From 2h agoNewsflash: The Bank of England has warned that financial markets remain at risk of a sharp correction. In its latest financial stability report, the BoE says that high inflation, or geopolitical risks, could trigger a selloff. The Bank says risks to the UK financial system are “broadly unchanged” since the first quarter of the year. But some asset prices have continued to rise, it points out, while the risk of a sharp correction persists. European markets are up around 8% so far this year, while the US Nasdaq Composite index has surged by 18%. The report, which is designed to track the stability of the financial system, says: The prices of many assets such as shares and bonds remain high relative to historical norms, and some have continued to rise. This suggests that investors in financial markets are continuing to expect the economy to recover and inflation to fall. They are placing less weight on risks, such as geopolitical developments or continued high inflation, that might cause weaker growth or interest rates to stay higher than expected. These risks make it more likely that there could be a sharp correction in asset prices that could ultimately make it more costly and difficult for UK households and businesses to borrow. Our Financial Stability Report looks at the risks in our financial system and what we are doing to ensure households and businesses can rely on it. #FinancialStabilityReport pic.twitter.com/BJGPfvopyz
The report also warns that Global risks are material, including geopolitical risks, which remain high. Overall, UK households and businesses have remained resilient to the impact of higher interest rates. The UK banking system is strong enough to support households and businesses, even if the economy does worse than expected. Key events
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Introduction: Yen at 38-year low against the dollarFilters BETAKey events (13)UK (12)Bank of England (10)US (7)Tokyo (4)Europe (3)There’s no shortage of newsy lines in today’s financial stability report. Another one, is that the Bank of England believes that risk management in the private equity sector needs improving. The BoE says an investigation of the sector showed it was facing challenges from higher borrowing costs (because increases in interest rates have hit borrowers who loaded up on debt when it was cheap). The Bank says: Although the [private equity] sector has been resilient so far, it is facing challenges in the higher rate environment. These manifest in refinancing risk as debt matures, and an increased drag on performance from higher financing costs. In response, Michael Moore, chief executive of the BVCA (British Private Equity & Venture Capital Association), says: The Bank has rightly highlighted the long-term stability and resilience of the private equity industry and the vital role it has played in the UK economy for over 40 years, and we welcome their acknowledgment of the importance of the sector to the economy. Many of the Bank’s concerns are already being addressed through new regulatory activity by the FCA, and we at the BVCA remain highly engaged in these processes. Over in the US, retail giant Walgreens Boots is planning to close some underperforming US stores and cut its profit forecasts today. Walgreen Boots now expects to make an adjusted profit of $2.80 to $2.95 per share for its financial year ending August, compared with its $3.20 to $3.35 per share forecast in March. The company says it is finalizing a “significant multiyear footprint optimization program” to close
