Iran's currency has plunged to an all-time low against the dollar, because nothing says 'peace' like a full-blown economic siege after nearly six months of war. US Treasury secretary Scott Bessent is set to announce new sanctions against Iran at a press conference scheduled for 1pm EDT (6pm London time), presumably with a dramatic soundtrack.
The rial was trading at 1.992m per dollar on the unregulated market on Monday, according to Bloomberg News, citing data from tracking website Bonbast - down 4.5% since Donald Trump announced a 'crushing economic operation' against Tehran last week. Another unofficial tracking site, TGJU, said the rial passed the 2m threshold on Sunday but closed lower. Because when your currency is worth less than the paper it's printed on, every decimal point matters.
The currency is under pressure from US efforts to isolate Iran by threatening the country's few remaining trade partners while blockading its main ports in the Persian Gulf and choking off oil exports. Last week, Iran's central bank governor, Abdolnaser Hemmati, said its crude exports have 'virtually stopped.' The United Arab Emirates, one of Tehran's main trading partners, said last week that it had suspended all financial transactions with Iran until further notice. So much for 'business as usual' in the Gulf.
Warning of an 'economic D-Day,' Bessent wrote in the Financial Times today: 'At dawn begins an economic D-Day - the single greatest financial offensive ever marshalled against an adversary. Our objective is to sever every economic lifeline that sustains the tyrannical regime until Tehran stands alone.' That's the kind of rhetoric that makes war sound like a particularly aggressive marketing campaign.
Iran's top financial newspaper, Donya-e Eqtesad, said the currency's drop was driven by disruption to foreign-exchange transfers and declining exports alongside increased import demand and rising inflation expectations. Meanwhile, sellers of gold are enjoying a rebound in price as the markets for government bonds, major currencies and global stocks show signs of creeping trepidation. It's a trend that could signal a full-on panic, as the Guardian's economics editor Heather Stewart wrote at the weekend.
Spot gold rose as high as $4,659 an ounce on Monday, the highest since mid-May - and heading back towards the peak it reached in the spring during the first weeks of the US attacks on Iran. Back then it jumped above $5,300 before dropping in fits and starts as Middle East tensions eased. The return of sabre rattling this month by both sides in the war has spooked investors, who have sought refuge again in gold. Because nothing says 'safe haven' like a shiny metal that does nothing but sit there.
Rick Kanda, managing director at the Gold Bullion Company, said there are other factors at play, including the US government's intervention in the market for US Treasury bonds. US secretary of state Scott Bessent has pledged to buy the long term bonds that investors have been reluctant to buy, mainly because they believe the US budget is out of control and a reckoning is coming down the track. The bond buying lowered the value of the dollar, which provided another reason to buy an asset considered a bulwark when mainstream market value are falling. 'Gold is priced in US dollars, so a weaker dollar means it takes more dollars to buy the same ounce, pushing the price higher. It also makes gold cheaper for buyers outside the US, including in the UK, which adds to demand.'
Chris Beauchamp, chief market analyst at the investment platform IG, said cryptocurrencies were another beneficiary of the Bessent's determination to lower bond yields and with it the value of the dollar. 'Bessent's decision to go meddling in the US Treasury market has revived the spectre of dollar 'debasement.' This is almost the dream scenario for cryptocurrencies.' Like gold, they are seen as a haven from financial markets that are dominated by political interventions - interventions designed to lower values. 'This is playing into the asset class' entire raison d'être, sparking a rally the likes of which hasn't been seen for over two years.' So, in a world where governments are messing with everything, crypto is the ultimate 'we told you so' asset.
The group of creditors pursuing a rescue bid for Thames Water have been accused of shuffling the deckchairs on the Titanic after proposing an overhaul of the stricken utility's board. In a bid to stave off temporary nationalisation by Andy Burnham, the lenders said they would appoint Liz Barber, the former chief executive of Yorkshire Water, and Clive Selley, the former chief executive of network operator Openreach, as directors if they are allowed to take formal control of the company. London & Valley Water (L&VW), a consortium of 100 institutional investors holding £17bn of the company's £21bn debt, has also lined up Dame Bernadette Kelly, the former permanent secretary of the Department for Transport.
Mike McTighe, the corporate troubleshooter leading Thames's overhaul, would become the new chair, replacing the incumbent Sir Adrian Montague, if Thames is able to get its £10bn rescue deal approved by the government. McTighe is the current chair of Openreach. 'The challenge at Thames Water is huge. If this recapitalisation plan is accepted, we will apply full dedication as a new board, working alongside the executive team to transform the business and build a culture in which the customers and local communities who depend on Thames Water come first.'
The proposed appointments are designed to reassure the government that any commercial deal would bring with it a leadership overhaul, as Burnham's team examines the possibility of taking the company back into public ownership. L&VW's announcement was criticised by the public ownership campaign group We Own It. Cat Hobbs, the director at We Own It, said: 'This is absolutely absurd. A cosy stitch-up that has nothing to do with the interests of the 16 million people who depend on Thames Water. This amounts to nothing more than a reshuffling of chairs on the deck of the Titanic.'
Burnham has said there should be 'greater public control' of Thames Water and previously told the Guardian this could mean nationalisation. This would probably come via placing the company into a special administration regime (SAR), a form of temporary nationalisation. More recently the prime minister said he was 'angry' after companies including Thames Water were given the green light to raise bills even higher earlier this month. So, the water company that's drowning in debt is now trying to shuffle its leadership deck, while the government considers throwing it a lifebuoy of nationalisation.
Bond yields have dipped on both sides of the Atlantic, as some calm returned to government bond markets. This comes after last week's sell-off which saw yields hit the highest levels in decades and prompted the US Treasury to step in on Wednesday with the announcement that it would at least double debt purchases of longer-dated bonds. At the start of this week, the yield, or interest rate, on the 10-year benchmark US Treasury fell nearly 3 basis points to 4.71%, while the equivalent UK gilt yield dipped about 1bp to 5.47%. Yields move in opposite direction to prices. The 30-year US Treasury yield fell 2.4bps to 5.25% while the UK 30-year gilt yield slipped 1.2bps to 5.79%.
'We don't think it's time to panic about long-dated government bonds, even though the headwinds they face are gathering strength,' said Thomas Mathews, an analyst at Capital Economics. 'Still not a bond crisis.' Last week was a mixed one for government bonds, with 10-year yields, for example, generally a little higher across developed markets. That's perhaps surprising in a week in which the US Treasury made a deliberate attempt to support the market by upping buybacks at the long end. But most of the boost from that announcement has now unwound. 'We argued earlier in the sell-off that it wasn't yet a crisis, and that's still true. While yields are high by recent standards, term premia seem not to be especially elevated when viewed over a longer horizon. Nor is the long end of the curve especially steep by past or global standards.'
And, although the concurrent weakness of the US dollar and strength of gold has resurfaced concerns about dollar 'debasement,' there's little sign investors are worried about inflation eroding their purchasing power. Long-dated inflation swap rates, at least, have barely budged. Meanwhile, our economics editor Heather Stewart wrote that Trump risks driving the US into a debt crisis. 'That said, while we're not in the throes of (or on the cusp of) a crisis, the US fiscal position is obviously poor. Partly because of that, our sense is that Treasury term premia are likely to rise further over time even if a sharp selloff is avoided. And there are potential catalysts for renewed trouble this week. One is the oil price and the ongoing Iran conflict, with the sides trading barbs in recent days. Another is the July PCE [personal consumption expenditures index] data, although we think those will show a further slight softening in price pressures.'
But perhaps the biggest risk comes from the Fed's upcoming Jackson Hole conference. Chair Kevin Warsh's previously stated views about the bond market, namely that the Fed's balance sheet could be smaller and that higher long-term yields might justify rate cuts, might be poorly received in the current market environment. Saying nothing (the topic of the symposium is 'Financial Innovation: Implications for Payments and Policy') could be even worse.
New Zealand prime minister Christopher Luxon has said his party will introduce a bill in parliament that seeks to ban children under 16 from using social media, proposing fines of up to 10% of a platform's global revenue for non-compliance. The bill would require social media platforms to take reasonable steps to verify users' ages, including by utilising existing account information, facial technology and digital identity documents. 'We simply cannot accept the harm being done to a generation of New Zealand children,' Luxon said in a statement on Monday. 'Social media is exposing them to harmful content, addictive technology and pressures they are not equipped to deal with and it's affecting their family life, mental health, sleep and education.'
It was not immediately clear if the bill would garner sufficient support to pass through parliament, with one of Luxon's coalition partners - the New Zealand First party - saying it would not support it. 'We have been concerned with the proposed legislation and the direction and slippery slope that legislation like this will inevitably take our country,' New Zealand First's leader, Winston Peters, who is also the country's foreign minister, said on X. In December, Australia became the world's first country to ban social media for children under 16, blocking them from platforms including TikTok, Alphabet's YouTube and Meta's Instagram and Facebook. That legislation had been a 'colossal failure,' Peters said, adding that keeping children off social media should be the responsibility of parents.
'I won't pretend that it will be simple or that it will be perfect,' Luxon said at an event. 'We won't get every single child off social media. Some will always find ways around it, but frankly, it's just way too important not to at least try.' The government has promised that business rate valuations will be 'made fairer' for pubs and hotels in England and Wales, as Andy Burnham faces growing calls to help the UK's struggling hospitality sector. An independent review for England and Wales will look at improving the system for hospitality venues, which were hit by higher business rate bills this year after the end of pandemic-era relief and when new revaluations took effect. It comes after Burnham announced last month that he would cut business rates for pubs, social clubs and live music venues in England by 20% from April next year. The government has faced calls to reduce the tax burden on hospitality businesses, which have also struggled to cope with rising energy and food bills in recent years.
Some good news for the UK (and new PM Andy Burnham and his team): Productivity in the UK - a vital measure of economic health - is growing more strongly than official figures suggest, accor