This week saw Rishi Sunak beat his fellow contenders to win the leadership race and becoming the UK’s third Prime Minister in four months. Markets will be undoubtedly hoping this marks the end of the UK’s recent political instability. With Jeremy Hunt keeping his position as Chancellor of the Exchequer and Rishi Sunak’s past experience in finance, confidence seems to be growing in UK market once again with GBP/USD climbing nearly 3% this week and consolidating in the high 1.15’s.
We will now have to wait for the 10th November in order to see Jeremy Hunt’s Autumn Budget. This was broadly expected however, due to the turbulence seen in both UK politics and financial markets over the last couple of months. Yesterday afternoon saw the ECB opt for a 75 basis point hike, with Christine Lagarde indicating that further hikes are to come whilst inflation remains worryingly high. We now look to the interest rate decisions in both the US and the UK (2nd and 3rd of November respectively); with both central banks expected to hike rates by at least 75 basis points and the markets pricing in a full 1% hike by the Bank of England.
The Federal Reserve’s decision will probably be of most interest after the US posted mixed figures this week. Consumer confidence and the Richmond Manufacturing Index came out poorly in the early part of the week, indicating that we may perhaps be seeing early signs that recent confidence in the US market (that has seen US strengthen to record levels against most major currencies) is beginning to waiver. This was contradicted by US GDP figures yesterday which beat forecasts to come in at 2.6% versus an expected 2.3% following two months of contraction. The Fed will likely breathe a sigh of relief that they have managed to avoid the beginnings of recession for at least another month.
As central banks continue to raise interest rates in a bid to fight inflation, we know that economies around the world will begin to stall. What is still unclear however, is just how long this inevitable recession will last. The tide appears to be turning, with many older forecasts of a shallow recession now seeming unlikely and major economists predicting a longer deeper recession more in line with the previous crash of 2008.
