That is an audio transcription of the FT press briefing podcast episode:
Sonja Hutson
Good day from the Monetary Instances. At present is Friday, September 30, and it is your FT Information Briefing.
The Russian president is elevating the stakes once more by claiming that he’s annexing a big a part of Ukraine. Germany caps gasoline and electrical energy costs and Katie Martin will finish a chaotic week for UK monetary markets. I am Sonja Hutson, for Marc Filippino, and this is the information it is advisable to begin your day.
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At present, Russian President Vladimir Putin will announce that he’s annexing 4 areas of southeastern Ukraine. The transfer heightens tensions not solely between Russia and Ukraine, but in addition with Western powers. To search out out extra, I’m accompanied by Henry Foy of the FT. Good day, Henry.
Henry Foy
Hey.
Sonja Hutson
So why is Putin asserting that Russia is annexing these areas, particularly when Russian troops don’t totally management them?
Henry Foy
That is the primary and most necessary drawback right here. That is the most important takeover of territory by power in Europe because the Second World Battle. So successfully what he is saying is to escalate the conflict in Ukraine to a degree the place the territories that Ukraine is making an attempt to take again are not Ukrainian territories, they’re Russian territories, and so Moscow can use any means it pleases to defend them. It is a critical escalation, and it is one that basically turns the conflict into a really totally different section, a section the place Putin can declare this to be a defensive conflict, at the very least in his view. In fact, the West won’t acknowledge them. And so the distinction in how we view conflict might properly form the way it performs out.
Sonja Hutson
So Henry, I do know we had these referendum votes this weekend. How was this taken under consideration within the annexations?
Henry Foy
Proper. And it is very important specify right here that these referendums had been fully chaotic. I imply, most of them say there was a 99% vote in favor of becoming a member of Russia, these areas with Russian audio system however not traditionally majority pro-Russian views. There have been studies of locals being pressured to vote at gunpoint, of individuals bringing poll bins to folks’s houses and forcing them to vote in favour. It’s subsequently necessary to say that these are usually not actual referendums. They don’t mirror the actual opinions of individuals dwelling on this space. What he does for Putin, and there are two methods to have a look at it. The primary is that she traps him on this conflict. He was pressured to double down right here, as these at the moment are territories he should proceed to battle for. There isn’t a negotiation the place he offers them now. These at the moment are a part of Russia. And so, we are able to defend it with all of the weapons we would like. And naturally, in current weeks, Putin and different senior Russian officers have recommended that this might even lengthen to using nuclear weapons, which might virtually actually draw the West, the NATO powers, america and the UK and different European army powers on this conflict. , which they’ve stubbornly refused to do since February 24.
Sonja Hutson
Henry Foy is the FT’s European diplomatic correspondent. Thanks, Henry.
Henry Foy
Thanks so much.
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Sonja Hutson
Germany yesterday introduced a €200 billion package deal to assist shoppers and companies address excessive power prices. And it’s the largest support plan {that a} European authorities has adopted because the starting of the power disaster attributable to the conflict in Ukraine. The German plan will cap gasoline and electrical energy costs. Berlin will borrow cash to fund the plan, however officers insist they may management debt ranges.
Now, I do not wish to insult our British colleagues, however UK monetary markets usually do not transfer world markets. It must be one thing actually, actually outrageously big. And this week, British buddies, properly, you bought it. The chaos in UK markets, foreign money, gilding, mortgages, and so forth., has truly shaken the remainder of the world. It began final week when the British Chancellor introduced an bold financial plan, which he known as a “mini” funds. It will decrease taxes and incur a ton of debt. The markets feared it could enhance inflation, which is already very excessive, and the markets simply went loopy, which is a phrase our Markets Editor Katie Martin may use.
Katie Martin
Oh, simply, simply whole chaos. I imply, instantly after “mini” funds, which is the dumbest title for probably the most max funds you may think about
Sonja Hutson
A “mini” Funds with a excessive influence. (giggle)
Katie Martin
(laughs) It is true. The pound hit its lowest level since 1985. It acquired worse from there. Monday was a foul day on the workplace for the pound. It then fell to an all-time low.
Sonja Hutson
Katie is right here to assist me unpack as a lot of the mess from the previous week as doable in 5 minutes. Hello Katie.
Katie Martin
Hey. How are you?
Sonja Hutson
So Katie, remember the Financial institution of England. He had a contingency plan in place to help the gilt this week, however that was solely a part of the drama. How has it been for extraordinary Brits? How does this influence them?
Katie Martin
Many loans for the acquisition of a house have been withdrawn or have disappeared from the screens. And monetary advisors get quite a lot of telephone calls from folks making an attempt to purchase houses or renew their mortgages, who’re in tears and say, I am unable to afford these new charges as a result of the borrowing prices which can be solid on the secondary marketplace for buying and selling these bonds have gone fully gaga. So folks’s mortgage charges are going to go from one thing, you already know, about 2% to about 6% abruptly. And it will trigger critical issues for extraordinary Brits who personal houses. That is the primary speaking level. Everybody you speak to within the UK proper now could be speaking about rolling over their mortgage.
Sonja Hutson
Now, pensions have additionally been dragged into this due to these items that pension funds use known as LDIs or liability-driven investments, and it helps them make funds to retirees. Why are they necessary?
Katie Martin
The factor is, these merchandise have by no means been stress examined to the purpose of maximum stress that we noticed earlier this week. Nobody had ever seen this coming. It is like being hit by an asteroid and these merchandise have backfired. Rapidly, the funding firms that promote these merchandise to pension funds had been saying that it is advisable to ship us more cash to maintain this product alive. In any other case, the contract is mainly void. And pension plans did not essentially at all times have that cash readily available. And they also needed to promote probably the most liquid stuff that they had on their books to satisfy these money stream wants. And sometimes that meant promoting gilts, and so the gilts fell off in a short time. That meant they needed to promote extra gilts, so the gilts fell even quicker, and that meant they needed to promote extra gilts. And it was significantly what we name the lengthy finish of the market, like gilts which have maturities of kinds of 20, 30 years.
Sonja Hutson
So it was simply form of a snowball impact.
Katie Martin
It was completely a snowball impact. You realize, we’re informed that at instances there have been simply no patrons out there. We had been attending to the purpose the place a few of these pension funds not had the money to satisfy these necessities with the intention to keep the integrity of those contracts. So it was a large mess and numerous members of the repo business would go to the Financial institution of England and say, no, however critically, you are going to must do one thing about it. So what the Financial institution of England has achieved is say, OK, we’ll purchase as much as £5 billion a day of long-term UK authorities bonds for 13 days to attempt to stabilize the system. Now that sounds so much like quantitative easing.
Sonja Hutson
Is it an issue?
Katie Martin
Solely insofar because the Financial institution of England had solely introduced a number of days earlier than that it was going to cease its quantitative easing program and actually begin promoting a number of the bonds it had on its books. So he needed to flip round on that.
Sonja Hutson
What has been the influence on world bond markets?
Katie Martin
Usually talking, what occurs within the UK stays within the UK. You realize, lots of people cannot inform us on a map. We do not actually matter. Usually talking, it is the US authorities bond market that basically issues to everybody. However the strikes we have seen in UK markets have been so extremely big that they’ve rattled different segments of the market as properly. So ten-year US debt has had its largest one-day rally since March 2020. So, you already know, no stress on the UK authorities or something, but it surely’s actually beginning to shake issues up for everybody world.
Sonja Hutson
Katie, we additionally noticed a decline within the S&P 500 yesterday. What was happening there?
Katie Martin
You realize, I haven’t got the emotional area in my mind to consider US markets. Numerous issues are a little bit of a large number there, however the UK is clearly the largest mess of all of them. Give me some slack. (giggle)
Sonja Hutson
(Laughs) Fairly properly. Truthful sufficient. You’d do it. You deserve to not have to consider the S&P 500. That is FT Markets Editor Katie Martin. Thanks Katie.
Katie Martin
Pleasure.
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Sonja Hutson
You may learn extra about all these tales on FT.com. This has been your each day press briefing on FT. You should definitely verify again subsequent week for the most recent buying and selling information. The FT Information Briefing is produced by Fiona Symon, Marc Filippino and me, Sonja Hutson. Our editor is Jess Smith. We had assist this week from David da Silva, Michael Lello and Gavin Kallmann. Our government producer is Topher Forhecz. Cheryl Brumley is the FT’s International Head of Audio. And our theme tune is from Metaphor Music.
This transcript was generated routinely. If by any probability there’s an error, please ship the small print for a correction to: [email protected]. We are going to do our greatest to make the change as quickly as doable.
