Friday 21/08/26

US long-term bonds slide as Treasury secretary Bessent’s intervention fails to soothe investors (Financial Times, Ramsay Hodgson, Claire Jones and Myles McCormick) shows that the bond problem isn’t going away as US Treasuries were sold off yesterday despite Scott Bessent’s best efforts to prop up the market. The yield rose, pretty much cancelling out the fall that followed the Treasury announcement on Wednesday. What is Scott Bessent doing with the $32tn Treasury market — and will it work? (Financial Times, Claire Jones) explains that he’s trying his best to stop the current sell-off in long-term debt (including 10-year and 30-year Treasury bonds) by buying a lot of them but investors aren’t convinced and the Treasury secretary hasn’t said how he’s going to fund this. Why is the Trump administration causing turmoil in the bond markets? (The Guardian, Richard Partington) shows that this isn’t just a US problem – it’s something that affects everyone and it’s already pushed up yields for UK, French, German and Japanese bonds because investors are worried about US stability. This whole drama has been prompted by long-term US government borrowing costs pushing through to their highest level since 2007 as the 30-year Treasury bond yield trading above 5%. A bond is a form of debt and the “yield” is the amount of money an investor gets in return for owning the debt, expressed as a percentage of the bond’s current price. Prices fall when investor demand weakens – and that pushes up yields (to make them more attractive to buy). Bessent’s intervention on Wednesday pushed down yields but they popped up in trading yesterday as investors are getting increasingly concerned about the rise in the US national debt and unsustainable spending plans against the backdrop of a war that’s proving to be very expensive. * SO WHAT? * Ultimately, higher yields push up costs for individuals and businesses alike because they make mortgages, loans and corporate bonds more expensive – and that means there’s generally less money to go around, meaning that economic growth slows down. Governments around the world are already up to their eyes in debt, so this latest development is not good. The problem is that there’s the very real risk of a “doom loop” where governments have less money to spend to encourage growth, economies stagnate, tax revenues fall which means that governments continue to have less money to spend to encourage growth etc.etc. Bessent buying bonds is one thing – but ending the war in Iran would go a long way to stopping the rot.

Donald Trump announces fresh ‘economic warfare’ on Iran (Financial Times, Andrew England) shows Trump in belligerent mood again as he said on Truth Social that “I am announcing the MOST CRUSHING ECONOMIC OPERATION EVER TAKEN AGAINST ANY COUNTRY!” and called on others for support when he said “This will be an ECONOMIC D-DAY, and we all need all of our Allies to stand with the United States off America to isolate, and defeat, the Iran threat”. He added that any country helping Iran would face “TREMENDOUS Economic Consequences”. Treasury Secretary Scott Bessent said yesterday that he will outline a plan on Monday to “talk about exactly what we’re going to do”. The UAE, a vital trading hub for Iran, already suspended trade and commercial ties with Iran this week shortly after it accused Tehran of firing two ballistic missiles towards it. Iran has batted this off so far as a “diversion from America’s own crisis: unprecedented debt and surging interest costs”. It sounds like one of those empty threats to me but let’s see what Bessent says next week…

Bitcoin tops $70k as Trump pressures Congress to pass crypto bill (The Times, Charlotte Bend) heralds some better news for the president as he urged US Congress to pass legislation that would clarify rules for trading digital assets. * SO WHAT? * If he gets this sorted he’ll be able to

earn even more money for himself and his mates. Bitcoin rose by 3.6% in trading yesterday on the news. The Digital Asset Market Clarity Act, if it is passed, will define whether crypto qualifies as a security or commodity. Trump has disclosed around $1.4bn in earnings from his family’s crypto interests in 2025! Crypto firms such as Strategy, Coinbase, Circle Internet and Galaxy Digital were all up on the news. 

Back home, UK finally showing signs of productivity growth, say economists (Financial Times, Sam Fleming and Amy Borrett) cites the economists at Morgan Stanley who reckon that private sector productivity grew by 1.8% in Q2 versus the same period a year earlier and 1.2% in Q1. Meanwhile, UK consumer confidence rises to two-year high (The Times, Mehreen Khan) cites the latest GfK survey which shows that consumer confidence is at its highest level since the aftermath of Labour’s win in the general election. Households said that they were more likely to make a major purchase in the coming weeks and were increasingly optimistic about the state of the economy in the coming year. The report also noted that households have somehow managed to build up savings since the pandemic and economists say that if households start spending those, there could be a decent boost to economic growth over the coming year. * SO WHAT? * Both of these things are good bits of news for the government to ponder and throw in the pot as they try to rustle up some tasty policies. TBH, I am amazed that the report says that savings have gone up! Surely that must be affluent people because those further down the scale are having to pay way more for basics these days!

In climate-related news, Panama Canal to cut daily transits as El Niño grips region (Financial Times, Christine Murray) shows that the lack of rainfall has prompted the Panama Canal Authority to cut the number of daily ship transits from September 3rd. The canal connects the Atlantic and Pacific oceans and carries over 3% of global maritime trade. However, it relies on fresh water to operate its locks, so the lack of rainfall has been problematic. The signs at the moment are that this year’s El Niño is going to be a particularly bad one, meaning that we should get used to unusual extremes of weather.

On a similar vein, River cruises under threat after European heatwave (Daily Telegraph, Emma Taggart) shows that holidays along the Danube and Rhine are looking increasingly shaky for years to come if current weather patterns are here to stay. * SO WHAT? * Water levels are falling everywhere and cruise ships are having particularly acute problems navigating some of the world’s most famous rivers. The world’s biggest river tour operator, Viking, said this week that over half of its bookings between July and mid-August have been impacted by low water issues in Europe. This could be bad news for river cruise operators in the long run as punters just won’t want to risk it.

Get used to eating more butternut squash in heatwaves (Daily Telegraph, Tom Haynes) cites experts from the National Farmers’ Union who talk about trialling new crops that thrive in hotter temperatures. As traditional crops like onions, broccoli, cauliflower, parsnips and others suffer in the hot and dry conditions we’ve been seeing, other crops – like butternut squash – could start to flourish here. A number of farms have been trialling new crops this year and they appear to have been successful. Butternut squash has traditionally been imported. It looks like our eating habits may have to evolve over time because of climate change!

Walmart Shares Slump on Weakest Sales Growth in Over Six Years (Wall Street Journal, Sarah Nassauer) unveiled disappointing annual results yesterday. They blamed consumer caution and the company’s share price fell by 9.2%, its biggest one-day fall in over four years. Consumers are continuing to watch their spending. On the plus side, their US e-commerce sales did pretty well.

In the UK, JD Sports cuts £50m from profit forecast as cost of living pressures hit trainer sales (The Guardian, Kalyeena Makortoff and Sarah Butler) shows that things aren’t going well for

“The King of Trainers” and they’ve have to downgrade profit forecasts as a result thanks to cost-of-living pressures resulting from the Iran war. Its core young shoppers have been hit particularly hard in the wallet. The company now expects a muted performance for the second half of the year. * SO WHAT? * Not only has its customer base been hit by the rising cost-of-living, the company’s had some strategy and leadership problems. A new chair is coming next month – but I would not be expecting a swift turnaround in this environment!

In a quick scoot around some of today’s other interesting stories, Shanghai’s answer to Nasdaq outstrips Hong Kong amid Chinese tech frenzy (Financial Times, William Sandlund) highlights the fact that the Chinese tech stocks on Shanghai’s Star Market have outperformed rivals on the Hong Kong and NASDAQ markets. Market debut heroes CXMT and Unitree haven’t even been included on the Star Index yet, so the gains could see another boost! It is interesting to see the growing trend of companies choosing Shanghai over Hong Kong as a listing destination – and is probably a function of Beijing getting concerned about capital flight and losing control over home-grown tech companies.

Tractor maker is winner from AI data centre boom (The Times, Robert Lea) highlights farming machinery giant John Deere as a perhaps surprising beneficiary of AI as it reported its first profit in three years! Although sales of tractors and combine harvesters have been tricky for a while, it managed to post its first quarterly profit for a while thanks to the boom in the construction of AI data centres in the US which has powered its construction and forestry business. Demand has actually been so strong that it’s been able to raise its prices and profit margins. * SO WHAT? * This is an encouraging performance and it sounds like the CEO is positively chipper as he said that this year would be the end of the downcycle in demand for agricultural equipment!

In employment-related news, UK’s biggest recruiter suffers first loss in 20 years (Daily Telegraph, Eleanor Harmsworth) shows that Hays announced its first annual loss since 2003

yesterday. Recruiters have been suffering because clients have increasingly been using AI to accelerate the hiring process. Its fee income has fallen and the company has chopped recruitment consultant numbers by 16%. * SO WHAT? * Although the increased use of AI could be a problem, I would also say that it’s the relative lack of vacancies as well – recent figures from the ONS show that job vacancies had fallen to their lowest level in five years in the May to July period. However, I would also suggest that Hays is a big company that recruits for all sorts of roles at all levels and across loads of industries. Some areas are going to be more susceptible to AI than others but I think that the recruitment industry will undoubtedly shrink.

Iran war hits small factories with £350,000 energy bill (Daily Telegraph, Tim Wallace) is an interesting article that highlights the plight of some businesses that are really suffering badly from the effects of the Iran war. Energy consultant Cornwall Insight said that bigger leisure centres, shopping centres and retail parks have seen their energy bills shoot up by about 25% since the Iran war started in February. For those kinds of businesses this means that their average annual electricity bill would have gone up by about £128,000 to an average of £638,000 – and the gas bills could have gone up by £230,000 to £1.15m! * SO WHAT? * These costs are bad enough for the businesses – but they’ll have to be passed onto the consumers as well. The longer the war drags on, the worse the situation’s going to get.

I like a good mash-up! What do you think of this??