aFinally, there is a clear explanation from Kwasi Kwarteng. This is only talking about the day the Prime Minister is trying to clarify.Spectacular Announcement of Debt Reduction Plan Takes place on October 31stat the risk of riffing on scary Halloween tricks, but it’s better than trying to prolong the agony until late November.
of Budget Responsibility Office He was released from custody the same day and allowed to speak on Kwarteng’s ‘medium-term financial plan’. Therefore, normal service, or something like it, is being restored and the financial facts are fully upheld in time for the Bank of England rate setter to announce his important next decision on 3rd November. I understand.
For further “We are listening” messages, the old hand of the Treasury, James Bowler, appointed as permanent secretary on monday. Orthodoxy was not completely banished. And banks have helped calm the market by tweaking emergency gold coin buying programs. designed to prevent mayhem Risks to UK financial stability within defined benefit pension schemes.
Are you feeling relaxed and refreshed? Well, not exactly. First, there could be an immediate cliffhanger this Friday when banks end their gold coin buying programs. In that regard, Threadneedle’s Street’s Monday operation was only partially reassuring.
On the one hand, it means there is some confidence that liquidity in the gold market has improved, as has the original timetable intact and the £65bn facility has been underused to date.
Meanwhile, a new facility for banks to accept investment grade corporate bonds as collateral still needs to be created starting next week. This could suggest there are still a few dropouts in pension land that could cause further upsets. Visibility isn’t perfect.
More worryingly, gold leaf yields are rising again. The yield on the 30-year bond, considered the most sensitive of his LDI (liability-driven investment) exposures for pension funds, climbed to 4.7% in late-afternoon trading on Monday.
It climbed to 5% in the aftermath of Kwarteng’s ‘mini-budget’, but bank actions brought it back to below 4%. Note that banks are not level targeted. But it doesn’t look good for an unreliable prime minister to be closer to the upper end of the range than the lower end.
in the meantime, 10 year sow yield, at 4.5%, now back to the mini-budget level. These are the key numbers to watch right now. No, peace has not come to the market.
Did ministers fail to meet the outstanding target on capping energy revenues?
As we all know, the big corporate winners in soaring gas prices were renewable energy generators with old-style incentive contracts. They are the casual beneficiaries of a crazy system in which the price of gas sets the price of electricity. These generators, in turn, enjoy the payment of the “renewable energy obligation”.
So extracting extra revenue in the current situation can be overwhelming. The question is how to do it. According to Liz his Truss Prime Minister just a month ago, Plan A was a negotiation to bring down wholesale prices for energy.
Affiliated wind, solar, hydro and biomass projects are encouraged to sign up-to-date ‘Differential Contracts’ or CfDs under which revenues above a set ‘strike’ price flow into the Treasury. In return, businesses get a guaranteed income if the wholesale price drops below the agreed price.
Well, it looks like we’re on to plan B. The negotiations seemed to have failed, but like it seemed like last weekand the government is set to impose an income cap. FT reported On the weekend. All earnings above the cap flow to the Treasury. It will be a windfall tax by another name and thus another U-turn in government.
It showed stocks plunged across the renewable energy sector on Monday as companies lobbied at the last minute. Don’t set your earnings cap lower than the European Union. Failure to do so would hinder investment across the UK renewable energy sector.
And yes, there is sympathy. Windfall profits of renewable energy operators should be taxed in much the same way as North Sea oil and gas producers. If not, there is a basic injustice. And with the way things are going, it’s very likely that the renewable energy sector will make a rougher deal for no good reason.
But let’s not pretend that the EU formula was perfect. It was an unsophisticated one-size-fits-all design that capped all non-gas producers – wind, solar, nuclear and coal – at €180 (£158) per MWh.
A better approach exposed to the UK government would have been a fuel-by-fuel method that recognizes the differences between wind and nuclear economics, for example.
If ministers fail to meet that open goal, start complaining. How you cap your earnings requires some underlying logic. At present, it is difficult to tell them apart.
Land grabs in fast food delivery seem endless
In the battle for the “hyperlocal” grocery delivery market, Turkey-backed Getir is in talks to acquire German group Gorillas in a cash-and-stock deal. Bloomberg reported on Monday.
Of course, such a deal cannot be called unexpected. Consolidation seems to be a core part of most companies’ business plans.
The problem is that despite years of mergers and acquisitions, the restaurant delivery company at the end of the game still seems far from making a respectable return on its capital.
Someone may turn a profit in the end, but the “land grab” part of the evolution of the industry seems endless.
https://www.theguardian.com/business/nils-pratley-on-finance/2022/oct/10/kwarteng-listening-messaging-fails-to-reduce-credibility-deficit-markets-bank-of-england-bonds Kwarteng’s latest “we are listening” message fails to reduce the credibility gap.Nils Platley