Premarket stocks: UN agency wants Fed to slow rate hikes

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The Federal Reserve’s aggressive tightening policy pushed the US dollar to a multi-decade high, squeezing currencies around the world.

Now a United Nations agency is warning that its actions, along with those of other central banks, risk plunging the global economy into recession.

What is happening: The United Nations Conference on Trade Development (UNCTAD) said in a new report that monetary policy tightening aimed at fighting inflation could cause worse damage than the 2008 financial crisis and the Covid-19 shock in 2020.

The agency calculated in its report that each interest rate hike directed by the Fed to raise interest rates would reduce the economic productivity of other rich countries by 0.5% and the economic productivity of less developed countries by 0.8% over three years. This is because a strong dollar makes it more expensive for other countries to import essential goods such as food and fuel. A rising dollar is especially devastating to poor countries that have to pay their debt obligations in dollars.

A U.N. report says that this year alone, U.S. interest rate hikes could reduce the future income of developing countries by $360 billion by increasing the value of the U.S. dollar.

The UN agency called the Fed’s actions a “reckless gamble” with the lives of the less fortunate. The UN agency said that if central banks don’t get it “certainly right”, developing countries could face a series of debt crises, health and climate emergencies.

A growing consensus: The UN agency joins a growing chorus of organizations expressing concern about the global economic climate.

World Bank President David Malpass last week warned that a “perfect storm” of stagflation and global recession could reverse years of economic growth. World Trade Organization Director General Ngozi Okonjo-Iweala also said last week that the world is headed for recession.

The International Monetary Fund recently lowered its economic forecasts for 2023, and India’s central bank said on Friday that the global economy was in shock due to monetary policy.

An alternative to price increases: UNCTAD Secretary General Rebecca Grynspan argued that there is more than one way to reduce inflation rates. For example, countries can impose a windfall tax on oil and gas companies—a one-time levy on an industry that has made unusually high profits.

“There is still time to pull back from the brink of recession,” he said.

EU governments have already agreed to tax oil and gas companies’ windfall profits, but the US Congress is unlikely to approve any new taxes ahead of November’s midterm elections.

Bottom line: The UN report is unlikely to change the minds of central bankers. Federal Reserve Vice Chairman Lael Brainard said last week that while a rising U.S. dollar would create inflationary pressures around the world, premature withdrawal from deflationary measures would have far worse consequences.

“Central banks and economists believe that ‘if left unchecked, these inflationary pressures could be very damaging to global growth and prosperity,'” Robert Khan, chief economist at the Eurasia Group, told me.

My colleague Julia Horowitz reports that Credit Suisse shares fell to a new record high before recovering on Monday.

The cost of insuring Credit Suisse’s debt against default, as measured by credit-default swaps, also rose, raising concerns about the bank’s ability to stay afloat.

The lender has been hit by a series of scandals and regulatory lapses in recent years, costing it billions of dollars and prompting a top management overhaul. But it is facing renewed scrutiny after a memo CEO Ulrich Körner sent to employees on Friday, shared with CNN Business.

Körner sought to reassure colleagues about the bank’s financial health before unveiling a restructuring plan later this month.

“I know it’s not easy to focus among the many stories you read in the media, especially given the many factually inaccurate statements being made,” Koerner wrote. “That said, I believe you’re not confusing our daily share prices with the bank’s strong capital base and liquidity position.”

The bank emphasized that it remains on a solid foundation. But if customers get restless and start withdrawing their money, it can create a harmful feedback loop.

Just as the collapse of Lehman Brothers in September 2008 precipitated the global financial crisis, there are fears that the collapse of one major bank could spread.

Citigroup analyst Keith Horowitz wrote in a note that he had received inquiries about a “contagion effect” to US banks, but said he saw no cause for concern. “We believe US bank stocks are very attractive here,” Horowitz said.

According to him, US banks have significantly more capital than they did at the time of Lehman’s collapse. “We understand the nature of the concern, but the current situation is day and night since 2007.”

My colleagues Mark Thompson and Adam Renton report that the British government is scrapping plans to scrap the top rate of income tax, announcing an embarrassing retreat after a revolt among its MPs and a week of financial and economic turmoil.

In a statement on Monday, Finance Minister Kwasi Kwarteng said the tax cut for people earning more than £150,000 ($170,000) was a distraction from the government’s wider package of measures to tackle the energy crisis and cut taxes more broadly. efforts to end years of economic malaise.

“We understand and we listen,” he said.

The announcement marks a major and sudden setback for new Prime Minister Liz Truss, who has been baffled by the government’s response to a raft of tax cuts, including cutting the top rate of income tax from 45% to 40%.

The cuts have sent the pound to a historic low against the US dollar and caused chaos in the UK debt market as they look to demand a huge increase in government borrowing. Mortgage rates soared and some pension funds struggled to stay solvent.

A degree of order was only restored last Wednesday by the emergency intervention of the Bank of England, which said it would buy 65 billion pounds ($73 billion) worth of UK government bonds.

The Bureau of Labor Statistics releases U.S. jobs and labor turnover (JOLTS) at 10 a.m. ET.

Tomorrow will come: OPEC+ is meeting to discuss energy markets and may agree to cut production due to the recent drop in oil prices. OPEC is responsible for about 40% of the world’s oil supply.

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