Good morning to everyone except British currency markets. I’m Phil Rosen, and economic signals from our colleagues across the pond are deep in the red to start the week.
No frills or tomfoolery today, out of fear that the pound will drop further before we get to the news.
Below, I’m breaking down why sterling tumbled to an all-time low Monday.
If audio is more your speed, here’s my breakdown on The Refresh from Insider.
Let’s get started.
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FILE PHOTO: British five pound banknotes are seen in this picture illustration
Reuters
1. The British pound fell to 1.035 against the US dollar yesterday, as traders bet that a sweeping tax-cut plan could fuel inflation and result in more aggressive interest rate hikes by the Bank of England — all of which would rattle an already-shaky economy.
To close last week, chancellor Kwasi Kwarteng said he’s scrapping Britain’s top income-tax rate of 45%, along with other policy measures, in the name of reducing the risk of a severe recession, Insider’s Theron Mohamed writes.
But that strategy has only heightened concerns, and it manifested most visibly in the currency plunge.
The Bank of England this year has hiked its base rate to 2.25% from near-zero in an attempt to stem inflation, but this tax plan may force the bank to hike rates even more aggressively or even impose an emergency rate hike, which some UK Conservative Party members have floated.
That looming possibility, paired with a US dollar that’s appreciated to 20-year highs, has pushed investors to swap pounds for greenbacks as the outlook for the UK dims.
UBS analysts said Monday that the dollar is poised to stay “stronger for longer” as long as the Fed remains committed to hawkish policy, despite the risk of a recession. Even after its third consecutive 75-basis-point hike last week, all signs point to more to come.
All this, unfortunately, means the UK may have to brace for more turmoil ahead in the shape of persistent, high inflation and unemployment, as well as an extended cost-of-living crisis, soaring power and food prices, and a heavier government debt load.
What do you think is the Bank of England’s best option to stop the pound from falling further? Email [email protected] or tweet @philrosenn.
In other news:
Charlie Rose
2. US stock futures rise early Tuesday, as the pound steadied after hitting a record low. Meanwhile, cryptocurrencies were also up, with bitcoin trading above the $20,000 level. Here are the latest market moves.
3. Earnings on deck: BlackBerry Ltd, Northgate PLC, and Hotel Chocolat Group PLC, all reporting. Plus, look out for speeches by Fed Chair Jerome Powell and ECB President Christine Lagarde at the Banque de France Conference.
4. Goldman Sachs recommended this batch of stocks that are set to outperform and generate rich cash flows despite the Fed’s rate hikes. These newly added stocks to the bank’s basket of picks are projected to rise even in a high-interest-rate environment. Get the list of 26 names here.
5. Russia’s war on Ukraine will cost $2.8 trillion across the world. That’s what Paris-based OECD forecasted this week — and it said that the figure can climb even higher if winter energy shortages in Europe necessitate rationing.
6. The EU will likely delay a cap on Russian oil prices as the bloc struggles to reach an agreement. Efforts to implement new sanctions on crude coming out of Moscow are stalling, sources told Bloomberg Monday, and European nations have yet to come to a consensus on the matter.
7. Warren Buffett’s Berkshire Hathaway looks likely to be a top payer for Biden’s new corporate tax. The administration’s new 15% minimum corporate levy means Buffett’s conglomerate would’ve paid $8.3 billion based on the company’s 2021 earnings , a new study found. Here’s what you want to know.
8. Personal finance expert and “Financial Grownups” podcast host Bobbi Rebell broke down her favorite books. These reads are Rebell’s top picks for finance, money security, and preparing for retirement. See the four books here.
9. A top-2% fund manager said to buy these stocks right now before a “pain trade” to the upside catches investors off-guard. Too much fear in markets has positioned stocks for a rebound — and these 8 names in particular are worth adding to your portfolio amid the uncertainty.
Madison Hoff/Insider
10. Unlike past recessions, office jobs are the most at risk for layoffs. During the initial downturn of the COVID-19 pandemic, white-collar workers fared much better than blue-collar employees, but several signs suggest the opposite will be true in a potential Fed-induced downturn. Dig into the data here.
Keep up with the latest markets news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.
Curated by Phil Rosen in New York. (Feedback or tips? Email [email protected] or tweet @philrosenn).
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.