The Week in Business: Market Chaos in Britain


The new British government’s announcement last week that it planned to make drastic tax cuts sent markets tumbling, the pound sinking and the Bank of England scrambling to restore some calm. The panic stemmed from fear that the tax and spending measures proposed by Britain’s recently appointed prime minister, Liz Truss, would add to soaring inflation in the country, running up against the central bank’s efforts to rein it in. Ms. Truss’s government argues that cutting taxes will stimulate investments and that the benefits will buoy the rest of the economy — but investors do not appear convinced. Their unease rippled throughout Europe and to the United States, where benchmark indexes slid. The pound hit its lowest recorded point, creeping near parity with the dollar. On Wednesday, the Bank of England stepped in, saying it will undertake large-scale purchases of British government bonds in the coming weeks to “restore orderly market conditions.” Its forceful intervention pushed the pound back up slightly and helped markets regain some of their losses.

Shock waves from Britain reached investors on Wall Street, where stocks were already reeling from worries that the Federal Reserve’s actions to tame inflation could lead to a recession. On Friday, the S&P 500 ended the third quarter with a loss, the first time the index has posted three consecutive quarters of losses since 2009. Analysts say investors will not be soothed until central bankers begin to see signs of the economy slowing, which would allow the Fed to begin to ease its campaign of aggressively raising interest rates. The fear is that the Fed will go too far and inflict serious damage on the U.S. economy. The central bank’s policymakers argue that it is still possible to achieve a so-called soft landing, in which the economy cools without falling into a recession. As evidence, they point to the strong jobs market, plentiful job openings and consumers’ longer-term expectations on inflation, which have recently moderated.

Several companies in the southeastern United States announced temporary closings as Tropical Storm Ian strengthened back into a hurricane and made landfall along the South Carolina coast. Disruptions to business and travel were most widespread in Florida, with retailers, grocery stores and restaurants announcing closings or adjustments to their hours of operation. UPS and FedEx warned Florida customers that packages would not be retrieved or delivered in parts of the state and to expect delays. The United States Postal Service said it had closed about 100 facilities in the state. As the storm heads north, Florida’s economy will start to reopen — but then begins the process of assessing the damage. While insurance companies and analysts said it was too early to estimate the damage from Ian, some did say they expected anywhere from $20 billion to $40 billion of damage and hundreds of thousands of insurance claims.

The job market cooled in August but stayed strong, with employers adding 315,000 jobs. Analysts expect to see a similar trend in September’s jobs report, which will be released on Friday. Policymakers at the Federal Reserve will be looking at the report to see if the hot labor market has begun to cool off as they raise interest rates. There is some evidence that their efforts are working, even if the headline number in the jobs report suggests otherwise. In recent weeks, some high-profile companies, like Meta and Goldman Sachs, have announced hiring freezes or plans for layoffs, suggesting that the unemployment rate — which has been holding near its lowest point in 50 years — may soon start to tick up.

Data about light-vehicle sales usually doesn’t get much attention from outside the auto industry. But, with the economy slowing, the numbers have become increasingly useful as an insight into consumer demand and corporate profits. Over the summer, when inflation was running up to its peak, demand was hot, and dealerships struggled to keep up because of supply chain problems. But, with fewer cars to go around, dealers were able to raise prices, which in turn helped them offset the higher costs they were paying to manufacturers. The result was record profits for dealerships. Now, increases in interest rates threaten to cool demand for new vehicles.

The new Supreme Court term, which begins on Monday, will see justices weigh in on several contentious business matters, including government regulation, interstate commerce, diversity hiring and religious freedom in the workplace. Cases involving those last two issues are likely to garner the most attention. One involves a major challenge to race-conscious admissions programs at Harvard and the University of North Carolina, which several high-profile companies, including Apple, Google and Meta, are watching closely because those programs often serve as pipelines for their hiring. In another case, the justices will decide whether a web designer in Colorado can refuse her services to websites promoting same-sex marriages. The lawsuit echoes the Masterpiece Cakeshop case in 2018.

Sabotage is the suspected cause of leaks discovered last week in Nord Stream 1 and Nord Stream 2, a pair of giant natural gas pipelines that carry fuel from Russia. Porsche shares defied the rocky stretch for markets, rising 2 percent in their debut on the Frankfurt Stock Exchange. A revision to U.S. gross domestic product shows that the economy grew more slowly in the first half of the year than previously believed.



Source: https://www.nytimes.com/2022/10/02/business/the-week-in-business-markets-britain-pound.html