Stocks slide amid interest rate worries while pound and gilts stay under pressure

by | Oct 13, 2022

Share this article

Susannah Streeter, senior investment and market analyst, Hargreaves Lansdown

The realisation that the Federal Reserve is in it for the long haul when it comes to setting and maintaining higher interest rate has sent a fresh wave of worry through financial markets.

After a volatile day trading stocks in Wall Street ended lower for the sixth session in a row, sparking falls for equities in Asia and setting up the FTSE 100 for a lower open. Closely watched minutes from the Federal Open Market Committee showed once again that inflation is seen as the biggest economic threat, and policymakers believe that moves higher now could prevent a further escalation and even more financial pain in the future.

So rates are set to rise further, but there were hints the pace could slow a little, given the rising risk of significant adverse effects on the economy. The Fed, like many other central banks, is finding that inflation is proving an ever tougher opponent to beat down. Producer prices, the cost of producing goods and services, jumped again in September by 0.4%, more sharply than expected and this will feed through to what consumers will have to pay. US consumer price snapshot will be out later, which will be closely watched by investors, but it’s the direction of travel for rates is clear, for now the only way is up.


With all this in mind, there aren’t likely to be many chinks in the dollar armour any time soon, with the strength of the greenback continuing to cause continued inflationary pressures in other economies, as imports priced in dollars, remain more expensive. That means there is little relief for the pound coming from across the pond.

Sterling has slipped back, hovering round $1.10 as political and fiscal pressures also continue to weigh it down. Prime Minister Truss came up with no fresh solutions to escape the corner she has backed into by pledging to continue her tax cutting agenda, but at the same time maintain public spending. With the sums still not adding up, investor confidence in the handling of the UK economy isn’t likely to improve any time soon. As the clock ticks down to the withdrawal of support for gilt prices through the Bank of England’s emergency bond buying scheme, the nervousness is palpable about a fresh bout of financial instability erupting, with long dated gilt yields pushing through 20-year highs before retreating slightly.

The Bank is grappling with an internal tug of war in pursuing this policy, given that it’s also desperate to keep tightening monetary policy to bring down inflation. It needs to maintain the credibility of independence and not be seen as bailing out the government for reckless policies, but equally can’t stand by and see the bond market go into fresh meltdown. The chances are rising that it will eventually have to dip in again with an urgent intervention unless the government navigates into a fresh u-turn on tax cuts.


There is a small ray of relief in terms of inflationary pressures with oil prices under pressure amid the weakening global outlook. Brent Crude dipped below $93 a barrel, with OPEC and the US Energy Department forecasting lower demand, and expectations that less oil will be needed in China too. Covid has again reared its ominous head with fresh infections breaking out across major Chinese cities, including Shanghai. Rollouts of restrictions are again adding to worries about China’s recovery, dashing hopes of a consumer led rebound, with fresh problems threatening to pile up for the manufacturing sector. Investors are pinning hopes for a change in Beijing’s strict zero-covid policy on the crucial Party Congress due to start at the weekend.

Share this article

Related articles

Don’t overthink ownership data! Thoughts from Ben Kumar @7IM

Don’t overthink ownership data! Thoughts from Ben Kumar @7IM

Every couple of years, the Office for National Statistics releases it's “Ownership of UK quoted shares” report. And it’s just come out. There are, basically, two takes you’ll see reported over the next week. The first take is below: (headline from The Telegraph, data...

Be mindful of the market cycle shuffle 

Be mindful of the market cycle shuffle 

By Alison Savas, investment director of Antipodes Partners  The global equity index has risen 5% this year but performance at the headline level masks the concentration in markets. On an equal weighted basis, the index is down almost 6% over the same period (this is...

Black Friday takes on the world

Black Friday takes on the world

Written by John Plassard, senior investment specialist at Mirabaud Group Thanksgiving is an age-old American tradition. Every year from 1789 to the present day, Americans have celebrated the holiday over a meal of turkey. The origins of this tradition can be traced...

Trending articles

IFA Talk logo

IFA Talk is our flagship podcast, designed to fit perfectly into your busy life, bringing the latest insight, analysis, news and interviews to you, wherever you are.

IFA Talk Podcast - listen to the latest episode