Will the market turbulence of last week continue? Judging by market data this morning, it’s a yes.
The original cause for concern in the first full week of January was government borrowing costs, as measured by the effective interest rate on that borrowing, the gilt yield, which reached highs not seen in decades.
Both the long-term 30-year and the benchmark 10-year were up this morning. The 30-year reached a new high of 5.47%, a rate not seen since mid-1998, while the 10-year ticked up but remained below the 2008-high seen last week.
More expensive borrowing means more costs for the government, potentially putting the chancellor in a position where she breaks her self-imposed fiscal rules by failing to bring debt down and balance the budget. Further spending cuts or extra tax rises could result.
The borrowing costs are particularly unwelcome when pared with news about sterling. One pound buys $1.21, a low not seen since October 2023. A weak pound makes it more expensive to buy things in dollars, which can bring up inflation and dampen economic activity.
Also potentially pushing up prices is oil reaching the highest price since October. A barrel of Brent crude will set you back $80.79. That cost rarely tipped over $74 a barrel during December.
On the stock market front, the news isn’t a whole lot better. The FTSE 100 index of the most valuable companies on the London Stock Exchange lost the gains of mid-last week having fallen 0.32%.
The bigger and more domestic-focused FTSE 250 reached a nearly nine-month low.
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