“It’s been 84 years” they wailed in an elderly Titanic lady voice. Actually it hasn’t but it does feel that way.
The last two weeks have been eventful, to say the least! Liz Truss only managed to cling onto the keys of Number 10 for a meagre 45 days before being forced to resign as UK PM in the wake of the political and economic crisis that she oversaw. Who’s up next? Former Chancellor, Rishi Sunak. What have the markets made of him so far and what could be coming next. Today, we’ll check these things out before outlining the top fundamental events to watch out for this week.
Markets react well to Sunak
Nobody appreciated seeing the back of Liz Truss as much as traders and investors. Uncertainty is very bad for the markets and, over her short reign as PM, Truss proved to have the shakiest hand imaginable.
It was no surprise, then, that the markets welcomed former Chancellor Rishi Sunak to Number 10 with open arms. The value of the pound rallied back to its highest level since before Liz Truss’s disastrous mini-budget, and on the day of Sunak’s announcement, the pound was the best-performing major currency.
Though GBP still sits 14% down in 2022, indicating how big a climb Sunak has ahead of him.
GBP/USD, 6 months
The FTSE 100 had an uptick, too jumping 1.87% on the news. And perhaps more importantly for the UK economy, Rishi’s new government saw its borrowing costs improve as yields on long-term government bonds eased back due to the improving market confidence.
Sunak And The Digital Currency
Sunak will attempt to fulfil the promises he laid out as chancellor back in April this year. These include introducing a “financial market infrastructure sandbox,” establishing a “Cryptoasset Engagement Group,” and enabling stablecoins — digital tokens equalling one unit of fiat currency — to be used “as a recognised form of payment.” The end goal of all this would be to uphold Britain’s status as the global leader in financial innovation. “Britcoin,” the unofficial moniker for the UK’s proposed central bank digital currency could be linked to a digital i.d system. With Sunak’s links to digital id and tracking in China, this has worried many. Stay tuned for more on this.
So, what’s next?
A lot will be riding on Jeremy Hunt’s market-steadying debt-cutting plan which is scheduled to be announced later today. Hunt, hurriedly appointed by Truss, has kept his position as Chancellor and has already reversed many of the measures his predecessor put in place — in line with Sunak’s own agenda when he was chancellor under Boris Johnson.
What happens with the basic rate of income tax and the impact of that on the economy and the cost of living crisis is really important. In his March budget, Sunak stated he’d reduce it to 19% by the 6 April 2024. In August, he went on to declare a further reduction of 1% in 2024 and promised it would drop to 16% by the end of the next parliament, likely around 2029 (if he’s lucky enough to hold on that long!).
One other issue to keep an eye on is the new regime’s support for citizens and businesses who are struggling to pay energy bills. During the previous leadership race, Sunak said he would temporarily scrap the 5% VAT on domestic energy bills. All eyes on you and your plan, Jeremy Hunt!
Over to you!
How do you think Sunak will fare as PM? Let us know by tweeting us at @_Contentworks.
Top trading events this week
It’s going to be a pretty quiet week, but here are the hottest events for your trading calendar.
● CNY — NBS Manufacturing PMI (OCT)
● EUR — GDP Growth Rate QoQ Flash (Q3)
● AUD — RBA Interest Rate Decision
● USD — ISM Manufacturing PMI (OCT)
● NZD — RBNZ Financial Stability Report
● NZD — Employment Change QoQ (Q3); Unemployment Rate (Q3)
● USD — Fed Interest Rate Decision
● GBP — BoE Interest Rate Decision
● CAD — Balance of Trade (SEP)
● USD — ISM Non-Manufacturing PMI (OCT)
● NZD — RBA Statement on Monetary Policy
● CAD — Employment Change (OCT); Unemployment Rate (OCT)
● USD — Non-Farm Payrolls (OCT); Unemployment Rate (OCT)
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The Contentworks team