Symbol: GBPUSD; Type: SELL; Open Price: 1.21513; Close Price: 1.21092; Profit: +0.346%.
Symbol: NZDUSD; Type: SELL; Open Price: 0.62275; Close Price: 0.62353; Profit: -0.125%.
Recession fears in England
The Bank of England implemented its most significant increase in interest rates in the past 27 years. It warned that the United Kingdom would likely experience a recession lasting for more than a year due to the rising cost of living. The rate hike of a half point, to 1.75 percent, was anticipated by the vast majority of analysts, and it received support from eight of the central bank's nine policymakers. Officials currently estimate that inflation may reach its highest point of 13.3 percent in the month of October. The Bank of England has stated that inflationary pressures have “substantially strengthened” and that the outlook for activity is “deteriorating.”
After the decision, a significant portion of the UK yield curve was inverted, indicating that investors are concerned about a slowdown in economic growth. In addition, the BOE presented its strategies for lowering its massive holdings of government bonds, which it had accumulated throughout the crisis. The decision adds fuel to an already contentious argument about who is to blame for the ever-increasing issue at the expense of living. According to the Bank of England's most recent projections, inflation will reach its highest level of over 13 percent by the end of this year and will remain at 9.5 percent in the third quarter of 2023. The vote divide on rates was stronger than predicted, which was surprising given the rapid rise in inflation.
The BOE has also said that it intends to distribute the proceeds from the sale of gilts evenly among the “buckets” of short, medium, and long-maturity gilts. It will not plan a sale of gilts for the same day the Debt Management Office will conduct an operation.
Another drop in the stock market is expected
Goldman Sachs Group Inc. and Bernstein have warned that the recent bounce in equity markets will not continue for an extended period since macroeconomic statistics continue to deteriorate and profit expectations are being reduced. According to a report published by Goldman Sachs analysts, “without definitive indicators of a favorable shift in macro momentum, temporary re-risking might enhance risks of another leg down in the market rather than herald the conclusion of the bear market.” Sarah McCarthy and Mark Diver, two strategists at Bernstein, have stated that the earnings downgrade cycle is just beginning, coinciding with withdrawals from equity funds. According to what was written by Bernstein's analysts, “We anticipate another leg down in the market in the short run.” In July, the European and American stock markets reported their highest monthly increases since 2020.
Since reaching its low point in June, the Nasdaq 100 has rebounded by 19 percent, thanks to the decline in bond rates. The equity market is in danger, according to the strategists at Berenberg, since future earnings are expected to be lower.
Credit Suisse Group AG plans major cuts
The management of Credit Suisse Group AG is now debating the elimination of thousands of jobs throughout the world. The financially troubled European financial institution plans to cut its entire cost base by an extra one billion dollars. According to some estimates, there will be a reduction of several thousand positions over the course of many years. Within the next several months, it is anticipated that Credit Suisse will complete the planning it has been working on. Several employees have left Credit Suisse recently, and the company has committed to making significant changes to its loss-making investment bank.
Since 2020 came to a close, the company has added more than 2,000 people to its workforce. This is due, in part, to the fact that it has increased the number of workers working in compliance. The financial institution announced a goal to reduce its cost base to less than 15.5 billion Swiss francs ($16.1 billion) during the next three to five years.