Ben Chu Profile picture
Sep 28 5 tweets 2 min read
Idea the UK bond market crash since last Friday is due to size of energy support package is difficult to square with the fact the UK wholesale gas price is now 321p per therm - lower than the 410p it was on 8 September when the plan was confirmed...
...the UK gas futures curve has also shifted down - which implies the cost of the package could turn out to be substantially *cheaper* than initially feared, as explained here...

...so somewhat implausible that it would be this part of the package on Friday which has spooked markets.

Also woth noting that even on the *higher* projections of the cost of the energy support package (£150bn - yellow bars below) it's a *temporary* cause of higher borrowing...
...it's the unfunded tax cuts which open up the £100bn+ deficits from 2025-26
...N.B similar data time series problems with the idea that markets are responding to the Bank of England's failure hike interest raise rates by enough last week before the #minibudget:

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More from @BenChu_

Sep 28
"It would be a tragedy if this ends up in further cuts," Mohamed El-Erian tells #Newsnight ...
...UK has "an incredibly incoherent" economic policy says El-Erian, citing government pushing liquidity into the economy and the Bank trying to take it out...
...El-Erian "What we need is for the tax reductions to be withdrawn, we need the Bank of England to act on interest rates...& protect the most vulnerable"...
Read 5 tweets
Sep 28
NEW: Bank of England to intervene in UK debt markets.

Says it will buy long-dated UK government bonds because the market has become disorderly...bankofengland.co.uk/news/2022/sept…
...It has also postponed the planned sales of the bonds it acquired as part of its Quantitative Easing programme...
...announcement gave sterling a big jolt upwards, but back down again...
Read 5 tweets
Sep 27
"There's even a slight whiff of concern about the ultimate debt sustainability [of the UK government]" says Larry Summers on #Newsnight...
..."There's been a major loss of market credibility and market confidence...so it's appropriate that the IMF be watching"...
..."It seems an odd response to developments on Friday & raised real question of whether British authorities were grasping the reality of their situation"...
Read 6 tweets
Sep 20
I'm hearing, as per Bloomberg report, that the government energy price freeze plan, which we will likely get details on tomorrow AM, will work by capping the gas/electricity prices chargable to firms at a certain £/KWH rate...
bloomberg.com/news/articles/…
...& will likely be backdated so firms get support for higher costs incurred since the Spring, not just the six months from October...
...the latter will be welcomed by firms on variable rates which have already been hit hard by price increases this year.

But some big caveats/question marks being highlighted...
Read 6 tweets
Sep 20
This is Josh Farrant, front of house manager of Ye Olde Fleece in Kendal, Cumbria.

The pub's energy costs are set to rise SIXFOLD from next month... Image
...this is Kate Phillips who manages Kendal's Lakeland Climbing Centre.

Her business' gas bills are heading up FOURFOLD from next month... Image
...This is Scott and Mel Walmsley who run Lakes Sandwiches in Kendal.

Their firm's energy bills have ALREADY risen sevenfold... Image
Read 6 tweets
Aug 31
UK sovereign bond yield curve still "inverted" this morning (data from Refinitiv).

2 year Gilt yields (3.021%) trading higher than 10 year yields (2.805%)...
...normally 10 year yields are higher.

Inversion often seen as a recession signal from bond market.

Signals (arguably) investors expect Bank of England rate hikes in immediate term, but much weaker economy further out which will require lower rates i.e recession...
...though inverted yield curve has been a more reliable recession predictor in the US than in the UK.

Some more background here..

independent.co.uk/news/business/…
Read 4 tweets

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