Market Moves: Possible English Recession, Turkey's Interest Rates, Bank of Japan, Netflix Stock Woes




  1. Mervyn King Warns Bank of England's Rate Rises Risk Recession


Former Bank of England governor, Mervyn King, has cautioned that the UK may face a recession if the central bank continues to raise interest rates too aggressively. He pointed out that signals indicating soaring inflation in 2021 were now indicating a sharp drop in price growth. Financial markets are anticipating a rate increase from the current 5%, but King believes further hikes could lead to a damaging economic downturn. He criticized the Bank for overlooking money supply data that predicted higher inflation after the pandemic. The Bank, however, defended its stance, stating that it expected weak growth and higher unemployment post-furlough scheme. King's remarks add to concerns over the Bank's aggressive rate increases and their impact on the economy. Some economists fear rising mortgage rates and potential unemployment spikes due to corporate bankruptcies and reduced job vacancies. The Bank of International Settlements and the IMF have urged caution in rate hikes until inflation reaches their target of 2%.


  1. Turkey's Central Bank Raises Interest Rate by 250 Basis Points to 17.5%, Below Expectations


Turkey's central bank has increased its key interest rate to 17.5%, a move below market expectations of 500 basis points, as the country faces double-digit inflation. The Turkish lira fell slightly against the dollar following the rate hike, which comes as policymakers aim to address economic challenges. The central bank stated that it will tighten monetary policy further until there is a significant improvement in the inflation outlook. However, analysts criticized the decision, considering it insufficient to combat inflation effectively. Turkey had previously lowered its policy rate from 19% to 8.5% despite surging inflation. Market concerns persist over the central bank's willingness to implement more drastic measures and the country's economic stability.


  1. Bank of Japan Likely to Maintain Yield Control Policy Amid Uncertainty


The Bank of Japan (BOJ) is leaning towards maintaining its yield control policy unchanged at the upcoming meeting, as policymakers prefer to assess more data on wages and inflation before making any adjustments. While inflation has exceeded the BOJ's target for over a year, there is no consensus within the central bank on the timing of phasing out stimulus. Market speculation had suggested the BOJ could tweak yield curve control (YCC) at the July meeting, but stable 10-year yields around the 0.5% cap have reduced the urgency for immediate action. The BOJ is expected to revise up its core consumer inflation forecast for the current year, but broader inflation outlooks for 2024 and 2025 are likely to remain largely unchanged. Most economists polled expect the BOJ to maintain its policy framework next week.


Bonus Bulletin!


  1. Netflix Stock Dips as Revenue Growth Clarity Remains Uncertain


Netflix's stock fell over 8% following a quarterly earnings report that left Wall Street uncertain about key revenue drivers. The report was mostly positive, but investors were disappointed by the lack of details on initiatives like the cheaper, ad-supported plan and password sharing crackdown, which were expected to drive growth. Netflix's average revenue per membership also showed weakness in the recent quarter as the company focused on other revenue drivers instead of increasing prices. The ad-supported plan, launched last year, has only attracted about 1.5 million subscribers, a small portion of overall subscribers. Netflix executives declined to provide specifics on the ad-supported tier during the earnings call, causing uncertainty among analysts about future revenue projections. Netflix forecasts third-quarter revenue of $8.5 billion, but the lack of clarity on revenue-driving initiatives makes it difficult to predict revenue for the next two years. Despite the stock dip, Netflix remains competitive in the streaming industry and has shown strength in subscriber growth compared to legacy media competitors.


 

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