Financial markets at risk of “sharp correction”; US GDP revised upwards – how it happened | Business

Financial markets at risk of ‘sharp correction’, warns Bank of England

New: The Bank of England warned that financial markets remain at risk of a sharp correction.

In its latest financial stability report, the Bank of England says high inflation or geopolitical risks could trigger a sell-off.

O Bank says risks to the UK financial system are “largely unchanged” from the first quarter of the year.

But some asset prices have continued to rise, he points out, while the risk of a sharp correction remains.

European markets are up about 8% so far this year, while the U.S. Nasdaq Composite Index is up 18%.

The report, which aims to monitor the stability of the financial system, says:

Prices of many assets, such as stocks and bonds, remain high relative to historical norms, and some have continued to rise. This suggests that investors in financial markets continue to expect the economy to recover and inflation to fall. They are placing less weight on risks, such as geopolitical developments or continued high inflation, that could cause weaker growth or higher-than-expected interest rates.

These risks make it more likely that there will be a sharp correction in asset prices, which could make it more expensive and difficult for UK households and businesses to borrow.

The report also warns that

• Global risks are material, including geopolitical risks, which remain elevated.

• Overall, UK households and businesses have remained resilient to the impact of higher interest rates.

• The UK banking system is strong enough to support households and businesses even if the economy does worse than expected.

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Updated at 11:39 CEST

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The Bank of England has warned that financial markets are at risk of a “sharp correction” in the future as investors are only focusing on good economic news.

The BoE says:

Prices of many assets, such as stocks and bonds, remain high relative to historical norms, and some have continued to rise. This suggests that investors in financial markets continue to expect the economy to recover and inflation to fall.

They are giving less weight to risks, such as geopolitical developments or continued high inflation, that could cause weaker growth or interest rates to remain higher than expected.

These risks make it more likely that there could be a sharp correction in asset prices that could ultimately make it more expensive and difficult for UK households and businesses to borrow.

In its latest financial stability report, the BoE also warned that millions of UK households paying relatively low mortgage rates will see monthly payments increase over the next two years.

He also noted the risk that global elections could destabilize the UK financial system….while China’s real estate market slowdown is another threat.

In other news…

The US economy grew a little faster than previously thought in the first quarter of the year, in an annual rate of 1.4%.

Japan issues fresh warnings over yen weaknesswhich hit a 38-year low against the US dollar this week at around 160 yen to the dollar.

Elon Musk’s SpaceX was valued at around $210 billion based on the value of the privileged shares sold in a public acquisition offer,

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Updated at 16:41 CEST

Pending US home sales fall in May

There are new signs of weakness in the US housing market today.

Contracts for purchasing older homes in the US unexpectedly fell by 2.1% in May, indicating that high mortgage rates and expensive homes are deterring buyers.

The National Association of Realtors (NAR) reported that pending home sales fell monthly in the densely populated South and Midwest, but increased in the Northeast and West.

Year after year, every region of the US saw reductions.

“The market is at an interesting point with increasing inventories and lower demand,” he said. NAR Chief Economist Lawrence Youngadding:

“Movements in supply and demand suggest an easier appreciation of property prices in the coming months. Inevitably, more inventory in a job-creating economy will lead to more home buying, especially as mortgage rates fall.”

To shareJasper Alegre

The Labor Party’s shadow business secretary said the party would rather have stability in the UK’s relationship with Europe than try to pursue accelerated economic growth through membership of the single market or the EU customs union.

Speaking at the British Chambers of Commerce (BCC) conference on Thursday, Jonathan Reynolds acknowledged that Brexit it was “very difficult for companies” because it erected trade barriers, but he said that reopening the debate would be worse.

With less than a week to go before polls open in the general election, Reynolds was trying to woo business leaders at the London event with a speech that emphasized political stability and encouraged companies to invest.

More here.

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Back in the UK, a former bank of england The policymaker predicted the central bank could cut interest rates at its next meeting in August.

Michael Saunderswho served on the Monetary Policy Committee from 2016 to 2022, believes the BoE would begin reducing borrowing costs if inflation and wage data were in line with its forecasts.

Saunders told the Reuters Global Markets Forum (GMF) today:

“They have clearly signaled that they are willing to cut soon if the data is correct.

“If so, I would expect the rest of the insiders (BoE MPC members) to move en bloc to vote in favour of a cut.

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The US GDP report shows that the country’s manufacturing sector shrank by 1.1% in the first quarter.

The services sector grew by 1.9%, while the government added a further 2.3% in value.

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$spx futures currently at the high of the day.

– Final US GDP report beat expectations by 0.1%
– unemployment claims remained within reasonable limits.

Since $spx holds 5,460 we are optimistic and if 5,490 breaks 5,530-5,520 is possible today pic.twitter.com/6d42D4zZdb

– Stock-X (@StockXcapital) June 27, 2024

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Despite the small improvement in US growth in January-March, the economy still slowed compared to October-December.

Ricardo Linho, investment director at Money farm, it says:

“The third reading of US first-quarter GDP came in at a revised 1.4% annualized, above the 1.3% forecast but below the strong 3.4% print for Q4 2023. This tepid growth continues to highlight concerns about a broader economic slowdown.

“The increase in real GDP primarily reflected increases in consumer spending, residential fixed investment, nonresidential fixed investment, and state and local government spending.

“Looking ahead, forecasts suggest a potential GDP recovery for the second quarter, with estimates pointing to growth rates of 3% or more, similar to the robust performance seen in the second half of 2023. However, several factors could moderate expectations for the rest of the year, including the state of inflation, high interest rates and the impending presidential election. All of these factors can force companies to adopt a cautious stance on new investments.”

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The number of Americans filing new claims for unemployment benefits fell by 6,000.

There were 233,000 new “initial claims” for unemployment benefits last week, down from 239,000 in the previous seven days.

Initial unemployment claims in the US reach 233,000, in line with the 236,000 expected.

US Q1 final GDP also meets expectations at +1.4% y/y.

🥱

— Matt Weller CFA, CMT (@MWellerFX) June 27, 2024

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Updated at 2:44pm CEST

Today’s U.S. GDP report also shows that Americans earned and saved slightly less than previously estimated in the first quarter of the year.

Disposable personal income rose $240.2 billion, or 4.8 percent, in the first quarter, a downward revision of $26.6 billion from the previous estimate. Real disposable personal income rose 1.3 percent, a downward revision of 0.6 percentage points.

Personal economy was $777.3 billion in the first quarter, a downward revision of $19.3 billion from the previous estimate. personal savings rate– personal savings as a percentage of disposable personal income – was 3.8% in the first quarter, the same as the previous estimate.

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The US economy grew at an annual rate of 1.4% in the first quarter

This just in: The US economy grew a little faster than previously thought in the first quarter of this year.

New data from the Bureau of Economic Analysis shows that U.S. gross domestic product grew at an annual rate of 1.4% in the first quarter of 2024.

This equates to quarterly growth of 0.35%… and is above the previous estimate of annualized growth of 1.3%.

The BEA says the increase primarily reflected increases in consumer spending, housing investment, business investment and state and local government.

But a drop in inventory investment weighed on GDP, as did a rise in imports.

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