early on Monday and British bond prices collapsed as fears mounted over the new government’s fiscal plan, unleashing calls for an emergency Bank of England rate hike to restore confidence.New finance minister Kwasi Kwarteng sent sterling and government bonds into freefall on Friday with a so-called mini-budget that was designed to grow the economy by funding tax cuts with huge increases in government borrowing. As trading resumed in Asian markets on Monday the pound plunged by as much as 5% against the dollar to touch $1.0327, its weakest since at least the introduction of decimalisation in the early 1970s, before it pared losses in European trading. But there was even more pressure in the gilt market, sending borrowing costs surging. Having risen on Friday by the most in a single day in decades, bond yields on two-year gilts jumped again on Monday by as much as 53 basis points to a high of 4.55%. The yield has risen by around an entire percentage point in the last two trading days alone, reflecting investors’ lack of confidence in the government’s ability to fund its tax cuts. Mohamed El-Erian, chief economic adviser at Allianz (ETR:ALVG), said the central bank would have no choice but to raise rates if the government of Prime Minister Liz Truss did not back down. “And not by a little, by 100 basis points, by one full percentage point to try and stabilise the situation,” he told BBC Radio.TREASURY ORTHODOXYTruss was elected as prime minister earlier this month by a vote of the Conservative Party’s 170,000 members – not the broader electorate – vowing to reignite economic growth through tax cuts and deregulation, even if it favours the wealthy over the poorest households. Her pledge to end so-called “Treasury Orthodoxy” and go for growth marks a step change in British financial policy, harking back to the Thatcherite and Reaganomics doctrines of the 1980s.Kwarteng has so far declined to comment on the market turmoil, and a person close to the finance minister said he was unmoved by the reaction. “Markets go up and down,” one veteran Conservative party source said, declining to be named. “We did something structural, short term, that will have seismic and positive long term benefits.”However, the scale of the market turbulence has started to rattle some in the party, with one lawmaker saying mainstream Conservatives were getting “very worried”, as constituents emailed their local politicians to express alarm. The lawmaker asked not to be named. Rachel Reeves, a former economist at the Bank of England (BoE) who is now the financial policy chief for the opposition Labour Party, said she was “incredibly worried” by the reaction of markets and Nicola Sturgeon, the first minister in Scotland, called for the UK parliament to be recalled. Investors and analysts were more direct. “The British have decided that going back to the 1980s on steroids is the best way to go, and clearly the market is just saying: ‘That’s not going to work’,” Michael Every, Rabobank strategist, said. “The market is now treating the UK as if it’s an emerging market. And they’re not wrong in terms of the policy response and the naivety of thinking that boosting demand rather than supply is how you deal with a supply-side shock.”The pound had rebounded to $1.08 as of 1144 GMT, but there was no sign of recovery in gilts.DOOMSDAY CULTPaul Donovan at UBS said investors seemed “inclined to regard the UK Conservative Party as a doomsday cult”.Markets currently show investors are placing an 88% chance on the BoE raising rates by a percentage point to 3.25% at its next meeting in November, according to Refinitiv data.The debate between some economists was whether an emergency rate hike would sow yet more panic, or calm markets. Andrew Sentance, a former BoE policymaker, told Sky News he did not advocate an emergency meeting. “I think that would add to the sense of nervousness and panic rather than calming it down,” he said. Further highlighting the extent to which investors have punished UK assets, the difference in the 10-year borrowing costs for the British and German governments exploded to its widest since 1992, when the UK crashed out of the European Exchange Rate Mechanism.British government bond prices are now on track for their biggest slump of any calendar month since at least 1957, according to a Reuters analysis of Refinitiv and BoE data.In response to that statistic, Paul Johnson, the head of the Institute for Fiscal Studies, attacked the government’s decision to ignore the usual rules. “This will cost billions,” he said on Twitter (NYSE:TWTR). “Economic and fiscal constraints are real. It’s not just ‘Treasury orthodoxy'”. More

Finance Minister Sri Mulyani Indrawati said the government was still, however, expecting to pay large energy subsidies in the third and fourth quarters of this year.”We will use all of our excellent state revenue,” she told a news conference, referring to the financing of the subsidies. Indonesia 2022 energy subsidies are projected to go up as much as 649 trillion rupiah ($42.91 billion), more than triple its original budget, despite the recent fuel prices hike.Government revenues were up 49.8% on a yearly basis in the January-August period to 1,764.4 trillion rupiah ($116.65 billion), which the minister attributed to high commodity prices and continuous economic recovery from the pandemic. Spending rose 6.2% on a yearly basis to 1,657 trillion rupiah.The finance ministry has sold 95.42 trillion rupiah worth of local currency bonds with low returns to the central bank this year, part of the two agencies’ bond sale agreement signed in 2021, Sri Mulyani said. Under the deal, Bank Indonesia will purchase government bonds worth up to 439 trillion rupiah in 2021 and 2022.($1 = 15,125.0000 rupiah) More