Low markets are getting a big dose of cold from the Bank of England

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All the drama out of the UK government keeps me from catching up with the only UK drama I really want to take on, Love Island Season 8, which I still haven’t finished (no spoilers, please!)

But given that this newsletter is ostensibly about, like, the economy or something else, I’ll do my best to decipher what’s going on in God’s name with this whole… thing.

Here’s the deal: After the sharp drop in the value of the pound, the Bank of England made an emergency intervention on Wednesday to try to calm panic in financial markets.

Investors have been dumping UK assets for days, threatening a massive bond market crash and creating fluctuations in the pockets of the financial world that are usually flat and, dare I say, incredibly boring.

Main context:

  • All this chaos stems from the British government’s newly installed radical tax cut plan. And when I say “radical,” I promise I won’t edit: You’d be hard-pressed to find any mainstream economist or analyst who supports Prime Minister Liz Truss’s cuts, which would require huge amounts of government borrowing to pay for them. .
  • So as not to talk too much: The International Monetary Fund issued A very unusual reprimand to the UK tax plan, saying it would likely increase inflation and inequality. That’s the thing the IMF would say for an emerging economy – not for a G7 country with a track record of financial stability.
  • Charlie Bean, former deputy governor of the Bank of England, told my colleague Julia Horowitz that the government “really stupid” decisions.

Anyway, where were we? Well, the bond markets are collapsing…

So, on Wednesday afternoon in the UK, the Bank of England, which is independent of the government, intervened in Valium Equivalent Management In the form of buying bonds “on whatever scale is necessary” to restore order.

That seemed to work, at least for now: Bond markets on both sides of the Atlantic responded positively, with yields coming in from highs and investors breathing a sigh of relief. US 10-year Treasury yields, which briefly rose 4% for the first time in more than a decade, reversed course and settled around 3.70%. US stocks rose, which opened in the red Wednesday afternoon, after six days of consecutive defeats.

The Big Picture

The Bank of England may have calmed market fears for now, but the Truss administration has so far doubled down on its intentions to stimulate growth through tax cuts. The three-week-old government appears intent on pressing ahead with its marginal policy at a time when the global economy is dependent on stability.

We can’t let the US get away with it here either, as the Fed’s boldest interest rate hikes in four decades are bouncing painfully through the global financial system. Raising interest rates strengthens the US dollar and helps tackle domestic inflation. But it is forcing central banks around the world to follow suit, raising interest rates faster and higher as the dollar’s strength weakens their currencies, Julia writes.

Chris Turner, global head of markets at ING, said the global financial system is “like a pressure cooker” right now. “You have to have strong and credible policies, and any policy mistakes are punished.”

Volkswagen is pricing Porsche’s initial public offering at $80.22 per share, which would raise about $9.1 billion. That puts the deal on top of Volkswagen’s original estimate and valued the company at $73 billion.

Its initial public offering could become among the largest ever in Europe when Porsche goes public in Frankfurt on Thursday.

Buying a car, which wasn’t a picnic before the pandemic, has become an even more difficult endeavor in the age of supply chain clogs and high inflation.

Once upon a time, the idea of ​​paying the label price at an agency was funny – a trap that only suckers fall into. But now, the average new car is selling well above the manufacturer’s suggested retail price, with demand still high and automakers still trying to get back to production levels they were in before the pandemic.

but my colleague Peter Valdes Dabina wrote, A larger brand name may surprise you as a percentage of the total cost.

It’s not Jeep Wranglers with their cult-like followers or exciting Porsche sports cars, although people certainly pay a premium for those.

No, the most wildly underrated brand is the most affordable and budget-friendly Kia ever.

The South Korean company’s sedans and SUVs sell for about 6% of the sticker price, according to data from Edmunds.com. Honda, Hyundai, and Land Rover ranked second, 4% above the sticker price on average. (In direct dollars, Land Rovers, which tend to sell for $94,000, have the biggest profit, with customers paying nearly $3,700 on the label.)

However, Kia customers pay, on average, $2,183 on the label, second only to luxury Land Rover vehicles in direct dollar value. This is especially impressive considering that a Land Rover costs about 2.5 times the cost of a Kia.

There are several reasons for this.

  • Kia has earned loyal fans by being a good value car. It is not flashy. And in this economy, people especially crave reliability and good value.
  • The brand has also (somewhat successfully) shifted its marketing away from the image of a budget car. He wants to associate with good design and coolness that also happens to be affordable.
  • Kia sells a relatively large number of hybrid and electric models, giving it an edge at a time when consumers are concerned about the environment and rising gas prices. People tend to be willing to pay a little more for electric and hybrid models, and expect to save money on gas.
  • The trend above the label may not go away for quite some time, as production of new cars continues to falter due to a lack of supplies running slowly.

But there is a bit of good news for shoppers who are neither in a hurry nor in a deadlock in buying a new car. Used car prices — which jumped to dizzying heights early in the pandemic — are finally starting to fall.

“Talk to any (very) big used car dealer and you’ll hear the same thing—there’s an absolute whirl of deflation coming into used car prices,” chirp Ofir Gottlieb, CEO of Money Market Labs, earlier this month.

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