Finance

Shares of Upstart plummeted Tuesday after the AI consumer lending platform cut its full-year revenue outlook.
The company lowered its 2022 revenue estimate to $1.25 billion from $1.4 billion previously.
Upstart, which uses artificial intelligence to gauge creditworthiness, cited climbing interest rates and the risk of a recession.

In this photo illustration an Upstart Holdings logo is seen on a smartphone screen.
Pavlo Gonchar | SOPA Images | LightRocket | Getty Images

Shares of Upstart plummeted about 55% premarket Tuesday after the artificial intelligence lending platform cut its full-year revenue outlook, citing rising interest rates and an uncertain economy.
The company had reported better-than-expected first-quarter results Monday after the bell, but also slashed its 2022 revenue forecast to $1.25 billion from a prior estimate of $1.4 billion.

Upstart expects second-quarter revenue of $295 million to $305 million, while analysts surveyed by Refinitiv predicted $335 million, on average.
“Given the general macro uncertainties and the emerging prospect of a recession later this year, we have deemed it prudent to reflect a higher degree of conservatism in our forward expectations,” said CFO Sanjay Datta on Upstart’s earnings call Monday.
The company, which uses artificial intelligence to gauge creditworthiness, said climbing interest rates are hurting loan volume.
“In addition to increasing rates for approved borrowers, this also has the effect of lowering approval rates for applicants on the margin,” said CEO David Girouard on the earnings call.
Upstart management indicated further economic challenges ahead as the Federal Reserve continues to hike rates and cut its balance sheet to tamp down on persistent inflation.

“Given the hawkish signals from the Fed, we anticipate prices will move even higher later this year, which will have the effect of reducing our transaction volume, all else being equal,” Girouard added.
Plus, the company noted borrower defaults are normalizing. During the pandemic, charge-off and delinquency rates reached decades-long lows amid government aid and stimulus programs.
“After remaining at historically low levels for the past 18 months, loan default rates rose quite abruptly towards the end of last year, and are now back to or in some cases above pre-pandemic levels,” Datta said.
Upstart received a slew of downgrades from Wall Street analysts at Piper Sandler, Citigroup and Stephens after the quarterly report.
Piper Sandler analyst Arvind Ramnani on Tuesday downgraded the stock to a neutral rating from overweight and slashed its price target on the stock to $44 from $230. The new price projection implies 75% downside from Upstart’s closing price Monday.
“The range of outcomes for UPST has increased, given macro uncertainties,” Ramnani said in the note. “We expect there could be further downside based on the speed and intensity of a recession.”

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Take a look at some of the biggest movers in the premarket:
Peloton (PTON) – Peloton shares plunged 25.8% in the premarket after the fitness equipment maker reported a larger-than-expected quarterly loss and projected current-quarter revenue below estimates due to softening demand.

Novavax (NVAX) – Novavax sank 23% in premarket trading after the vaccine maker missed both top and bottom line estimates for its latest quarter. The miss comes as Novavax shipped just 31 million Covid-19 vaccine doses during the quarter, putting it well off the pace of its projected 2 billion shots for 2022. Novavax reiterated its prior 2022 revenue forecast, however, saying it expected vaccine sales to accelerate during the current quarter.
Vroom (VRM) – Vroom surged 38% in premarket trading after the online used-vehicle seller posted a smaller than expected quarterly loss and revenue that exceeded analyst estimates. Vroom also announced that chief operating officer Thomas Shortt would become CEO, replacing Paul Hennessey, as well as unveiling a restructuring that will eliminate about 270 jobs.
Biohaven Pharmaceutical (BHVN) – The migraine drugmaker agreed to be bought by Pfizer (PFE) in a deal worth $11.6 billion, resulting in a 72% premarket surge in its shares. Biohaven shareholders will receive $148.50 per share in cash, plus half a share in a new publicly traded company that will hold some of the Biohaven drugs still in development. Pfizer, which had a 2.6% stake in Biohaven prior to the deal announcement, fell 1.4%.
Aramark (ARMK) – The food services company’s shares gained 2.3% in the premarket, following news that it would separate its uniform services unit into a separate company. Separately, Aramark reported quarterly profit that matched estimates, with revenue coming in above consensus.
Edgewell Personal Care (EPC) – The maker of personal care products like Schick razors and Edge shaving cream fell 6 cents a share shy of estimates, with quarterly earnings of 50 cents per share. Edgewell also raised its sales guidance for the year but lowered its earnings guidance as inflationary pressures persist.

Norwegian Cruise Line (NCLH) – Norwegian shares added 1.6% in premarket trading after saying bookings were now exceeding pre-pandemic levels. Norwegian reported a quarterly loss of $1.82 per share, larger than the $1.53 loss expected by analysts.
Upstart (UPST) – Upstart plummeted 51.2% in the premarket despite better-than-expected quarterly results. The decline comes as the AI-powered lending platform operator cut its outlook, saying the current macroeconomic environment is likely to negatively impact loan volume.
AMC Entertainment (AMC) – AMC rallied 6.8% in the premarket after reporting a smaller than expected quarterly loss as well as revenue that exceeded analyst forecasts. AMC was helped by the release of popular big-budget movies like “The Batman,” and noted a jump in per-patron revenue above pre-pandemic levels.
Trex (TREX) – Trex gained 3.3% in premarket action after the maker of outdoor decking and railing materials reported better-than-expected quarterly results. Trex continues to benefit from elevated demand from consumers seeking to renovate outdoor spaces in their homes.

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Between late March and late April, the share of respondents reporting an impact from Covid restrictions rose by 4 percentage points to 58%, according to an American Chamber of Commerce in China survey released Monday.
AmCham China President Michael Hart said he expected foreign investment in China would drop sharply in coming years because people are not able to easily enter the country and plan projects.
If Covid controls persist for the next year, 53% of respondents to AmCham’s latest survey said they would reduce investment in China.

Truck drivers, such as the one pictured here in Shanghai in late April, typically need to show valid negative virus tests in order to move goods between cities in China. The American Chamber of Commerce in China said members have reported varying implementation of Covid controls depending on city and province.
Vcg | Visual China Group | Getty Images

BEIJING — More U.S. businesses in China are cutting revenue expectations and plans for future investment as Covid controls drag on, a new survey found.
Between late March and late April, the share of respondents reporting an impact from Covid restrictions rose by 4 percentage points to 58%, according to an American Chamber of Commerce in China survey released Monday.

While that’s not a large increase, 4 or 5 percentage points every month could be “very significant” if Covid controls persist for another five months, Michael Hart, AmCham president, told CNBC in a phone interview.
Asked what impact Covid restrictions will have if they last for the next year, more than 70% of respondents said their revenue or profit would be cut.
The latest study, conducted from April 29 to May 5, covered 121 companies with operations in China. That time period included the latest Covid restrictions in the capital city of Beijing.

Two, three, four years from now, I predict a massive decline in investment in China because no new projects are being teed up, because people can’t come in and look at space.

Michael Hart
president, AmCham China

The prior survey was conducted with AmCham Shanghai in late March, just as Shanghai’s original plan for a two-part lockdown were starting. Those measures have lasted for far longer than the initial week.
In the last few days, Beijing city postponed the reopening of schools until further notice, and ordered all non-essential businesses in a major business district to close temporarily or have their staff work from home.

“There are very few aspects of the economy which seem to be functioning,” a survey respondent said in the report, which withheld the respondent’s name and location. “[While] COVID-19 restrictions can be managed, what [will be increasingly difficult to] manage is lack in overall growth of the economy and what appear to be growing economic headwinds.”

Companies cut China investment plans

The prolonged Covid controls — as mainland China tackles its worst virus outbreak since early 2020 — have further discouraged U.S. businesses from investing in the country, the AmCham survey found.
The percentage of respondents reporting decreased investments as a result of the latest outbreak and restrictions rose to 26% versus 17% a month earlier.
Those reporting a delay in investments fell slightly to 26%, versus 29% in the previous survey. The proportion who said it’s too early to predict or haven’t decided on the impact on investment plans rose to 44% in the latest survey, up from 30% in the prior study.

Official figures show a steady increase in foreign direct investment from all countries into China, up by 31.7% year-on-year in the first quarter to $59.01 billion.
China’s Ministry of Commerce did not have a comment ahead of its regular press conference on Thursday. When asked in late April about foreign businesses’ challenges, the ministry said it would make all effort to ensure resumption of work and production.
Since China tightened border restrictions in 2020 to control the transmission of Covid from travelers into the country, foreign business organizations have said it is hard to bring in staff. That’s because there’s a lack of international flights into China and quarantine times upon arrival of at least two weeks, if not longer.
“If you want investment you have to allow for travel,” Hart said, noting the impact will be felt in the long term.
“Two, three, four years from now I predict a massive decline in investment in China because no new projects are being teed up, because people can’t come in and look at space,” he said.
If Covid controls persist for the next year, 53% of respondents to AmCham’s latest survey said they would reduce investment in China.

Read more about China from CNBC Pro

By industry, the tech and research and development businesses reported the highest impact of Covid controls on their investment plans, with 53% of those surveyed in the sector expecting delays or reductions.
On the other hand, consumer businesses were the only ones to report plans to increase investment, albeit just 4% of members in the sector. For the industry, 36% planned to reduce investment, while 29% said they would delay investment as a result of the latest outbreak.
The consumer sector was also the only one to report some increase in yearly revenue projections despite the Covid impact, at 3% of respondents. However, the majority of consumer businesses, or 69%, said they were cutting revenue expectations for the year.

Business hasn’t fully resumed

While Shanghai authorities have announced whitelists that allow just under 2,000 businesses to resume production, AmCham’s latest survey found that among respondents with Shanghai operations, 15% said they had yet to reopen.
That doesn’t mean the majority are fully back at work.
Hart said anecdotally, some companies he spoke with last week in Shanghai were operating at 30% to 50% capacity. Many suppliers remain closed, while shipping parts and goods to customers is still challenging, he said.
Several different cities across China have enacted some form of lockdown, and truck drivers often need special passes and frequent negative virus tests in order to transport goods.

Just based on our own companies’ experience in the U.S. and Europe and other markets, we have seen that other countries have taken a different strategy. We’re just asking for a bit more of a balance.

Michael Hart
president, AmCham China

Part of the difficulty is inconsistent implementation across provinces and cities of what China calls its “dynamic zero-Covid” policy, Hart said.
At the local level, “government officials are looking for practical ways for companies to solve their issues and get back to work, because those people are judged by economic performance,” Hart said. “When we talk to government at [a] high level, it’s not a focus on the economy. It’s a focus on health and Covid reduction.”
“Just based on our own companies’ experience in the U.S. and Europe and other markets, we have seen that other countries have taken a different strategy,” he said. “We’re just asking for a bit more of a balance.”
Last week, Chinese President Xi Jinping led a meeting that emphasized the country should “resolutely fight” against all questioning of virus control policies. The meeting also warned of economic consequences if China didn’t stick to its dynamic zero-Covid policy.
In November, China’s Center for Disease Control and Prevention published a study that warned that shifting to the “coexistence” strategy of other countries would likely result in hundreds of thousands of daily cases — devastating the national medical system.
For Monday, mainland China reported 349 new Covid cases with symptoms and 3,077 without symptoms, mostly in Shanghai — which reported six deaths for the day.

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INFLATION DOMINATES the American popular psyche to an extent not seen since the 1980s, when prices were last rising at the current pace. Much like complaining about the weather or last night’s basketball playoffs, moaning about higher prices has become a conversation starter. Figures published on May 11th are expected to show that consumer prices rose by more than 8% in April, compared with the previous year. Newspapers are publishing four times as many stories mentioning inflation as they did a year ago. And, according to several polls, Americans believe inflation is a bigger problem for their country than Russia’s invasion of Ukraine. But America is not alone. Inflation is also becoming baked into everyday life in other parts of the world.The Economist has gathered data on five indicators—“core” inflation, which excludes food and energy prices; the dispersion in inflation rates for the sub-components of the consumer-price index; labour costs; inflation expectations; and Google searches for inflation—across ten big economies. To gauge where inflation has become most pervasive, we rank each country according to how it fares on each measure, and then combine these ranks to form an “inflation entrenchment” score.Continental Europe, so far at least, seems to have escaped the worst of the scourge. Inflation is leaving barely a trace on Japan. But it is entwining itself around Anglophone economies. Canada is now faring slightly worse even than America. Britain has a big problem on its hands.A few factors explain what is going on. Total fiscal stimulus across Anglophone countries in 2020-21 was about 40% more generous than in other rich places, according to our estimates. It was also more focused on handouts to households (such as stimulus cheques). That may have stoked demand to a greater extent. Monetary policy in the euro area and Japan was already ultra-loose before the pandemic, limiting the amount of extra stimulus central banks could provide. Britain’s pervasive inflation may also reflect an idiosyncratic factor: Brexit. It turns out that breaking with your largest trading partner can cause costs to rise.The simplest component of our ranking is the rate of “core” inflation. This measure gives a better sense of underlying price pressure. Among our ten countries, America leads the pack (though core inflation is above average pretty much everywhere).A second measure, of dispersion, helps capture how broadly based price pressures are. A country where headline inflation is being driven by one or two items—say, the cost of a restaurant meal—is in less trouble than a country where the price of everything is going up quickly. To measure this we divide each country’s consumer-goods basket into as many as 16 components, then calculate the share where the inflation rate exceeds 2%. In Japan just a quarter cross that threshold. But in Australia more than two-thirds do. A recent report by JPMorgan Chase, a bank, breaks down Britain’s consumer-price index into 85 sub-components, and finds that inflation rates for 69% of them are running above their 1997-2019 averages.Inflation could also spiral if workers demand higher wages to compensate them for rising prices (and firms raise their prices in turn). Unit labour costs, which measure the relationship between what workers are paid and the value of what they produce, are rising far faster than their long-run average in many countries. On May 5th America’s statisticians revealed that these rose by 7% in the first quarter, compared with a year ago, up from a pre-pandemic average of around 2%. Michael Saunders of the Bank of England recently noted that with pay deals being struck at up to 5% a year, but productivity growth of only around 1%, Britain’s unit-labour-cost growth is probably “well above the pace consistent with the inflation target [of 2%].”Our last two measures assess households’ expectations. One proprietary data set, provided to The Economist by researchers at the Federal Reserve Bank of Cleveland, Morning Consult, a consultancy, and Raphael Schoenle of Brandeis University, is a rare reliable cross-country gauge of public inflation expectations. In May 2021 a respondent in the median rich country thought inflation over the next 12 months would be 2.3%. Now they expect a rate of 4.5%; Canadians, an even higher 6%. A measure of Google searches for inflation reaches a similar conclusion. Britons now search more frequently for “inflation” than they do for Taylor Swift.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

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Crypto project Terra is buying billions in bitcoin to support UST, a controversial stablecoin.
Its creator Do Kwon believes bitcoin can become the “reserve currency” of the Terra ecosystem.
That belief is being put to the test as UST falls below its $1 peg.

Pedestrians walk past a display of cryptocurrency Bitcoin on February 15, 2022 in Hong Kong, China.
Anthony Kwan | Getty Images

A multibillion-dollar bet that bitcoin can act as a “reserve currency” for the crypto economy is already being tested as UST, a controversial stablecoin, struggles to maintain its $1 peg.
UST dropped close to 99 cents over the weekend, fueling fears of a potential “bank run” that could force Terra, the project behind it, to dip into a $3.5 billion pile of bitcoin to support the token.

Now, the Luna Foundation Guard, an organization created by Terra’s inventor, says it will lend out $750 million in bitcoin to trading firms to hold UST’s price peg. But that’s done little to assuage investors’ concerns about the implications for bitcoin.

What is UST?

Developed by Singapore-based Terraform Labs, UST is what’s known as an algorithmic stablecoin. It aims to carry out the function of stablecoins like tether, which track the price of the U.S. dollar, but without any actual cash held in a reserve to back it.
Instead, UST — or “terraUSD” — is created by destroying a sister token, known as luna, using smart contracts, lines of code written into the blockchain.
“If you’ve got, say, $405, and you burn one luna, you should be able to mint 405 of the UST stablecoin,” Carol Alexander, professor of finance at the University of Sussex, explains.
The same applies vice versa — new luna is minted by burning UST and other algorithmic stablecoins that Terra supports.

Terra’s protocols also feature an arbitrage mechanism, where investors can exploit deviating prices in each of the tokens. For example, too much demand for UST may result in its price topping $1. That means traders can convert $1 worth of luna into UST, and pocket the difference as profit.
The model is designed to even out supply and demand for UST. When the price of UST is too high, users are incentivized to burn luna and create new UST, increasing the stablecoin’s supply while also decreasing the amount of luna in circulation.
“The luna becomes more scarce, which makes it more valuable, transferring that value into UST,” Alexander says.
When UST’s price is too low, the reverse happens — UST gets burned and luna is minted. That should, in theory, help stabilize prices.

The problem

“This assumes normal market conditions,” said David Moreno Darocas, a research analyst at CryptoCompare.
“During periods of high volatility and one-sided buy/sell activity for UST, the above stabilizer may not be sufficient to maintain the peg in the short-term.”
There have been multiple instances where UST has decoupled from its $1 peg, raising concerns about the viability of its economic model — particularly in a situation when several people try to redeem their tokens at once.
The latest challenge arrived over the weekend. Hundreds of millions of UST was sold on Anchor, Terra’s flagship lending platform, as well as Curve and Binance, resulting in accusations of a “coordinated attack” on the stablecoin.
“Men will literally attack a stablecoin unsuccessfully instead of going to therapy,” Do Kwon, the South Korean crypto entrepreneur who co-founded Terraform Labs, said in a since-deleted tweet.

‘Reserve currency’

To address concerns over the sustainability of its stablecoin, Kwon plans to buy up to $10 billion worth of bitcoin through a nonprofit called Luna Foundation Guard. These funds would provide a backstop in case of a dramatic fall in the value of UST.

The idea is that bitcoin would act as the “reserve currency” for the Terra ecosystem.
LFG bought another $1.5 billion in bitcoin last week, taking its total reserves to about $3.5 billion. However, on Monday, the organization said it is taking steps to “proactively defend the stability” of UST.
That includes lending $750 million worth of bitcoin to trading firms to “protect the UST peg” and a further 750 million in UST being lent out to buy more bitcoin “as market conditions normalize.”
“In the case of most of these algo stablecoins, we have seen that the teams behind the project usually need to step in — so these are not fully decentralized or managed independently yet,” said Vijay Ayyar, head of corporate development and international at crypto exchange Luno.

What it means for bitcoin

Investors are worried that UST’s bitcoin underpinning will result in further pain for the cryptocurrency.
The world’s largest digital coin dropped below $33,000 on Monday, slumping to its lowest level since July 2021. It was last trading at about $32,921, down 6% in the last 24 hours.
LFG’s intervention “will add to the selling pressure,” said Derek Lim, head of crypto insights at the Bybit exchange. “BTC will likely go lower before it bounces back when short-sellers take profit.”
Kwon insisted LFG is “not trying to exit its bitcoin position.”
“As markets recover, we plan to have the loan redeemed to us in BTC, increasing the size of our total reserves,” he said.
The plan is to eventually allow UST holders to redeem their tokens in exchange for bitcoin. Bitcoin would play the role normally taken by luna in a crisis scenario, with arbitrageurs buying UST and then swapping it for discounted bitcoin. But this is still weeks away from being implemented, and it’s unclear how it would work in practice.
The biggest risk moving forward would be another depegging of UST forcing LFG to liquidate its bitcoin holdings, said Hendo Verbeek, head of quantitative trading operations at Faculty Group. That could, in turn, result in further liquidations of “over-leveraged” buyers, according to Verbeek.
“This is a nightmare scenario which looks like a real outcome of events,” he said. More

Take a look at some of the biggest movers in the premarket:
Palantir Technologies (PLTR) – The data analytics software company’s shares plunged 15.1% in premarket trading after posting a mixed quarter. Palantir reported profit of 2 cents per share, compared to a 4 cents a share consensus estimate. Revenue was higher than expected, however, despite slowing growth in its government business. Palantir also issued a softer-than-expected current-quarter revenue forecast.

Rivian (RIVN) – Ford Motor (F) is selling 8 million of its 102 million share stake in the electric vehicle maker, according to sources who spoke to CNBC’s David Faber. The move comes as the insider lockup period for selling the stock expires. Rivian shares plummeted 15.6% in the premarket.
Uber Technologies (UBER) – Uber plans to slash spending on marketing and incentives and be deliberate about adding workers, according to a staff email obtained by CNBC. CEO Dara Khosrowshahi said the ride-hailing and food delivery company said Uber needs to become a leaner business to address a “seismic shift” in investor sentiment. Uber fell 3% in the premarket.
Coty (COTY) – Coty reported quarterly earnings of 3 cents per share, beating the penny a share consensus estimate. Revenue topped forecasts as well and the cosmetics company raised its full-year outlook on strong demand for its products. The stock rose 1.7% in the premarket.
Energizer (ENR) – The battery maker beat estimates by 9 cents a share, with quarterly profit of 47 cents per share. Revenue topped Street forecasts as Energizer raised prices. Its shares gained 2.3% in the premarket.
Elanco Animal Health (ELAN) – Elanco fell 4.3% in premarket action after the animal health products company lowered its full-year outlook, reflecting the impact of a stronger U.S. dollar. Elanco reported slightly better-than-expected profit and revenue for its most recent quarter.

Tyson Foods (TSN) – The stock rose 1% in the premarket after the beef and poultry producer beat profit and revenue estimates for its latest quarter. Tyson earned $2.29 per share, compared to a $1.91 a share consensus estimate.
BioNTech (BNTX) – BioNTech trounced Wall Street estimates for profit and revenue in its latest quarter, and also backed its prior outlook for 2022 including projections for Covid-19 vaccine sales.
Twitter (TWTR) – Elon Musk detailed his financial goals for Twitter in an investor presentation obtained by the New York Times. Among those goals: quintuple revenue by 2028, cut Twitter’s reliance on advertising and reach 931 million users by 2028 compared to 217 million at the end of 2021. Twitter fell 1.3% in premarket trading.
Shell (SHEL) – Third Point’s Daniel Loeb told investors he has added to his stake in energy giant Shell, according to a letter seen by Reuters. Loeb said in the letter that he had held “constructive” talks with management, the board and shareholders about his call for the company to split itself up. Shell shares fell 2.6% in premarket action.
Southwest Gas (SWX) – Southwest Gas reached a settlement with investor Carl Icahn that will see the utility company replace its CEO and give Icahn as many as four board seats. Southwest Gas rose 1% in the premarket.

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The Bank of England raised interest rates by a quarter of a percentage point on Thursday, taking its base interest rate up to 1%.
That’s the highest interest rates have been since 2009 and was the BoE’s fourth hike in a row.

George Clerk | E+ | Getty Images

There’s an economic idiosyncrasy in the U.K. that makes it “one of the most vulnerable countries in the world right now,” according to an investment strategist.
Mike Harris, the founder of Cribstone Strategic Macro, argues that a major problem for Britain is that its mortgage market is “heavily short-term.” While in the U.S. and in other parts of Europe citizens like long-tenure mortgages, many Brits opt for short-term loans of less than five years. Tracker mortgages are also popular which fluctuate with the Bank of England’s base rate.

Harris told CNBC Friday that this was an issue as rate rises would immediately trigger losses to household incomes, while it might not actually deal with the issue of inflation. He explained that the U.K. was a country that “imports inflation,” so the effect of interest rate hikes by the Bank of England wasn’t simply a rebalancing of supply and demand that would slowly rein in consumer price growth.
“Here we’re actually not really dealing with a pure situation where we’re trying to slow the economy, we are ultimately trying to rebalance expectations, and the U.K. is a country that imports inflation … So we’re not effectively in a position where we’re free effectively to just focus on supply and demand,” he said.
He added: “We get stuck in a situation where global inflation is driving our inflation at this stage, we have to hit the consumer and instead of just reducing the propensity to spend in the future, we’re actually taking further money out of household income, which doesn’t happen in the U.S.”
The Bank of England raised interest rates by a quarter of a percentage point on Thursday, taking its base interest rate up to 1%. That’s the highest interest rates have been since 2009 and was the BOE’s fourth hike in a row. The central bank also forecast that inflation would hit 10% this year, with soaring food and energy prices exacerbated by Russia’s unprovoked attack on Ukraine.

Harris said he had twice requested data from the Bank of England about how much lending in the country was fixed on a two-year term and how much was set for five years, but said that he was told that the central bank did not keep that information.

Harris argued that it was “absolutely insane for a central bank to not appreciate the economic impact associated with every rate hike.” He explained that consumer behavior would unlikely change a lot in five years but it would over two years.

U.K. ‘facing the music’

According to a data from trade association UK Finance, 1.5 million fixed-rate mortgage deals are due to expire in 2022, with another 1.5 million due to do so next year.
In data released on Friday, investment platform Hargreaves Lansdown calculated that someone remortgaging at the end of a two-year fixed term deal, following the latest interest rate hike, could see their monthly payment go up by £61. If the base rate hit 1.5%, Hargreaves Lansdown worked out that could add £134 to their monthly mortgage payments. According to a survey of 2,000 U.K. adults, conducted on behalf of the platform in April, more than a third of people would struggle to afford those extra costs.
Harris said that due to the current rate raises “we’re in an environment where we’re probably going to destroy more demand than we should have because the Bank of England and [former governor] Mark Carney didn’t do their job as they should have.”
He said this dynamic was similar to that with the Federal Reserve in 2007, just before the onset of the Global Financial Crisis, as “they were allowing people to take mortgages when they knew they couldn’t repay them if house prices fell because they had to refinance so there’s an inherent unsustainability.”
Harris added that the U.K. was now in a stage where it was “facing the music.”
“I would say the U.K. is one of the most vulnerable countries in the world right now because of that dynamic and the fact that central bank governors didn’t do anything about it, they still might have some time,” he said, arguing that if policymakers had the means to extend this debt duration now, they should “actively” be doing so.
A spokesperson for the Bank of England declined to comment but pointed CNBC to recent statements by Governor Andrew Bailey and Chief Economist Huw Pill.
In the past, two-year fixed-term mortgage have been popular because they tend to be cheaper due to the shorter lending period. However, UK Finance said that the popularity of five-year agreements had been growing with 50% of fixed-term contracts in place in 2021 having this duration, while 45% were on two-year contracts.
Bank of England data from last week showed that the “effective” interest rate — the actual interest rate paid — on new mortgages increased by 14 basis points to 1.73% in March — the biggest increase since at least 2016, according to Bloomberg.

Cost of living squeeze

Speaking on CNBC’s “Street Signs Europe” on Friday, Bank of England Chief Economist Huw Pill also pointed out that the spike in inflation was being driven by external shocks.
He said it was “uncomfortable” for central bank members to be forecasting a 10% rate of inflation, which is well above the Bank’s long-term target of 2%.
“Of course that discomfort has to be seen in the context of the real impact of the cost of living squeeze on households and firms here in the U.K., it’s more painful for them than the discomfort from a policymaker point of view,” Pill added.

He explained that the Bank of England was trying to use monetary policy to try to ensure that those drivers of inflation don’t result in persistently higher prices, and create a stagflationary environment like that of the 1970s. But he said the central bank wanted to bring inflation back down to target without introducing “unnecessary volatility into the economy.”
Bank of England Governor Andrew Bailey told CNBC’s Geoff Cutmore Thursday that the U.K. was seeing an “unprecedentedly large shock to real income in this country coming from abroad,” in terms of trade issues.
Bailey also defended the central bank’s more cautious approach to raising interest rates, with three dissenting members of its MPC having argued that the BOE should be more aggressive with its hikes.

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Traders on the floor of the NYSE, May 6, 2022.
Source: NYSE

Stock futures fell on Sunday evening as traders looked for the market to find its footing after a dramatic week of trading.
Futures tied to the Dow Jones Industrial Average dropped 218 points, or 0.7%. S&P 500 futures shed 0.8%, while those for the Nasdaq 100 lost 0.8%.

Last week, the Nasdaq Composite lost 1.54%, while the S&P 500 and Dow dropped 0.21% and 0.24%, respectively. It was the sixth straight losing week for the Dow, and the fifth straight for the other two major indexes.
While the cumulative moves for the week were not out of the ordinary, some of the day-to-day swings were eye-popping. The Dow had its best day since 2020 on Wednesday, but then erased all those gains and more on Thursday.
The short-lived Wednesday rally came after Federal Reserve Chair Jerome Powell said the central bank was not considering a 75-basis-point rate hike at upcoming meetings. Stocks and bonds rallied following that comment but reversed course on Thursday.
Billionaire hedge fund manager David Tepper told CNBC’s Scott Wapner on Friday that Powell’s statement was an “unforced error” that contributed to market volatility.
First-quarter earnings season is slowing down, but there are several notable reports before the opening bell on Monday, including Palantir and vaccine-makers BioNTech and Novovax.

In other corporate news, Ford was looking to sell 8 million shares in Rivian Automotive over the weekend, sources told CNBC’s David Faber.
Investors will also be keeping an eye on the war in Ukraine. U.S. first lady Jill Biden made a surprise visit to the country on Sunday. The U.S. and Group of Seven countries announced that they would increase short-term financial support for Ukraine as the war with Russia nears the three-month mark.

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