The Day at a Glance | Sep 28 2022

The Top

*IMF calls on the United Kingdom to reconsider tax cuts; Moody`s warns that the sovereign rating is at risk.

*Hurricane Ian is expected to hit Florida this afternoon, winds of over 200km/hr and possible damages worth 45 billion dollars are estimated to occur. 

*10-year US Treasury bond reached 4% for the first time since 2008.

*The risks of a debt crisis in Italy are considerably high: Bloomberg Economics.

*House prices in the United States decreased in August, the first drop in 10 years, sales of new houses surprisingly increased.

*The Central Bank of England resumed long term sovereign bond purchases to stop the British market`s collapse.

*Administrators in the Nord Stream system assured that it`s impossible when operations will resume due to “unprecedented” damage.

Economic environment

Crisis in the United Kingdom. The International Monetary Fund urged the British government to reconsider the tax cut plan presented last week and considered fiscal stimulus an inappropriate measure during these times as this would reinforce inflation and would hinder the Central Bank of England`s measures to contain it. Given high inflation, the IMF assured that it will not recommend large or widespread fiscal stimulus as this could make fiscal policy contradict its monetary policy. The IMF suggested that the tax cut plan should be reevaluated, especially cuts that would benefit high-income individuals. Along with the IMF`s suggestion, international credit rating agency, Moody`s, also pointed out that the package could cause permanent damage to public finances. Moody`s forecasts lower economic growth as a consequence of said tax cuts as this would increase interest rates; contrary to what the British government wants to achieve. The implementation of said plan would be bad for the region`s sovereign debt, which would increase the risks of seeing a lower rating for the United Kingdom. At the moment, Chancellor of the Exchequer, Kwasi Kwarteng, has maintained a firm stance in executing the economic plan. Some news reports have affirmed that he endorsed the plan in a recent meeting in which important leaders of the country`s financial sector were participating, and assured that the plan would work and maintain fiscal discipline. In markets, an important recovery has materialized in bond prices after the Bank of England announced that it would intervene to restore order in markets through temporary long-term bond purchases and delaying plans to decrease its asset balance sheet.