Today on the stock market: why?

london21

Why has the government cost of borrowing suddenly gone up so much, a lot of uncertainty.
Looks like there might be BOE interest rate increase before November.

NedS

Voyager2002 said:

Today has been dramatic so far with the changes in the value of sterling. Can anyone explain why shares in renewable energy providers have shown such a marked fall? For instance, Greencoat wind has no operations outside the UK so the fall in sterling should be irrelevant to it, while it should be helped by a rise in the cost (in pounds) of imported energy that competes with it. So why is Greencoat down today?

It has little (directly) to do with exchange rates and everything to do with the risk free rate. Their NAVs are all based on spreads between the risk free rate (the rate you can get from a government bond taking no risk). With Stirling in free fall, the expectation is BoE base rate will rise as will yields on government bonds. If you can now earn 4.5% risk free on a government bond, a 4.5% dividend from a risky asset like UK Wind is far less attractive, so the NAV is likely to fall - the markets are just anticipating those falls and pricing them in today.

InvesterJones

london21 said:

Why has the government cost of borrowing suddenly gone up so much, a lot of uncertainty.
Looks like there might be BOE interest rate increase before November.

Policies were announced that were unexpected and uncosted/not audited. That makes market assume that a) the government will have to borrow a lot more money and b) lending pounds to the government might not be a great idea if the economy is going to fall so they need to put additional premium on the lending cost to cover themselves for a fall in value of the pound/increased chance of default.

So more demand + additional premium = cost of borrowing increase.

london21

InvesterJones said:

london21 said:

Why has the government cost of borrowing suddenly gone up so much, a lot of uncertainty.
Looks like there might be BOE interest rate increase before November.

Policies were announced that were unexpected and uncosted/not audited. That makes market assume that a) the government will have to borrow a lot more money and b) lending pounds to the government might not be a great idea if the economy is going to fall so they need to put additional premium on the lending cost to cover themselves for a fall in value of the pound/increased chance of default.

So more demand + additional premium = cost of borrowing increase.

Thanks for the explanation.

The sudden changes can be a bit unsettling.