Wall Street and global equities are paying for the double effect of the rate panic and the announcement in the UK of the most ambitious tax cut plan since the 1980s. At 16.10 Italian time, the Dow Jones slipped by almost 400 points (-1.28%), to 29,691 points; the S&P 500 fell 1.65% to 3,696 points; the Nasdaq Composite loses 1.87% to 10,860 points.
In the UK, the announcement of the shock tax cut came directly from the new Chancellor of the Exchequer, Kwasi Kwarteng, of the Liz Truss government.
The UK tax cut will be substantial: the higher 45% income tax rate that applies to incomes above £ 150,000 will be abolished. This means that the highest rate will consequently become 40%, while the base rate will be reduced to 19% from next April.
The UK Treasury has admitted, reports the Guardian, that 660,000 of the highest earning Brits will benefit from the abolition of the highest rate of 45%, saving an average of £ 10,000 a year.
Kwarteng also said Britain will spend around 60 billion pounds ($ 67 billion) to subsidize gas and electricity bills for the next six months for households and businesses.
The stimulus plan, which also includes other measures, will lead the UK Treasury to issue additional gilt government bonds (read additional debt), for the current fiscal year, worth £ 72 billion, in order to finance the massive fiscal stimulus measures that have been approved.
The news immediately puts pressure on British assets, especially government bonds and the pound.
Against the US dollar, the UK currency is preparing to end the week with its worst loss in two years, after testing a new 37-year low of $ 1.1019. At the moment it loses more than 2%, also risking $ 1.10.
UK bonds also plummet, bringing two-year yields to a record high since October 2007, and 10-year rates to jump to their highest since 2010. UK 10-year rates, in particular, report the strongest blast. since 1998, with a jump of 26 basis points to 3.759%.
The euro is also under pressure on the forex market, plummeting to new record lows since October 2002 against the US dollar, beaten by sales after the publication of the euro area SME indices, which highlighted the contraction of the economic activity of the block.
The single currency drops by more than 1 percentage point and slips to $ 0.9730 against the dollar.
Against the euro, the greenback trend is diametrically opposed, with the Dollar Index jumping to 112.30 points, the highest value since May 2002.
The dollar benefits from the more hawkish view of the Fed, which this week raised rates by 75 basis points for the third time in a row, to a new range of 3% to 3.25%, a record since 2008.
Jerome Powell’s Fed is preparing to raise rates further, in its fight against inflation, in spite of the recession-hard landing risk in the US.
US Treasury yields continue to rise as they shoot higher as a Fed is determined to aggressively raise rates again.
US Treasuries, with the two-year ones, which are the most sensitive to the Fed’s monetary policy decisions, which have jumped even more than 4.2%, positioning themselves at the record of the last 15 years, or since 2007, equal to 4.266%. At the moment they continue to run, reporting a jump of 12 basis points, to 4.119%, according to what is reported by the CNBC.
To price the scenario of further aggressive monetary tightening, in addition to equities, it is therefore also the fixed income market.
There was also a boom in 10-year Treasury yields, up to 3.829%, close to the highest levels since 2011. Ten-year rates then turned around, fluctuating around 3.693%.
In Europe, the crash of the Ftse Mib index is highlighted, which collapsed by more than 3%, also in view of the appointment of the Italian political elections on Sunday, 25 September.