Congress may make it easier to set money aside for emergency expenses

Thomas Barwick | Digitalvision | Getty Images

Many families struggle to come up with the cash when faced with an unexpected $400 expense.

That lack of emergency savings may force them to borrow money at high interest rates to pay for the surprise expense, putting their financial security at risk.

Now Congress has a window to address that issue by paving the way for new emergency savings plans in the lame duck session.

Three emergency savings proposals may be included in a legislative package known as Secure 2.0, which is set to amplify changes to the retirement system brought by the Secure Act in 2019.

“We’re on the cusp of a significant shift in how people save for emergencies in this country, thanks to public policy and private sector innovation,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, during a recent web panel hosted by the Washington, D.C., think tank.

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The panel discussion coincided with an open letter from the Bipartisan Policy Center Action with 40 organizations to Senate Majority Leader Chuck Schumer, D-N.Y., and Minority Leader Mitch McConnell, R-Ky., as well as House Speaker Nancy Pelosi, D-Calif., and Minority Leader Kevin McCarthy, R-Calif.

The letter called for the inclusion of three bills that would amplify emergency savings in the pending retirement package.

“We firmly believe emergency savings policy aligns with the goals of the U.S. retirement system and will help boost financial resiliency for American households,” they wrote.

Why emergency savings falls short

Anti-eviction banners are displayed on a rent-controlled building in Washington, D.C., on Aug. 9, 2020.

Eric Baradat | AFP | Getty Images

The Covid-19 pandemic was a stress test for many Americans’ finances.

As many parts of the economy shut down, many individuals and families found their incomes were reduced or eliminated altogether.

The federal government stepped in and sent unprecedented amounts of aid through three rounds of stimulus checks, enhanced federal unemployment benefits, direct monthly child tax credit payments to parents and other policies.

Yet the pandemic still led some workers to withdraw funds from their 401(k) or other retirement savings accounts, putting their long-term financial futures at risk.

How employers are enticing workers with emergency savings plans

How 3 proposals may encourage savings

Image Source | Getty Images

Advocates are hoping three proposals that could help encourage emergency savings will be included in Secure 2.0.

That includes two bills proposed by Sens. Cory Booker, D-N.J., and Todd Young, R-Ind., as well as a third created by Sens. James Lankford, R-Okla., and Michael Bennet, D-Colorado.

One proposal from Booker and Young would enable employers to provide emergency savings accounts to workers in addition to their retirement savings accounts. Employees would be able to set aside up to $2,500 automatically that they could access at any time in case of an emergency.

The second proposal from Booker and Young would allow for separate standalone plans outside of retirement accounts, which would be “really important” for employees who don’t currently have retirement plans through their employer, Akabas noted.

A third, the Lankford-Bennet plan, would allow workers to take out up to $1,000 from their retirement accounts penalty-free in case of an emergency. Those withdrawals would only be allowed once per year; additional contributions would be required before making another withdrawal.

Chantel Sheaks, executive director of retirement policy at the U.S. Chamber of Commerce, said she has “fingers crossed” that all three proposals will make it into Secure 2.0 and that the legislation will pass.

From an employer’s viewpoint, we need choice,” Sheaks said.

What may work for one employer may not work for another, she noted. The three proposals would allow for more options, including possibly encouraging employers who do not current have retirement plans to think about adopting them, Sheaks said.

Moreover, because hardship withdrawals can reduce workers’ retirement security, these emergency savings options can help prevent those stumbling blocks to building wealth.

“People have emergency needs today, and we can’t forget about those emergency needs,” Sheaks said. “We need to find a way to balance today’s needs with tomorrow’s needs.”

 

Israel’s Netanyahu set for a dramatic comeback in 5th election since 2019

Israeli Prime Minister Benjamin Netanyahu speaks at a ceremony in Jerusalem, April 13, 2021.

Debbie Hill | Reuters

Votes are being counted after Israelis cast their ballots in the country’s fifth election since 2019.

And with 84% of the results in, former Prime Minister Benjamin Netanyahu’s bloc is on course to win a majority in parliament — which would put the 73-year-old right-winger back at the helm of leadership.

This would be a controversial and dramatic comeback for the lightning-rod politician, whom Israelis tend to either love or hate. Netanyahu is the longest-serving prime minister in Israel’s history, and is currently charged with multiple counts of corruption with investigations and legal proceedings ongoing.

In order to lead the government in Israel, a party has to win a majority of 61 seats — the magic number — in Parliament. If that isn’t attainable, the party with the most seats has to negotiate alliances with other parties to form a coalition.

So far, with the majority of votes counted, Netanyahu’s bloc led by his right-wing Likud party is reportedly set to win 65 out of 120 seats.

Netanyahu may be returning to power in Israel

The election comes at a time of great polarization for Israel, and heightened fears following a rise in Israeli-Palestinian violence and attacks. The Middle Eastern country of 9.4 million is also facing mounting living costs and inflation at multi-year highs, spurred by geopolitical conflict like Russia’s war in Ukraine as well as energy shortages and supply chain issues that are affecting much of the world.

And the fact that Israelis are voting for their leadership for a whopping fifth time since September of 2019 reveals a country more divided and politically gridlocked than ever.

“The new Israelis Knesset, and most likely Netanyahu’s new government, will be much more religious and right-leaning,” Yohanan Plesner, president of the Israel Democracy Institute who was a Knesset member for the centrist-liberal Kadima party, told CNBC.

Plesner added however that “there shouldn’t be a major shift in the economy, foreign policy or security affairs – rather we expect changes to take place on constitutional matters and on questions of religion and state.”

Why so many elections?

Israel’s last government collapsed in late June after the Parliament, or Knesset, voted to dissolved itself.

That happened after the most diverse and unlikely coalition in the country’s history — which managed to push Netanyahu out of power after 12 years and featured centrists, right wingers, left wingers, and even Islamists — eventually hit a level of gridlock it could not overcome, just one year into its existence.

Prior to that coalition’s formation, Israel went through four elections in the space of two years, each one inconclusive enough to force another vote. It was Israel’s government formation process in 2021, almost exactly one year before June’s Knesset dissolution, that saw Netanyahu, the country’s longest-serving prime minister, removed from office.

Back then, in 2021, Netanyahu lost power after his 28-day deadline to form a government expired and he failed to build a governing coalition with enough support from multiple parties, allowing other politicians to run and give it a shot. It was after that that the hodge-podge mix of parties, then led by the centrist lawmaker Yair Lapid and right-wing nationalist Naftali Bennett, came together in a coalition that defeated him.

But as with the previous years, many of the lawmakers were too diametrically opposed to one another to get much done.

Now, a Netanyahu win would see a coalition that heavily features hardline right-wing, ultra orthodox parties that are alienating to many secular Israelis. This, Plesner said, could be a potential liability on issues like foreign policy and Israel’s relationship with the Palestinians.

“Netanyahu himself has traditionally been cautions and risk-averse on foreign policy questions and security manners,” Plesner said, “but it will be a challenge for him to rein in some of the more extreme elements of his coalition who have a history of provocative behavior and whose actions could lead to unintended consequences.”

Bank of England set for biggest rate hike in 33 years, but economists expect dovish tilt

Buses pass in the City of London financial district outside the Royal Exchange near the Bank of England on 2nd July 2021 in London, United Kingdom.

Mike Kemp | In Pictures | Getty Images

LONDON — The market expects the Bank of England to raise interest rates by 75 basis points on Thursday, its largest hike since 1989, but economists believe policymakers will strike a dovish tone looking ahead as the prospect of a recession deepens.

With U.K. inflation running at a 40-year high of 10.1% in September, the Bank is seen hiking its main lending rate for the eighth consecutive time, but weaker growth momentum and a major shift in fiscal policy is expected to ease calls for more aggressive monetary tightening.

New Prime Minister Rishi Sunak has scrapped the controversial tax cuts at the heart of predecessor Liz Truss’ fiscal policy agenda, meaning fiscal and monetary policy are no longer pulling in opposite directions.

The government U-turns, which eased market tensions, mean the Bank’s Monetary Policy Committee (MPC) will not have to counter the additional inflationary impact of government policy, as it weighs the possibility of weaker growth ahead.

Goldman Sachs economists on Monday lowered their 2023 U.K. growth projections from an annual rate of -1% to -1.4%, citing what is likely to be a less generous household and business energy cost assistance scheme under Sunak.

Fed will raise rates close to 5% in March, outpacing Europe: Goldman Sachs economist

“We therefore see less pressure for the BoE to act aggressively at next week’s meeting, but we still believe that a step-up in the pace to 75 basis points is likely given that (1) fiscal policy is on net more expansionary than assumed at the August MPR meeting; (2) news on the labour market and underlying inflation pressures has been firm; and (3) MPC commentary points to a robust policy response at the November meeting,” Goldman’s economists said.

The Wall Street giant expects a split vote in favor of the 75-basis-point hike on Thursday with some chance of another half-point uplift in December.

“We expect the MPC to explain the step-up in the hiking pace with ongoing inflationary pressures and the additional support to demand from the announced fiscal measures,” Chief U.K. Economist Stefan Ball and Chief European Economist Jari Stehn suggested.

“However, we do not expect significant changes to the forward guidance and look for the MPC to retain its meeting-by-meeting approach.”

Deutsche Bank also expects a split vote on Thursday in favor of a 75-basis-point hike, taking the key interest rate to 3%.

How 'trickle-down economics' backfired on Britain's shortest-serving prime minister

In a note Friday, the German lender said it expects the MPC to relay three key messages to the market.

The first is that the economic outlook has deteriorated further and the U.K. economy now faces a “deeper and more prolonged recession” than previously thought, while price pressures are likely to pick up in the short-term before cratering by the end of 2025.

“Second, policy is not a pre-set path. Risk management considerations, however, warrant further tightening and front loading of rate hikes, given increased volatility in inflation (with the end of the Energy Price Guarantee slated for March 2023), a broadening out of price pressures, and a ratcheting up of wage and price growth in the year ahead,” said Deutsche Bank’s Chief U.K. Economist Sanjay Raja.

“As such, policy will need to go a little further than anticipated, moving further into restrictive territory, particularly with inflation expectations slipping, and second round effects firming.”

Perils of over-tightening

Raja also noted that there are limits to monetary policy tightening, suggesting that an eventual Bank Rate of 5% — as expected by markets — would result in balance sheet stress for households and businesses already struggling.

“We expect the MPC, including the Governor at the press conference, to stress that while the Bank remains fully committed to fighting off excess inflation, it will attempt to avoid an over correction in rates that would set the economy back further from its pre-pandemic levels,” Raja added.

Deutsche Bank now expects the Bank Rate to reach 4.5% by May next year, down from its previous projection of 4.75%, on account of retreating fiscal stimulus and a push toward fiscal consolidation.

UBS CEO: Markets see more consistency between fiscal, central bank policy with new UK PM

Bank of England Deputy Governor for Monetary Policy Ben Broadbent said in a recent speech that GDP would take a “pretty material” hit from such aggressive policy tightening. The Bank’s August growth forecasts, which already pointed to a five-quarter recession, were based on a much lower Bank Rate of around 3%.

“The new set of forecasts due, which crucially are based on market interest rate expectations, are likely to be dismal — showing both a deep recession and inflation falling below target in the medium-term,” noted ING Developed Markets Economist James Smith.

“That should be read as a not-so-subtle hint that market pricing is inconsistent with achieving its inflation goal.”

Dovish Bank of England leaves pound vulnerable

Having sunk to a record low against the dollar in the aftermath of Liz Truss’ disastrous fiscal policy announcements in late September, the pound gained some respite from Sunak’s appointment and his retention of the more moderate Finance Minister Jeremy Hunt.

Bond market remains fundamentally broken despite UK gilts rally, says Jim Bianco

Should a 75 basis point hike on Thursday be accompanied by dovish rhetoric, as economists expect, sterling could be left vulnerable given the market’s apparent overpricing of the terminal rate, according to BNP Paribas.

“Given the squeeze in GBP shorts over the past week, a dovish BoE hike is unlikely to bode well for the currency. As such, we stay short GBP into the meeting,” the French lender’s strategists said in a note Monday.

3 events will set the market’s tone for October

Cramer's week ahead: 3 events will determine if markets' bad momentum will continue in October

CNBC’s Jim Cramer on Friday said that three key events next week will determine if the nightmarish month for the stock market will continue into October.

Here are the events:

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  • The release of the nonfarm labor report Friday. Cramer said he expects it to show inflated hiring and wages.
  • Two speaking engagements by Cleveland Fed President Loretta Mester, who Cramer believes is the primary inflation hawk on the Federal Open Market Committee. “She wants to protect us … from high inflation, even if that means raising interest rates into a recession,” he said.

The S&P 500 closed out its worst month since March 2020 on Friday. The Dow Jones Industrial Average and the Nasdaq Composite fell 8.8% and 10.5%, respectively, for the month.

While it’s likely that Mester and the report will both bring bad news, investors can protect themselves from the market wreckage if they stick to a solid game plan, according to Cramer. 

“Own high-quality companies with good balance sheets and high dividends that will benefit from a decline in inflation, because that’s what’s going to happen,” he said.

He also previewed next week’s slate of earnings. All earnings and revenue estimates are courtesy of FactSet.

Wednesday: Helen of Troy, Lamb Wesson

Helen of Troy

  • Q2 2023 earnings release before the bell; conference call at 9 a.m. ET
  • Projected EPS: $2.21
  • Projected revenue: $521 million

Lamb Weston Holdings

  • Q1 2023 earnings release at 8:30 a.m. ET; conference call at 10 a.m. ET
  • Projected EPS: 79 cents
  • Projected revenue: $1.21 billion

“We saw this from Nike last night — all that happens is the downside gets accentuated as the upside just treads water or goes marginally higher. That’s what I expect will happen with both when they report,” Cramer said.

Thursday: Constellation Brands, Conagra Brands, McCormick, Norwegian Cruise Line Holdings

Constellation Brands

  • Q2 2023 earnings release at 7:30 a.m. ET; conference call at 10:30 a.m. ET
  • Projected EPS: $2.81
  • Projected revenue: $2.51 billion

He said he expects the company’s top line to be “extraordinarily good.”

Conagra Brands

  • Q1 2023 earnings release at 7:30 a.m. ET; conference call at 9:30 a.m. ET
  • Projected EPS: 52 cents
  • Projected revenue: $2.85 billion

The company needs to grow its business, according to Cramer.

McCormick

  • Q3 2022 earnings release at 6:30 a.m. ET; conference call at 8 a.m. ET
  • Projected EPS: 71 cents
  • Projected revenue: $1.6 billion

Cramer said that the company’s earnings call will simply reinforce its preannounced weaker-than-expected third-quarter earnings and full-year outlook cut earlier this month.

Norwegian Cruise Line

  • Investor meeting at 10 a.m. ET

Cramer said that he expects Norwegian to be performing better than competitor Carnival, which struggled with higher costs in its latest quarter, but it’s unclear whether that will be enough to help Norwegian’s stock.

Friday: Tilray Brands

  • Q1 2023 earnings release at 7 a.m. ET; conference call at 8:30 a.m. ET
  • Projected loss: loss of 5 cents per share
  • Projected revenue: $169 million

He predicted that the company will make a “bold” statement about the legalization of cannabis and said he’s pondering whether this could be a great speculative stock to own during the Biden administration.

Disclosure: Cramer’s Charitable Trust owns shares of Constellation Brands.

Cramer's game plan for the trading week of Oct. 3

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Electric vehicle (EV) sales set to hit an all-time high in 2022, IEA says

Tesla electric cars photographed in Germany on March 21, 2022. According to the International Energy Agency, electric vehicle sales are on course to hit an “all-time high” this year.

Sean Gallup | Getty Images News | Getty Images

Electric vehicle sales are on course to hit an all-time high this year, but more work is needed in other sectors to put the planet on course for net-zero emissions by 2050, according to the International Energy Agency.

In an announcement accompanying its Tracking Clean Energy Progress update, the IEA said there had been “encouraging signs of progress across a number of sectors” but cautioned that “stronger efforts” were required to put the world “on track to reach net zero emissions” by the middle of this century.

The TCEP, which is published yearly, looked at 55 parts of the energy system. Focusing on 2021, it analyzed these components’ progression when it came to hitting “key medium-term milestones by the end of this decade,” as laid out in the Paris-based organization’s net-zero pathway.

On the EV front, the IEA said global sales had doubled in 2021 to represent nearly 9% of the car market. Looking forward, 2022 was “expected to see another all-time high for electric vehicle sales, lifting them to 13% of total light duty vehicle sales globally.”

The IEA has previously stated that electric vehicle sales hit 6.6 million in 2021. In the first quarter of 2022, EV sales came to 2 million, a 75% increase compared to the first three months of 2021.

Read more about electric vehicles from CNBC Pro

The IEA said both EVs and lighting — where more than 50% of the worldwide market is now using LED tech — were “fully on track for their 2030 milestones” in its net-zero by 2050 scenario.

Despite the outlook for EVs, the IEA separately noted that they were “not yet a global phenomenon. Sales in developing and emerging countries have been slow due to higher purchase costs and a lack of charging infrastructure availability.”

Overall, the rest of the picture is a more challenging one. The IEA noted that 23 areas were “not on track” with a further 30 deemed as needing more effort.

“Areas not on track include improving the energy efficiency of building designs, developing clean and efficient district heating, phasing out coal-fired power generation, eliminating methane flaring, shifting aviation and shipping to cleaner fuels, and making cement, chemical and steel production cleaner,” the IEA said.

The shadow of 2015’s Paris Agreement looms large over the IEA’s report. Described by the United Nations as a “legally binding international treaty on climate change,” the accord aims to “limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.”

Cutting human-made carbon dioxide emissions to net-zero by 2050 is seen as crucial when it comes to meeting the 1.5 degrees Celsius target.

Read more about energy from CNBC Pro

In a statement issued Thursday the IEA’s executive director, Fatih Birol, appeared cautiously optimistic. “There are more signs than ever that the new global energy economy is advancing strongly,” he said.

“This reaffirms my belief that today’s global energy crisis can be a turning point towards a cleaner, more affordable and more secure energy system,” he added.

“But this new IEA analysis shows the need for greater and sustained efforts across a range of technologies and sectors to ensure the world can meet its energy and climate goals.”

The IEA’s report comes at a time when the debate and discussion about climate goals and the future of energy has become increasingly fierce.

This week, the U.N. secretary general said developed economies should impose an extra tax on the profits of fossil fuel firms, with the funds diverted to countries affected by climate change and households struggling with the cost-of-living crisis.

In a wide-ranging address to the U.N. General Assembly in New York, Antonio Guterres described the fossil fuel industry as “feasting on hundreds of billions of dollars in subsidies and windfall profits while households’ budgets shrink and our planet burns.”

Asia’s developing economies are set to grow faster than China’s

Chinese laborers working at a construction site at sunset in Chongqing, China.

Getty Images

Asia’s developing economies may be showing signs of recovery, but the Asian Development Bank (ADB) cut its growth forecasts for them yet again — thanks to China’s prolonged zero-Covid policy.

But this will be the first time in more than three decades that the rest of developing Asia will grow faster than China, the Manila-based lender said in its latest outlook report released Wednesday.

“The last time was in 1990, when (China’s) growth slowed to 3.9% while GDP in the rest of the region expanded by 6.9%,” it said.

The ADB now expects developing Asia — excluding China — to grow by 5.3% in 2022, and China by 3.3% in the same year.

The [People’s Republic of China] remains the big exception because of its intermittent but stringent lockdowns to stamp out sporadic outbreaks.

Both figures are further downgrades — in July, for example, it slashed its growth forecast for China to 4% from 5%. The ADB attributed that to sporadic lockdowns from the nation’s zero-Covid policy, problems in the property sector, and slowing economic activity in light of weaker external demand.

It also lowered its 2023 forecast for China’s economic growth to 4.5% from April’s 4.8% outlook on “deteriorating external demand continuing to dampen investment in manufacturing.”

Recovery not helping

Though the region is showing signs of continued recovery through revived tourism, global headwinds are slowing down overall growth, the ADB said.

For the region, the ADB now expects emerging Asian economies to grow by 4.3% in 2022 and 4.9% in 2023 — a downgraded outlook from July’s revised predictions of 4.6% and 5.2% respectively, according to its latest outlook report released Wednesday.

China's economy is facing 'multiple binding constraints,' economist says

The latest updates to the Asian Development Outlook also predicted that the pace of rising prices will accelerate even further to 4.5% in 2022 and 4% in 2023 — an upwards revision July’s predictions of 4.2% and 3.5% respectively, citing added inflationary pressures from food and energy costs.

“Regional central banks are raising their policy rates as inflation has now risen above pre-pandemic levels,” it said. “This is contributing to tighter financial conditions amid a dimming growth outlook and accelerated monetary tightening by the Fed.”

China the ‘big exception’

“The PRC remains the big exception because of its intermittent but stringent lockdowns to stamp out sporadic outbreaks,” the ADB said, referring to the People’s Republic of China.

In contrast to that, “Easing pandemic restrictions, increasing immunization, falling Covid-19 mortality rates, and the less severe health impact of the Omicron variant are underpinning improved mobility in much of the region,” it added in the report.

Read more about China from CNBC Pro

China tourist destination set a GDP target, but Covid locked it down

Sanya, on the southern coast of Hainan, was the top destination for couples flying from three of China’s largest cities last week for China’s version of Valentine’s Day, according to booking site Trip.com.

Lucas Schifres | Getty Images News | Getty Images

BEIJING — China’s tourist-heavy province of Hainan is falling further behind lofty growth goals it set in January.

Back then, the island said it aimed for 9% GDP growth this year. But like China’s economy overall, growth is running far below initial targets — due in a large part to outbreaks of a far more transmissible Covid variant.

A surge in Covid infections this month forced Hainan’s oceanside resort city of Sanya to order tens of thousands of tourists to stay put at their hotels, and local residents to stay at home. Haikou, the province’s capital, also issued stay-home orders.

Airlines cancelled flights, leaving tourists stranded on Hainan island since Saturday. In the last few days, some people have been able to return to the mainland on government-organized charter flights.

But questions remain — about uniform implementation of hotel stay subsidies, the cost of food and how soon most tourists can return to their homes.

“The public image and reputation of Hainan is damaged for the short term,” said Jacques Penhirin, a partner in the Greater China office of Oliver Wyman. “When I talk to the client they’re all looking at the bookings for [the upcoming fall holiday] which are still quite resilient. People have not cancelled yet, but it’s not looking good. Probably down on last year.”

It’s “going to be bad for luxury brands and hospitality at least until Chinese New Year next year,” he said, referring to the Lunar New Year holiday in late January 2023.

Hainan’s economy

Read more about China from CNBC Pro

“Because of the international travel restriction, Hainan has benefited from the tourism revenue, up by nearly 60% last year,” she said. Zhang estimates tourism accounts for more than 80% of Hainan’s economy.

Sanya, on the southern coast of Hainan, was the top destination for couples flying from three of China’s largest cities last week for China’s version of Valentine’s Day, according to booking site Trip.com.

The island boasts one of the few beachfront locations for international luxury hotels like Mandarin Oriental and Hyatt in mainland China.

Hainan is also building out duty-free shopping malls as part of central government’s push to turn the island into a free trade hub and international shopping area.

Sales at duty-free stores on the island surged by 84% last year to 60.17 billion yuan ($8.93 billion), according to official figures.

During a consumer goods expo in Hainan in late July, sales at four duty-free stores rose by 27% year-on-year to 330 million yuan, the customs agency said.

Another hit to confidence

Tens of thousands of tourists were stranded in the resort city of Sanya, Hainan, this week as local Covid outbreaks prompted airlines to cancel flights.

Str | Afp | Getty Images

“The question is definitely when will consumer regain confidence and peace of mind of travel and shopping which is further delayed by this Hainan incident,” Penhirin said, noting he expects this month’s lockdowns will be forgotten in one or two years.

“It’s more about the confidence than the income itself, especially for the luxury goods,” he said.

In the meantime, he said brands should put more effort to track their inventory in China, to make sure products aren’t being sold at levels that might induce a price war.

Bank of England set for biggest rate hike in 27 years as inflation soars

LONDON, February 03: Governor of the Bank of England Andrew Bailey leaves after a press conference at Bank of England on February 3, 2022 in London, England. The Bank is expected to hike interest rates for a fifth consecutive meeting on Thursday, but faces a tough balancing act between supporting growth and curbing inflation.

Dan Kitwood | Getty Images News | Getty Images

LONDON — The Bank of England on Thursday is broadly expected to hike interest rates by 50 basis points, its largest single increase since 1995.

Such a move would take borrowing costs to 1.75% as the central bank battles soaring inflation and would be the first half-point hike since it was made independent from the British government in 1997.

U.K. inflation hit a new 40-year high of 9.4% in June as food and energy prices continued to surge, deepening the country’s historic cost-of-living crisis.

Bank of England Governor Andrew Bailey suggested in a hawkish speech on July 19 that the Monetary Policy Committee could consider a 50 basis point hike, vowing that there would be “no ifs or buts” in the Bank’s commitment to returning inflation to its 2% target.

A Reuters poll taken over the past week indicated that over 70% of market participants now anticipate a half-point rise.

James Smith, developed markets economist at ING, said that although the economic data since June’s 25 basis point hike had not moved the needle significantly, the MPC’s prior commitment to act “forcefully” to bring inflation down, and the market more-or-less pricing in 50 basis points at this stage, means policymakers are likely to err on the aggressive side.

“Even so, the window for further rate hikes feels like it’s closing. Markets have already pared back expectations for ‘peak’ Bank Rate from 3.5% to 2.9%, though that still implies two further 50bp rate hikes by December, plus a little more thereafter,” Smith said.

“That still feels like a stretch. We’ve been penciling in a peak for Bank Rate at 2% (1.25% currently), which would mean just one more 25bp rate hike in September before policymakers stop tightening.”

He acknowledged that, in practice, this might be an underestimate, and depending on the signal the Bank sends on Thursday, ING wouldn’t rule out an additional 25bps or at most 50ps worth of hikes beyond that.

Smith said the key points to watch out for in Thursday’s report would be whether the Bank continues to use the word “forcefully,” and its forecasts, which plug market expectations into the Bank’s models and expected policy trajectory.

Should the forecasts indicate, as in previous iterations, an acceleration of unemployment and inflation well below target in two to three years’ time, markets could deduce a more dovish message.

“Everybody takes that as a sign of them saying ‘okay, well if we were to follow through with what markets are expecting, then inflation is going to be below target,’ which is their very indirect way of saying ‘we don’t need to hike as aggressively as markets expect,'” Smith told CNBC on Tuesday.

“I think that will be repeated, I would expect, and that should be taken as a bit of a sign maybe that we’re nearing the end of the tightening cycle.”

Growth worries

A more aggressive approach at Thursday’s meeting would bring the Bank’s monetary tightening trajectory closer to the trend set by the U.S. Federal Reserve and the European Central Bank, which implemented 75 and 50 basis point hikes last month, respectively.

But while it may fortify the Bank’s inflation-fighting credibility, the faster pace of tightening will exacerbate downside risks to the already-slowing economy.

Berenberg Senior Economist Kallum Pickering said in a note Monday that Governor Bailey will likely carry a majority of the nine-member MPC if he backs a 50 basis point hike on Thursday, and projected that with inflation likely still rising¸ the Bank will hike by another 50bp in September.

“Thereafter, the outlook is uncertain. Inflation will likely peak in October when the household energy price cap increases again. Amid growing evidence that tighter monetary conditions are weighing on demand and underlying inflation, we expect the BoE to hike by a further 25bp in November but pause in December,” Pickering said.

Berenberg expects the bank rate to reach 2.5% in November, up from 1.25% at present, though Pickering said the risks to this call are tilted to the upside. He suggested the BOE should be able to reverse some of the tightening during 2023 as inflation begins to roll over, and will likely cut the bank rate by 50 basis points next year with a further 50bp reduction in 2024.

Energy price cap rise

Britain’s energy regulator Ofgem increased the energy price cap by 54% from April to accommodate soaring global costs, but is expected to rise by a greater degree in October, with annual household energy bills predicted to surpass £3,600 ($4,396).

Barclays has historically been cautious on bank rates, placing a lot of faith in the MPC’s “early and gradual” strategy. However, Chief U.K. Economist Fabrice Montagne told CNBC in an email last week that there is now a case for policymakers to act “forcefully” as energy prices continue to spiral.

“In particular, surging energy prices are feeding into our forecast of the Ofgem price cap and will force the BoE to revise up its inflation forecast yet again. Higher inflation for even longer is the kind of scenario that spooks central banks because of higher risks of persistence and spillovers,” he said.

The British banking giant now expects a 50 basis point hike on Tuesday followed by 25 basis points in September and then “status quo” at 2%.

Revenue set for first fall

Alibaba has faced growth challenges amid regulatory tightening on China’s domestic technology sector and a slowdown in the world’s second-largest economy. But analysts think the e-commerce giant’s growth could pick up through the rest of 2022.

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Alibaba’s revenue could decline for the first time on record when it reports June quarter earnings on Thursday, analysts forecast, though it could signal the bottom for sales.

The Chinese e-commerce giant is expected to report fiscal first-quarter revenue totaling 203.23 billion yuan ($30.05 billion), down 1.2% from a year ago, according to consensus forecasts from Refinitiv.

Alibaba’s revenue has slowed sharply over the last year amid a slowdown in the Chinese economy, a resurgence of Covid and subsequent lockdowns as well as the regulatory tightening on the domestic tech sector.

But the June quarter could mark a bottom for Alibaba’s results as revenue is expected to improve in the coming quarters.

“In aggregate, we believe the soft June quarter results are largely expected by investors and the current focus for the stock is the recovery trend in the 2H, on which we remain positive as the government continues to step up economic stimulus to achieve its GDP growth target,” U.S. Tiger Securities said in a note last month.

September quarter revenue is expected to grow 7% while the December quarter could see near 10% growth, according to Refinitiv estimates.

Softness in this week’s report will mainly come from weakness in the company’s China commerce revenue, China Merchants Securities said in a note published last month.

Weak consumption will weigh on customer purchases while customer management revenue or CMR, will also decline due to tighter vendor ad budgets on Alibaba’s platforms, China Merchants Securities said.

CMR is revenue Alibaba gets from services such as marketing that the company offers to merchants on its Taobao and Tmall e-commerce platforms. Vendors cutting back on ad spend hits Alibaba’s CMR.

However, China Merchants Securities said it sees the China commerce business having a “gradual recovery … with improving profitability thanks to discipline cost control.”

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Alibaba could get some tailwinds in the coming quarters to help its recovery. There are signs that China’s regulatory crackdown — during which Alibaba was fined 18.23 billion yuan — is beginning to ease.

Meanwhile, the Chinese government in May announced a range of economic stimulus designed to help an economy battered by a resurgence of Covid and lockdowns in major cities, including financial metropolis Shanghai.

However, not all analysts expect to see a return to explosive growth for Alibaba.

“When I visualize my ‘cone of all plausible outcomes,’ the plurality of scenarios lead to a modest reacceleration of growth back to the mid-teens, but I also see a whole category of scenarios where things get much worse on the fundamentals,” John Freeman, vice president at CFRA Research, told CNBC via email.

“The cone is very wide right now.”

Cloud computing in focus

China’s property sales set for a worse plunge than in 2008, S&P says

Most apartments in China are sold before developers finish building them. Pictured here on June 18, 2022, are people selecting apartments at a development in Huai’an, Jiangsu province, near Shanghai.

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BEIJING — China’s property sales are set to plunge this year by more than they did during the 2008 financial crisis, according to new estimates from S&P Global Ratings.

National property sales will likely drop by about 30% this year — nearly two times worse than their prior forecast, the ratings agency said, citing a growing number of Chinese homebuyers suspending their mortgage payments.

Such a drop would be worse than in 2008 when sales fell by roughly 20%, Esther Liu, director at S&P Global Ratings, said in a phone interview Wednesday.

Since late June, unofficial tallies show a rapid increase in Chinese homebuyers refusing to pay their mortgages across a few hundred uncompleted projects — until developers finish construction on the apartments.

Most homes in China are sold before completion, generating an important source of cash flow for developers. The businesses have struggled to obtain financing in the last two years as Beijing cracked down on their high reliance on debt for growth.

Now, the mortgage strike is damaging market confidence, delaying a recovery of China’s real estate sector to next year rather than this year, Liu said.

If there is a sharp decline in home prices, this could threaten financial stability.

As property sales drop, more developers will likely fall into financial distress, she said, warning the drag could even spread to healthier developers “if the situation is not contained.”

There’s also the potential for social unrest if homebuyers don’t get the apartments they paid for, Liu said.

Limited spillover outside of real estate

Although the number of mortgage strikes increased rapidly within a few weeks, analysts generally don’t expect a systemic financial crisis.

In a separate note Tuesday, S&P estimated the suspended mortgage payments could affect 974 billion yuan ($144.04 billion) of such loans — 2.5% of Chinese mortgage loans, or 0.5% of total loans.

“If there is a sharp decline in home prices, this could threaten financial stability,” the report said. “The government views this as important enough to quickly roll out relief funds to address eroding confidence.”

Chinese policymakers have encouraged banks to support developers and emphasized the need to finish apartment construction. Authorities have generally expressed more support for real estate since mid-March, while maintaining a mantra of “houses are for living in, not speculation.”

“What worries us is the scale of those support is not big enough to save the situation, [which] now turns to [a] worse direction,” Liu said.

However, critically, Liu said her team doesn’t expect a sharp decline in house prices due to local government policy to support prices. Their projection is for a 6% to 7% decline in home prices this year, followed by stabilization.

And while S&P economists estimate about a quarter of China’s GDP is affected directly and indirectly by real estate, only part of that 25% is at a risk level, Liu said, noting the firm doesn’t have specific numbers on the impact of the mortgage strikes on GDP.

A bigger problem to unravel

China’s real estate sector has been intertwined with local governments and land use policy, making the industry’s problems difficult to resolve quickly.

In analysis published Tuesday, Xu Gao, director of the China Chief Economist Forum, pointed out the amount of residential floorspace completed annually has actually not grown on average since 2005, while the amount of land area sold has declined on average during that time.

The contraction stands in contrast with rapid growth in both land area sold and completed residences before 2005, when a new bidding process for land fully took effect, he said. The new bidding process tightened the supply of land and real estate, pushing up housing prices more than speculation did, Xu said.

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Investors should only consider the best developers among high-yield China property debt, Goldman Sachs said in a report Tuesday. “We see relative value in their lower dollar priced longer duration bonds.”

But overall it’s a story of uncertainty in one of China’s largest sectors.

“To us, the continued stresses in the property sector coupled with the uncertainties related to COVID measures suggest a murkier outlook for China,” wrote credit strategist Kenneth Ho.

A possible scenario he laid out is one in which credit worries remain elevated but without real systemic concerns, creating a negative overhang for investor sentiment on high-yield credit markets.