The pound fell to a record low on Monday, and further selling in UK gilts pushed eurozone yields higher as markets plunged for a second session in Britain on the week’s financials. last.
Stock markets around the world also fell as concerns over rising interest rates continued to strain the financial system, although in a rare recent case of a media event with less impact on the market than expected, the reaction to the election results in Italy. There was a silence.
The pound fell about 5% at one point in Asian trading and broke below the 1985 low to hit $1.0327. Tighter liquidity in the Asian session accelerated the move, and the currency last climbed as high as $1.072.
Britain’s Finance Minister Quasi Quarteng announced on Friday he was scrapping the country’s highest tax rate and scrapping a planned rise in corporation tax – in addition to an incredibly expensive scheme to subsidize utility bills. ‘energy.
The euro, which fell to its lowest level in 20 years against the dollar on Monday, was still up more than 1% on the pound to 90.21 pence, against 92.29 pence at the start of the day, its most high since December 2020. East. ,
“The market is now treating the UK as an emerging market,” said Michael Avery, strategist at Rabobank in Singapore.
“If this applies to European companies, you will at least get a public statement from the BOE threatening (action) and…there is a strong possibility that they will have to step up to an interim meeting, and a big one on top of that. “
The carnage was not limited to currencies. Five-year gilt yields rose to their highest level of more than 40 basis points since October 2008, pushing eurozone government bond yields higher. Read more
Germany’s 10-year government bond yield hit 2.128%, DE10YT=RR, and Italy’s benchmark bond yield hit its highest level since 2013 at 2.128% since December 2011.
Rather than an outright reaction to Sunday’s election, the moves were in line with the overall picture, with Giorgio Meloni set to become Italy’s first female prime minister, leading his most right-wing government since World War II. world. Eh. Read more
“Not a big surprise. I expect a relatively small effect, given that the league, at least a party with a pro-European stance, has weakened,” said Giuseppe Cerselle, fund manager and strategist, Anthelia Capital Partners. Referring to a separate right-wing party led by Matteo Salvini.
“The market knew how this was going to end and would remain focused on economic growth, monetary policy tightening and public finances at this stage, a slippery slope for Italy.”
rise in tension
The pound’s fall is just the latest unnecessary move as investor volatility plagues global financial markets.
Yields on two-year Treasuries rose 4.3% to a new 15-year high, and European equity markets moved less dramatically than bonds and currencies, the European STOXX index 600. The STOXX slid for a third consecutive session on Monday, falling to a new low since December 2020.
Commodities and mining stocks led the decline as they are particularly vulnerable to the downturn.
MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 1.4% to a two-year low and posted its biggest monthly loss of 11% since March 2020.
Oil and gold were under pressure on the greenback’s rise, with gold trading at a 2.5-year low of $1,626 and Brent futures down nearly 0.5 %, after hitting a low of $85.06 a barrel since January.
Sammy said: “There has been an economic argument at play, as central banks raise rates to steer monetary policy into restrictive territory, briefly fall below trend growth, – a polite way of saying recession – and then you get low inflation,” Sammy said. . Chief Economist Char de Lombard Odier.
“The question is whether the financial world can go through this sequence. It seems like when we hit that threshold, things start to break down, like what we see with Sterling.