Economoney Archives - Page 16 of 20

October 25, 2023September 12, 2025

Central bank predictions were wrong, why should we take any notice now?

Central banks, 18 months ago got it fundamentally wrong and they got it wrong on many other occasions too.

So why take any notice?

The Fed and other central banks insisted that inflation would be ‘transitory’ – it wasn’t. It reached 7%. That’s 5% above the target of 2%.

Along with the misdiagnosis on prices, Fed officials, according to projections released in March 2022, collectively saw the key interest rate rising to just 2.8% by the end of 2023. It is now 5.25%.

Fed mistakes

The Great Depression

The Fed failed to prevent the collapse of the banking system and the contraction of the money supply in the late 1920s and early 1930s, which worsened the economic downturn and prolonged the recovery. The Fed also raised interest rates in 1931 and 1932, which further depressed economic activity and deflation.

The Great Depression (1929–1939) was an economic bomb that affected countries across the world. It was a period of severe economic depression after a major fall in stock prices in the United States. It began around September 1929 and led to the Wall Street stock market crash on 24th October 1929 (Black Thursday). See Wikipedia article here.

It was the longest, deepest, and most widespread depression of the 20th century.

The Great Inflation

The Fed pursued an overly expansionary monetary policy in the 1960s and 1970s, which fueled high inflation and eroded the value of the dollar. The Fed also underestimated the impact of oil shocks and other supply shocks on inflation and was slow to tighten monetary policy to restore price stability. The Fed eventually raised interest rates sharply in the late 1970s and early 1980s, which triggered a severe recession. And in1991 inflation surged to 8.5%.

The Great Recession

The Fed likely contributed to the build-up of financial imbalances and excessive risk-taking in the 2000s, (Dotcom bubble) – by keeping interest rates too low for too long and by failing to adequately supervise and regulate the financial system.

The Fed also reacted too slowly to the emerging signs of distress in the housing market and the financial sector and was unprepared for the global financial crisis that erupted in 2008. Remember, ‘sub-prime’ lending. We can see signs of similar stress in the U.S. car loan market now.

The Fed had to resort to unconventional monetary policy tools, such as quantitative easing and forward guidance, to stimulate the economy and prevent deflation.

The COVID-19 Pandemic

The Fed and other central banks including the Bank of England initially underestimated the severity and duration of the pandemic and its impact on the economy. The Fed also overestimated the transitory nature of inflation, which surged to a 30-year high in 2021 due to supply chain disruptions, pent-up demand, fiscal stimulus, and base effects. The Fed maintained an ultra-accommodative monetary policy stance for too long, despite mounting evidence of overheating and inflationary pressures.

The Fed finally raised interest rates by 0.75% in December 2022, but faced criticism for being behind the curve and for communicating poorly with the markets.

Transitory inflation

The Fed said inflation would be transitory in 2021 and 2022. The Fed used this term to describe the higher-than-normal prices that emerged during the Covid-19 economic crisis, which were expected to be temporary and not part of a long-term trend. The Fed attributed the inflation surge to factors such as supply chain bottlenecks, pent-up demand, fiscal stimulus, and base effects.

The Fed also said that it would let inflation run above its 2% target for some time, to achieve an average inflation rate of 2% over time. However, as inflation remained high and persistent in 2021 and 2022, the Fed faced criticism for being behind the curve and for communicating poorly with the markets. The Fed eventually raised interest rates.

And now, much of the same. The Fed is again ‘tinkering’ with policy to manage ‘transitory’ inflation and will most probably engineer a recession as a result.

Enough said.

October 24, 2023September 12, 2025

U.S multi trillion-dollar debt

The amount of U.S. debt is a complex and controversial topic that has different perspectives, implications and opinion.

According to the U.S. Treasury Fiscal Data, the national debt of the United States was $33.52 trillion as of 23rd October 2023.

This includes both the debt held by the public, which is the amount the federal government owes to outside entities such as foreign governments, corporations, and individuals, and the debt held by federal government accounts, which is the amount the federal government owes to itself, such as trust funds and special funds.

Is U.S. debt a problem?

Some argue that the U.S. debt is a problem because it increases the risk of a fiscal crisis, reduces the government’s ability to respond to emergencies, imposes a burden on future generations, and lowers the nation’s creditworthiness.

Others contend that the U.S. debt is not a problem because the U.S. can always print more money, (isn’t this why there is so much debt already)? Borrow at low interest rates, (not easy in the current climate), stimulate economic growth, and benefit from its status as the world’s reserve currency.

So, is U.S. debt a problem or not? It depends on various factors such as the size, composition, and sustainability of the debt, as well as the economic and political context in which it operates.

Most analysts and policymakers agree that the U.S. debt is projected to grow faster than the economy in the long-term, which could pose significant challenges for fiscal policy and economic stability. Therefore, it is important to understand the causes and consequences of the U.S. debt and to find solutions that balance the trade-offs between spending and income.

Debt in relation to GDP

The U.S. debt of GDP was estimated to be around 120% to 130% in 2023.

The U.S. debt of GDP is the ratio of the total public debt of the United States to its gross domestic product (GDP), which measures the size of the economy.

October 23, 2023September 12, 2025

U.S. ten-year treasury yield breaches 5% for the first time since 2007

The U.S. Treasury yields are the interest rates that the U.S. government pays to borrow money for different periods of time.

The 10-year Treasury yield is one of the most important indicators of the state of the economy and the expectations of inflation and growth. On 23rd October 2023, the 10-year Treasury yield rose above 5% for the first time since 2007, as investors increasingly accepted that interest rates will stay higher for longer and that the U.S. government will further increase its borrowing to cover its deficits.

Significant

This is a significant milestone, as it reflects the market’s view that the Federal Reserve will maintain elevated interest rates to control inflation and that the U.S. economy will remain resilient despite the challenges posed by the Covid-19 pandemic, geopolitical tensions and environmental issues.

The higher yield also means that the government will have to pay more to service its debt, which could affect its fiscal policy and spending priorities. The higher yield also affects other borrowing costs, such as mortgages, student loans, and corporate bonds, which could have implications for consumers and businesses.

10 Year Yield

The 10-year Treasury yield is influenced by many factors, such as supply and demand, inflation expectations, economic growth, monetary policy, and global events. The yield has been rising steadily since it hit a record low of 0.5% in March 2020, when the pandemic triggered a flight to safety and a massive stimulus from the Fed. Since then, the yield has been driven by the recovery of the economy, the surge in inflation, the reversal of the Fed’s bond-buying program, and the increase in the government’s borrowing needs.

Yield curve

The ten-year yield is closely watched by investors, analysts and policymakers as it provides a benchmark for valuing other assets and assessing the outlook for the economy. The yield is also used to calculate the yield curve, which is the difference between short-term and long-term Treasury yields.

The shape of the yield curve can indicate the market’s expectations of future interest rates and economic activity.

Artwork impression of computer screen: U.S. ten-year treasury yield breaches 5% for the first time since 2007

A steep yield curve means that long-term yields are much higher than short-term yields, which suggests that investors expect higher inflation and growth in the future. A flat or inverted yield curve means that long-term yields are lower than or equal to short-term yields, which implies that investors expect lower inflation and growth or even a recession.

The current yield curve is steepening, as long-term yields are rising faster than short-term yields. This indicates that investors are anticipating higher inflation and growth in the long run, but also that they are concerned about the sustainability of the government’s fiscal position and the impact of higher interest rates on the economy.

Indicators

The 10-year Treasury yield is an important indicator of the state of the economy and the expectations of inflation and growth. It has reached a level that has not been seen since before the global financial crisis of 2008-2009. This reflects the market’s view that interest rates will stay higher for longer and that the government will increase its borrowing to cover its deficits. The higher yield also affects other borrowing costs and asset prices, which could have implications for consumers and businesses.

The yield is influenced by many factors and is closely watched by investors, policymakers, and analysts. A 5% yield is a worry for the market, inflation, interest rates, geo-political risks and recession are the others, that’s enough!

October 23, 2023September 12, 2025

Tesla stock down 15% week ending 22nd October 2023, its worst performance of the year

The stock dropped more than 15% over the last few days after the company posted third-quarter earnings on Wednesday 20th October 2023.

The earnings report showed that Tesla missed analysts’ expectations on revenue and earnings per share. Tesla also announced a recall of 475,000 vehicles in the US due to a potential battery fire risk.

Additionally, Tesla faced regulatory challenges in China, where it was banned from selling its AI chips due to national security concerns. These factors contributed to the negative sentiment around Tesla stock and increased its volatility.

Tesla stock has fallen 73% from its record high in November 2021. The stock is down 69% in 2022, more than double the decline in the Nasdaq.

Tesla price crossed below 200 day moving average this is a bearish indicator.

Among major carmakers, Ford is down 46% and General Motors has fallen 43%. Since its IPO in 2010, Tesla has only fallen in one other year, an 11% drop in 2016. Some analysts and investors are still optimistic about Tesla’s long-term prospects, citing its innovation, leadership, and loyal customer base.

However, others are sceptical about Tesla’s valuation, profitability, and competition. Tesla’s stock performance in the coming months will depend on how it can overcome its current challenges and deliver on growth.

Don’t underestimate Elon Musk, but bear in mind other big car manufacturers are now catching and moving ahead of Tesla in the EV race.

October 23, 2023September 12, 2025

Moody credit agency upgrades UK

Moody’s is a credit rating agency that evaluates the creditworthiness of countries, companies, and other entities.

It recently upgraded the UK’s credit outlook from negative to stable, citing policy predictability, softer EU trade stance, and tax reversals.

This means that Moody’s expects the UK to have a lower risk of defaulting on its debts and to have a more stable economic outlook. Moody’s also noted some challenges for the UK, such as low growth prospects, high inflation, and the need for large investments in water and energy sectors.

It follows S&P, which dropped its negative outlook in April this year.

October 21, 2023September 12, 2025

U.S. 10-year Treasury yield hits 5% for the first time since 2007 – Dow closes down nearly 300 points

Stocks retreated Friday as a surge in the 10-year Treasury yield prompted broader concerns about the state of the economy.

The Dow Jones Industrial Average (DJIA) is one of the most widely followed stock market indices in the world. It tracks the performance of 30 large U.S. companies from various sectors, such as Boeing, Coca-Cola, Apple and Walmart.

The DJIA is often used as a proxy for the overall health of the U.S. economy and investor sentiment.

Market pressure

Lately, the DJIA has been under pressure as U.S. Treasury yields have climbed to their highest levels in over sixteen years.

Treasury yields are the interest rates that the U.S. government pays to borrow money by issuing bonds. When Treasury yields rise, it means that investors are demanding higher returns to lend money to the government, which reflects their expectations of higher inflation and economic growth.

Treasury yields

Higher Treasury yields can have a negative impact on the stock market for several reasons. Firstly, they increase the borrowing costs for companies and consumers, which can affect spending and profits.

Secondly, they make bonds more attractive as an alternative investment to stocks, which can reduce the demand for equities.

Thirdly, they can signal that the Federal Reserve may tighten its monetary policy sooner than expected, which can also dampen the stock market’s momentum.

The DJIA has fallen by more than 300 points in recent days as Treasury yields climbed above 5%, a level not seen since 2007. The rise in yields was driven by strong economic data, such as the September 2023 consumer price index (CPI), which showed that inflation remained elevated at 3.7% year-over-year. But only 1.7% off the Fed target of 2%.

Dow Johns Industrial Average close 20th September 2023

U.S. 10-year Treasury yield hits 5% for the first time since 2007 – Dow closes down nearly 300 points

The S&P 500 lost 1.26% to 4,224. The Nasdaq dropped 1.53% to 12,984. The Dow Jones Industrial Average lost 287 points, or 0.86%, to end at 33,127.28.

The yield on the benchmark 10-year Treasury crossed 5% for the first time in 16 years on Thursday 19th October 2023, a level that could easily spread through the economy by raising rates on mortgages, credit cards, vehicle loans and more. It retreated slightly from this value on Friday 20th October 2023.

Not to mention, it offers investors an attractive alternative to stocks.

October 19, 2023September 12, 2025

The U.S. 30-year fixed mortgage rate has hit 8% for the first time since 2000, as Treasury yields rocket

The average rate on the U.S. 30-year fixed mortgage rate hit 8% on Wednesday 18th October 2023, according recently released data. That is the highest level since 2000.

The unwelcome milestone came as bond yields soared to levels not seen since 2007. Mortgage rates follow the yield of the 10-year U.S. Treasury.

Sharp rise

Rates climbed sharply in the last two weeks, as investors digested more economic data. On Wednesday 18th October 2023 it was housing starts, which rose in September 2023, although not as much as expected, according to the U.S. data.

Building permits, an indicator of future construction, fell but by a less than expected. Last week, retail sales came in far higher than expected, creating more uncertainty over the Federal Reserve’s long-term plan.

U.S. mortgage applications plummet

The higher rates have caused mortgage demand to plummet, as applications fell nearly 7% last week from the previous week.

The average rate on the 30-year fixed was as low as 3% just two years ago. To put it in perspective, a buyer purchasing a $400,000 home with a 20% cash deposit would have a payment increase of nearly $12,000 per year more than it would have been two years ago.

U.S. mortgage rates closing in on 8% – Taking Stock

October 19, 2023September 12, 2025

Tesla earnings disappoint and Chinese EV stocks fall

Shares of Chinese electric vehicle manufacturers took a hit on Thursday 18th October 2023 after Tesla reported disappointing 3Q results on Wednesday 17th October 2023.

It was the first time Tesla, co-founded by Elon Musk, missed on both earnings and revenue since Q2 2019.

On Thursday morning, Hong Kong-listed shares of Chinese EV makers BYD and Xpeng fell approximately 2.18% and 8.76%. Li Auto slid 3.14%, while Nio and Geely dropped 8.36% and 3.97%.

Elon Musk reportedly cautioned that the Tesla Cybertruck, the electric full-size pickup truck model; would not deliver substantial positive cashflow for 12-18 months after production begins.

Musk reportedly said the company is working to bring down the prices of its cars amid high interest rates. ‘I’m worried about the high interest rate environment we’re in,’ he said, adding that it will be much harder for consumers to purchase cars if interest rates were to increase further.

Tesla shares down

Tesla shares closed 4.78% lower on Wednesday 17th October 2023. Other U.S. EV rivals Lucid and Rivian fell more than 9% on the same day. Lucid’s stock dropped a day earlier after it reported disappointing Q3 EV deliveries.

In the first six months of the year, BYD was the world’s top EV manufacturer, contributing 21% of global sales of EVs, according to research firm Canalys. Tesla trailed behind at second place with 15% market share while German carmaker Volkswagen held 7% market share in third place.

Price pressure

EV players are under pressure from a price war to gain market share amid intense competition.

Tesla introduced a number of price cuts over the last few months, especially in China – the world’s biggest EV market.

Rivals BYD, Nio, Li Auto and Xpeng have also joined Tesla in lowering the prices for some of their EV models.

Shares in BYD, (Build Your Dreams), jumped this week after it said it expected third-quarter profits to more than double compared with last year.

BYD is now ahead of Tesla in quarterly production – and second to the U.S. car maker in global sales.

October 18, 2023September 12, 2025

Nvidia stock falls after restrictions placed on AI chip exports from U.S.

The U.S. reportedly announced new restrictions on exports of advanced chips to China, including two made-for-China chips from Nvidia.

U.S. chip stocks fell as the curbs also hit Advanced Micro Devices and Intel.

Loopholes

The curbs are aimed at closing loopholes that became apparent after the U.S. announced export curbs on microchips in October 2022. The restrictions are designed to prevent China’s military from importing advanced semiconductors or equipment.

Nvidia has said in a filing that the new export restrictions will block sales of two high-end artificial intelligence chips it created for the Chinese market – A800 and H800. It said that one of its gaming chips will also be blocked.

Nvidia Corp one month chart – closed at 439.38 17th October 2023

Although the curbs also affect other chip makers, analysts believe Nvidia will be hit the hardest because China accounts for up to 25% of its revenues from data centre chip sales. Nvidia’s shares, which are considered a star stock, fell by as much as 4.7% in the wake of the announcement.

Semiconductor Industry Association

The Semiconductor Industry Association, which represents 99% of the U.S. semiconductor industry by revenue, said in a statement that the new measures are ‘overly broad‘ and ‘risk harming the U.S. semiconductor structure without advancing national security as they encourage overseas customers to source elsewhere’.

China reacts

A spokesperson for the Chinese embassy also said that it ‘firmly opposes‘ the new restrictions, which also target Iran and Russia and go into effect in 30 days.

Nvidia stock falls after restrictions on AI chip exports from U.S. to China

Two months ago, China retaliated by restricting exports of two materials, gallium and germanium, which are key to the semiconductor industry.

China is by far the biggest player in the global supply chain of gallium and germanium. It produces 80% of the world’s gallium and 60% of germanium.

The materials are ‘minor metals‘, meaning that they are not usually found on their own in nature, and are often the by-product of other processes. It’s not only the U.S., Japan and the Netherlands – which is home to key chip equipment maker ASML – have also imposed chip technology export restrictions on China.

Fallout

The constant ‘fall-out’ between the world’s two biggest economies has raised concerns over the rise of so-called ‘resource nationalism‘ – a practice where governments hoard critical materials to exert influence over other countries.

October 18, 2023September 12, 2025

UK inflation sticks at 6.7%

The UK rate of inflation is stuck at 6.7% for September 2023, the same rate as August 2023, according to the Office for National Statistics (ONS).

It means prices are still rising at the same rate as the previous month.

Petrol and diesel costs kept inflation up, the Office for National Statistics (ONS) says, but food and non-alcoholic drink prices fell for the first time since September 2021.

Food inflation falls the most

Milk, cheese and eggs are among the products that went down the most; the price of household appliances and airfares fell to.

In response to the latest figures, Chancellor Jeremy Hunt said, ‘inflation rarely falls in a straight line’. He pledged to stick to the government’s promise to get the main rate of inflation down to 5% by the end of the year.

Targets! Targets! Targets!

Thank you for that enlightening comment, Mr Hunt. May I remind you that even if you hit the target the government set of 5% by the end of the year; inflation will still be a whopping 3% above the Bank of England (BoE) original target!

Come on – get your act together! You really should have prepared batter and seen this coming.

October 17, 2023September 12, 2025

Up to 2500 jobs to go at Rolls-Royce

Rolls-Royce, the British manufacturer of aircraft engines, amongst many other products announced on Tuesday 16th October 2023, that it plans to axe up to 2,500 jobs worldwide. The company said that the decision is part of its plans for a simpler, more streamlined, and more efficient organisation.

The job cuts are expected to affect mostly non-engineering roles across its global operations, and are likely to impact UK staff.

The restructuring is one of the most significant steps taken by the new chief executive, who took over at the start of the year.

He has described the company as ‘a burning platform‘ and said one of its main subsidiaries had been ‘grossly mismanaged‘.

Challenge

The news comes as Rolls-Royce faces a challenging business environment due to the COVID-19 pandemic, which severely affected the aviation industry.

The company has already cut 9,000 jobs and raised capital from shareholders during the crisis. However, its share price has recovered in the last year, thanks to a resurgence in aviation demand and the early results of its transformation plan.

**Rolls-Royce share price has enjoyed a healthy recovery in 2023**

The company, which makes engines for aircraft, is based in Derby. It employs 42,000 people around the world with about half based in the UK.

It employs 13,700 people in Derby, and a further 3,400 people in Bristol.

Rolls-Royce is busy

Rolls-Royce is a company that does more than just making aircraft engines. It also develops and delivers complex power and propulsion solutions for safety-critical applications in the air, sea and on land.

Civil Aerospace

Pioneering innovation for sustainable flight. Pushing the boundaries of possibility for large commercial and business aviation engines, delivering new levels of efficiency and sustainability, supported by flexible and innovative services that maximise aircraft availability.

Defence

Protecting our planet and exploring the universe. Market leaders in military air and naval power solutions, and supplier of nuclear propulsion for all UK Royal Navy submarines. They also provide maintenance, repair, overhaul, helicopter services, and customer training.

Futuristic concept projects are also under potential development such as the ‘drone’ ship.

Rolls-Royce with its concept self-driving drone ships

Power Systems

Powering sustainability in propulsion and energy. Their MTU brand products contribute to the energy transition – as emergency power supplies for safety-critical installations and as integrated propulsion systems for ships and heavy land vehicles.

Electrical

Clean, sustainable, safe and silent. Leaders in advancing all-electric and hybrid-electric power and propulsion systems, focused on the opportunities offered by the net zero transition for the Advanced Air Mobility Market and beyond. They develop complete power and propulsion systems for all-electric and hybrid-electric applications.

Nuclear power plant in development

Rolls-Royce is developing a nuclear power plant system called the Small Modular Reactor (SMR). It is a type of pressurised water reactor (PWR) that can generate up to 470 megawatts of electricity, enough to power a million homes. The SMR is designed to be factory-built, modular, scalable, and cost-competitive. It can also support various applications such as grid and industrial electricity production, hydrogen and synthetic fuel manufacturing, and desalination.

Artist’s impression: Rolls-Royce is developing a nuclear power plant system called the Small Modular Reactor (SMR).

Rolls-Royce has been a nuclear reactor plant designer since the start of the UK nuclear submarine programme in the 1950s. The company has experience in developing PWRs for the Royal Navy’s submarines, such as the PWR1 and PWR2 series. The SMR is a new generation of PWR that aims to meet the global demand for clean and reliable energy sources.

The SMR project is supported by the UK government, which has allocated £215 million for its development.

Rolls-Royce has also shortlisted six sites for a major new factory building nuclear reactors, which could create up to 6,000 jobs in the UK.

The company expects to have its first SMR operational by the early 2030s.

October 16, 2023September 12, 2025

U.S. bank boss warns world facing ‘most dangerous time in decades.’

The world may be facing ‘the most dangerous time… in decades’, bank boss Jamie Dimon has reportedly warned.

The chief executive of JP Morgan Chase told investors recently that he was concerned about the risks to the economy from rising geo-political tensions. He said wars in Ukraine and Israel could hit energy and food prices, and global trade.

Thousands have been killed in Israel and Gaza after an unprecedented attack by Palestinian militant group Hamas. Mr Dimon, who leads America’s biggest bank, was speaking as the firm revealed its latest quarterly results.

Banking the profits from higher interest rates

The bank reported $13 billion (£10.7 billion) in profit over the three months to September 2023, up 35% from the same period in 2022.

Dimon said the bank had benefited from U.S. households and business in healthy financial shape but warned that he remained cautious about the state of the global economy, given the many risks emerging. What about the effect of interest rate increases on profits the bank has benefitted from too?

‘My caution is that we are facing so many uncertainties out there,‘ he reportedly said. So helpful Mr. Dimon. He told investors they should be prepared to face higher interest rates, persistent inflation, as well as fallout from the violent conflicts.

How perceptive?

I wouldn’t necessarily call his comments very intuitive – interest, inflation and conflict is there for all to see.

Shame he didn’t use his super magical powers of detection to get ahead of the inflation problem earlier.

October 12, 2023September 12, 2025

UK debt costs now at 20 year high!

The interest the government pays on national debt has reached a 20-year high as the rate on 30-year bonds touches 5.05%.

A rise in the cost of borrowing comes at a difficult time for the chancellor, Jeremy Hunt, as he prepares for the autumn statement on 22nd November 2023. The chancellor has already made clear that tax cuts will not be announced in the autumn statement.

National debt £2,590,000,000,000

The total amount the UK government owes is called the national debt and it is currently about £2.59 trillion – £2,590,000,000,000.

The government borrows money by selling financial products called bonds. A bond is a promise to pay money in the future. Most require the borrower to make regular interest payments over the bond’s lifetime.

UK government bonds – known as ‘gilts’ – are normally considered very safe, with little risk the money will not be repaid. Gilts are mainly bought by financial institutions in the UK and abroad, such as pension funds, investment funds, banks and insurance companies.

QE

The Bank of England (BoE) has also bought hundreds of billions of pounds’ worth of government bonds in the past to support the economy, through a process called quantitative easing or QE.

A higher rate of interest on government debt will mean the chancellor will have to set aside more cash, to the tune of £23 billion to meet interest payments to the owners of bonds. This in-turn means the UK government may choose to spend less money on public services like healthcare and schools at a time when workers in key industries are demanding pay rises to match the cost of living.

Double debt

The current level of debt is more than double what was seen from the 1980s through to the financial crisis of 2008. The combination of the financial crash in 2007/8 and the Covid pandemic pushed the UK’s debt up from those historic lows to where it stands now. However, in relation to the size of the economy, today’s debt is still low compared with much of the last century.

The U.S, German and Italian borrowing costs also hit their highest levels for more than a decade as markets adjusted to the prospect of a long period of high interest rates and the need for governments around the world to borrow.

It follows an indication from global central banks, including the United States Federal Reserve and the Bank of England (BoE), that interest rates will stay ‘higher for longer’ to continue their jobs of bringing down inflation.

£111billion on debt interest in a year

During the last financial year, the government spent £111 billion on debt interest – more than it spent on education. Some economists fear the government is borrowing too much, at too great a cost. Others argue extra borrowing helps the economy grow faster – generating more tax revenue in the long run.

The Office for Budget Responsibility (OBR), has warned that public debt could soar as the population ages and tax income falls. In an ageing population, the proportion of people of working age drops, meaning the government takes less in tax while paying out more in pensions, welfare and healthcare services.

October 12, 2023September 12, 2025

UK GDP grew in August 2023

U.K. Gross Domestic Product (GDP) grew by 0.2% in August, the Office for National Statistics (ONS) reported Thursday 12th October 2023, slightly recovering from a downwardly revised 0.6% contraction in July 2023.

Services output was the main contributor to growth in August 2023, adding 0.4% on the month to offset a fall in production output of 0.7% and a decline in construction output by 0.5%.

This data shows early signs of a cooldown in the labour market and thus, lower inflation further down the economic road.

Bank outlook

The data and outlook for the Bank of England (BoE) suggests that Bank rate increases do not have much upside from here and will most likely remain at current levels, but for a longer period.

The UK economy returning to growth in August 2023 has re-kindled expectations that interest rates will be left unchanged again in Novemeber 2023.

The economy grew marginally by 0.2% in August following a sharp fall in July 2023.

October 11, 2023September 12, 2025

U.S. Wholesale inflation climbed 0.5% in September 2023, more than expected

Wholesale U.S. prices rose more than expected in September 2023, according to latest data released indicating that inflation remains a problem for the U.S. economy.

The producer price index (PPI), which measures costs for finished goods that producers pay, increased 0.5% for the month, higher than estimated for a 0.3% rise, the U.S. Labor Department reported Wednesday 11th October 2023.

Excluding food and energy, core PPI was up 0.3%, versus the forecast for 0.2%.

October 11, 2023September 12, 2025

IMF and UK interest and inflation fears

The International Monetary Fund (IMF) is an international organization that monitors the health of the global economy and provides financial assistance to countries in need.

UK interest rate warning from the IMF

The IMF has warned that the UK faces another five years of high interest rates to stem rising prices, which have been falling but remain stubbornly above target.
The IMF expects the UK to have the highest inflation and slowest growth next year of any G7 economies, which includes the US, France, Germany, Canada, Italy and Japan.
The IMF says the UK’s immediate prospects are being weighed down by the need to keep interest rates high to control inflation, which is partly caused by the terms-of-trade shock from high energy prices, the aftereffects of the global pandemic, Brexit fallout and the Russia/Ukraine war.

Peak at 6%!

The IMF believes Bank of England rates will peak at 6% and stay around 5% until 2028. Rates are currently 5.25%.

October 11, 2023September 12, 2025

If profit growth accelerates over the next two quarters – is it wise to buy the dip now?

Some analysts say yes!

Buying the dip means purchasing an asset, usually a stock, when its price has dropped. The expectation is that the drop is a short-term anomaly, and the asset’s price will soon go back up. It is a strategy that some traders and investors use to take advantage of price fluctuations and profit from market rebounds.

However, buying the dip can also be risky, as there is no guarantee that the price will recover or that the asset is not in a long-term downtrend. Therefore, it is important to do your research, use indicators, and have a risk management plan before buying the dip.

Current market situation and general ‘readout’

The S&P 500 is still ‘buy the dip’ for the next six months,’ some analysts suggest.

In some reports, it is expected that the profit cycle will be positive over the next six months and for data to improve before a consumer-spending led downturn leads to a selloff in U.S. stocks! That’s the ‘general’ readout.

Corporate profit expectations are behind much of that forecast for stocks. Analysts expect profit growth to accelerate over the next two quarters and see the S&P 500 in a range of 4,050 to 4,750. A mild recession in early or middle 2024 should lead to a higher risk premium, pushing the S&P 500 back close to 3,800. This is all conjecture.

Other analysts doubt the earnings uplift potential and anticipate stocks to fall back sooner as PE ratios sit at an already high level.

Take your pick

My view, for what it’s worth, is for stocks to climb for the time being through into the New Year and then to face pullback.

Truth is, no one knows. We can all make educated guesses.

Just watch the markets and be ready for the fall – that is coming for sure!

October 9, 2023September 12, 2025

Why was this allowed to happen?

Utterly shocking eye watering covid fraud related losses incurred through government incompetence.

The UK covid fraud amount is not a single figure, but rather a sum of various losses due to fraud and error across different government schemes and programmes.

List of government failures and waste

£21bn of public money lost in fraud since COVID pandemic began and most will never be recovered.

£34.5m stolen in pandemic scams by more than 6,000 cases of Covid-related fraud and cyber-crime.

£16bn lost due to fraud and error in Covid loans schemes.

£4.5bn in Covid-19 support lost to error and fraud since 2020.

Breathtaking incompetence

These figures are based on the reports and audits by the National Audit Office, the Action Fraud team, the HMRC, and other sources. However, they may not reflect the full extent of the problem, as some fraud cases may not be reported or detected.

The UK government has taken some measures to tackle fraud and recover the losses, such as creating the Public Sector Fraud Authority, the taxpayer protection taskforce, and the Dedicated Card and Payment Crime Unit.

The incompetence shown by the UK government is utterly breathtaking.

October 7, 2023September 12, 2025

Dow up 300 points Friday, 6th October 2023 as stocks reverse sharp losses

Stocks rallied Friday 6th October 2023 even after the release of stronger-than-expected U.S. jobs data and an increase in Treasury yields.

The U.S. economy added 336,000 jobs in September 2023, the Labour Department said. Economists expected 170,000 jobs.

Confused?

Stocks posted a surprise turnaround on Friday, 6th October 2023 after initially falling on a hotter-than-expected jobs report. At its session low, the Dow had fallen some 270 points, then surged by more than 400 points at in intraday trading. The Nasdaq and the S&P 500 also lost ground too only but then quickly recovered the losses.

Unclear

Traders were unclear as to the reason for the intraday reversal. Some noted it could be the softer wage number in the jobs report that made investors rethink their earlier bearish stance. Others noted the pullback in yields from the day’s highs.

Rally

The rally may just be because the market had been extremely oversold with the S&P 500 at one point in the week down more than 8% from its high earlier this year.

Yields initially surged after the report, with the 10-year Treasury rate trading near its highest level in 16 years. The benchmark rate later eased from those levels, but was still up around 6 basis points at 4.78%.

Extreme market movements maybe here for a while yet.

October 7, 2023September 12, 2025

U.S. jobs report September 2023

The latest U.S. jobs report for September 2023 was released on Friday, October 6, 2023.

The U.S. economy added 336,000 jobs last month, much more than expected, despite the Federal Reserve’s struggle to cool the world’s largest economy.

The unemployment rate was 3.8%, in line with August 2023. The data lifted hopes that the central bank will manage to guide the U.S. economy to a ‘soft landing’, where a recession is avoided. Bear in mind the Fed were late in dealing with the initial rise in inflation – so this battle has become harder and prolonged.

The job gains were the largest monthly rise since January 2023, and almost twice what economists had anticipated. Government and healthcare added the most jobs. The labour market still appears solid.

However, not all indicators were positive. The ADP’s national employment report showed that private-sector employers added only 89,000 jobs in September, far fewer than expected. Some factors outside the Fed’s control, such as the autoworker strike and the threat of a government shutdown, could yet damage the U.S. economy.

The labour force participation rate also remained low at 63.2%, indicating that many workers have yet to return to the labour market since the Covid19 pandemic of 2020.

October 5, 2023September 12, 2025

U.S. mortgage rates closing in on 8%

The average rate on the popular 30-year fixed mortgage rose to 7.72% on Tuesday 3rd October 2023, according to latest data

Mortgage rates follow loosely the yield on the 10-year Treasury, which has been climbing this week following strong economic data. Rates have not been this high since the end of 2000.

At the beginning of this year, the 30-year fixed rate dropped mortgage to around 6%, creating a short-lived burst of activity in the spring 2023. But it began rising steadily again over the summer months, causing sales to drop, despite strong demand. The current trend appears to be even higher, with the possibility of rates reaching over 8%.

U.S. mortgage rates, which are close to 8% according to some sources. This is a very high level compared to the recent years, and it may have significant implications for the housing market and the economy.

Main points

Some experts believe that rates could reach 8% later by the end of October, and possibly stay at that level for the remainder of the year. Others, however, think that rates may stabilize or decline slightly if the economic growth slows down or inflation eases.

30 year fixed mortgage rate at 7.72%

The average rate on the popular 30-year fixed mortgage rose to 7.72% as of Oct. 3, according to Mortgage News Daily. This is the highest rate since 2000.

Rates are rising as more economic indicators point to a strong U.S. economy, which increases the likelihood of the Federal Reserve to hike rates further. The 10-year Treasury yield, which closely tracks the mortgage rates, reached 4.8% on Tuesday, the highest level since August 2007.

Hitting 8% will be like crossing a psychological barrier for many buyers, as it will increase their monthly payments and reduce their affordability. It may also dampen the demand for housing, which has already been affected by low inventory and high prices.

Some buyers are already seeing 8% mortgage rates, especially those who have high loan-to-value ratios, high balance-conforming loans, or non-qualified mortgage loans. These could also be borrowers with lower credit scores or non-prime borrowers.

October 5, 2023September 12, 2025

Metro Bank shares plunge 25%

Metro Bank shares have plunged by 25% after reports emerged that the bank is urgently seeking to raise millions to bolster its finances.

The bank is in talks with investors about raising £250m in equity financing and £350m in debt, while asset sales are also being considered to strengthen the lender’s balance sheet.

The bank’s shares have already suffered substantial falls in September after regulators refused to approve a request to lower the capital, or cash, requirements attached to its mortgage business.

It has been reported that the Metro Bank share price has dropped by 70% so far this year.

As of now, it’s unclear whether the bank will be able to secure the funding it needs. As much as £600 million has been muted as need in in some reports.

Is this a worrying sign of worse to come, or just a one-off?

October 4, 2023September 12, 2025

Dow drops to 33000!

Dow Jones Industrial Average (Dow) performance on 3rd October 2023.

The Dow fell more than 400 points, turning negative for the year. The main reason for the drop was the surge in U.S. Treasury yields, which reached their highest levels in 16 years.

Higher yields mean higher borrowing costs for businesses and consumers, which could hurt the economic recovery and the housing market.

S&P 500 on 3rd October 2023

Nasdaq on 3rd October 2023

The tech-heavy Nasdaq Composite gained a 0.7% on October 3rd, 2023, as some investors saw an opportunity to buy some of the high-growth stocks that had been under pressure recently.

October 4, 2023September 12, 2025

U.S. stock market volatility continues

The stock market has been experiencing some volatility and uncertainty in September and October 2023, as investors fret about inflation, interest rates, and the possibility of a U.S. recession.

Main facts affecting the current stock market

The month of October has produced some severe stock market crashes over the past century, such as the Bank Panic of 1907, the Wall Street Crash of 1929, and Black Monday 1987.

October has also marked the start of several major long-term stock market rallies, such as Black Monday itself and the 2002 nadir of the Nasdaq-100 after the bursting of the dot-com bubble.

The S&P 500 dropped 4.5% in September 2023 and finished the third quarter in the red.

The U.S. Treasury yield curve has been inverted for months – which is a historically strong recession indicator.

The Fed maintained interest rates at the current target range of between 5.25% and 5.5% in September 2023, but signalled that it may need to raise rates again to combat inflation.

The consumer price index gained 3.7% year-over-year in August 2023, down from peak inflation levels of 9.1% in June 2022 but still well above the Fed’s 2% long-term target.

The bond market is currently pricing in an 81.7% chance the Fed will choose not to raise rates again on 1st November 2023.

Wall Street closed down on 3rd October 2023 as the yield on the U.S. 10-year treasury rose to 4.80%, reaching its highest level since 2007.

The Dow Jones Industrial Average was down at 33002, Tuesday 3rd October 2023.

Stocks fell as investors pulled money from equities and moved it to the hot bond market.

International markets also faced significant turmoil, sending mini shockwaves through global financial centres, which reverberated in equities.

The dollar rose to the highest since December and is heading towards the twelfth positive week in a row.

Uncertainty

Uncertainty in the U.S. political system is having a major affect too. Especially with the ousting of the speaker and the real fear of a government shutdown looming large.

October 4, 2023September 12, 2025

U.S. Treasury yields chase 5% at 16 year high!

Highest yields since 2007

The U.S. Treasury yields are the interest rates that the U.S. government pays to borrow money. The 10-year and 30-year Treasury yields are the most widely followed indicators of the long-term health of the U.S. economy and the expectations of inflation and growth.

10 year yield at 4.80%

According to the latest data, the 10-year Treasury yield surged to 4.80% on Tuesday, 3rd October 2023, which is the highest level since 12th October 2007.

30 year yield at 4.79

The 30-year Treasury yield rose to 4.79% on Monday, 2nd October 2023, which is the highest since 6th April 2010.

The main reasons for the rise in the Treasury yields

The strong U.S. economic data that showed that the labour market remains hot and the manufacturing sector rebounded in September 2023.

The Federal Reserve’s ‘higher for longer’ mantra signalled that the central bank would keep raising rates until inflation is under control.

The reduced demand for safe-haven assets as the U.S. government averted a shutdown over the weekend by passing a short-term stopgap funding measure.

Uncertainty at the heart of the U.S. political system.

The implications of higher Treasury yields

The higher borrowing costs could weigh on the economic growth and consumer spending in the future.

Higher inflation expectations could erode the purchasing power of the fixed-income investors and increase the risk of a bond market sell-off.

The higher interest rate differential could attract more foreign capital inflows into the U.S. dollar and strengthen its value against other currencies.

The Fed makes and ‘unmakes’ the economy!

Remember… the Fed said inflation was transitory.

Why?

How could they get it so wrong?

October 3, 2023September 12, 2025

Gold as a safe haven investment

Gold value has been slipping in recent months of 2023 – here are some of the reasons gold prices fluctuate.

Dynamic market

Gold is a precious metal that is often seen as a safe haven investment and a store of value, but it is also subject to the forces of supply and demand, as well as many other factors that affect its price.

The gold market is complex and dynamic, and the price of gold can change quickly and unpredictably. Therefore, it is important to do your own research and analysis before investing in gold or any other asset.

Always do your research! Remember, RESEARCH! RESEARCH! RESEARCH!

Gold price from 2005 – September 2023

The production costs of gold

The cost of mining, refining, and transporting gold can influence the supply and the price of gold. If the production costs are high, the gold miners may reduce their output or increase their selling price, which can affect the market balance and the gold price.

Money supply

The amount of money in circulation can affect the value of the currency and the inflation rate, which in turn can affect the demand and the price of gold. Generally, when the money supply increases, the currency value decreases and the inflation rate increases, which can boost the demand and the price of gold as a hedge.

Geopolitical stability

The political and economic events around the world can affect the market sentiment and the risk appetite of investors, which can influence the demand and the price of gold. Generally, when there is uncertainty, instability, or conflict, investors tend to seek safe-haven assets such as gold, which can increase the demand and the price of gold.

Jewellery and industrial demand

The demand for gold from the jewellery and industrial sectors can affect the market balance and the price of gold. Jewelry is the largest source of gold demand, especially in countries like India and China, where gold is culturally and traditionally valued. Industrial demand for gold comes from its use in various electronic and medical devices, such as smartphones, computers, and dentistry. The changes in the consumer preferences, the income levels, the technological innovations, and the environmental regulations can affect the demand and the price of gold from these sectors.

Gold price 3rd October 2023

Central bank actions

The actions of central banks around the world can affect the supply and the demand of gold, as well as the value of the currency and the interest rates, which can influence the price of gold. Central banks hold gold reserves as part of their foreign exchange assets, and they can buy or sell gold to diversify their portfolios, to manage their liquidity, or to intervene in the currency markets. Central banks can also affect the price of gold indirectly through their monetary policies, such as setting the interest rates, printing money, or buying bonds, which can affect the inflation expectations, the currency value, and the opportunity cost of holding gold.

Strength of the U.S. dollar

Gold is priced in U.S. dollars in most of the major trading exchanges around the world, so when the dollar rises against other currencies, gold becomes more expensive for foreign investors, reducing the demand for it. The U.S. dollar has been strengthening since, partly due to the Federal Reserve’s monetary tightening policy that has raised the interest rates and the attractiveness of U.S. Treasury securities.

Rise of global equities

Gold is often considered a hedge against inflation, currency devaluation, and the failure of other financial assets, but when the stock market is performing well, investors tend to shift their money from gold to equities, seeking higher returns and growth potential. The global stock market has been rallying since the bottom of the Covid-19 pandemic in March 2020, boosted by the roll-out of vaccines, the fiscal stimulus, and the economic recovery.

The Krugerrand

Krugerrand gold coins are a type of bullion coin that were first minted in 1967 by the South African Mint. They are made of 22 karat gold and have a diameter of 32.77 mm and a thickness of 2.84mm. The obverse side features the portrait of Paul Kruger, the former president of the South African Republic, and the reverse side depicts a springbok, the national animal of South Africa. The name ‘krugerrand’ is a combination of ‘Kruger’ and ‘rand’, the currency of South Africa.

Krugerrand gold coins are popular among investors and collectors because they have a high gold content and are easy to trade. They are also legal tender in South Africa, although they do not have a fixed face value.

Decline of inflation expectations

Gold is also seen as a protection against the erosion of purchasing power caused by inflation, but when inflation expectations are low or falling, gold loses some of its appeal as an inflation hedge. The inflation expectations have been declining in recent months, partly due to the easing of supply chain disruptions, the moderation of energy prices, and the fading of the base effects from the previous year.

These are some of the main factors that have been weighing on the gold price lately, but there may be other reasons as well, such as the speculations, the market sentiments, and the geopolitical events that can influence the supply and demand of gold.