Another turbulent start to the week, albeit a positive one broadly speaking with equity markets around 1% higher in Europe after a decent start to the week in Asia.
Since Liz Truss became UK Prime Minister, uneventful days have eluded us and this week has also got off to another hectic start. While the Prime Minister had every intention of making waves in her first weeks in charge, she clearly didn’t anticipate the storm that was brewing and I’m sure she more than anyone at this point would do just about anything for a more peaceful few weeks.
Assuming she lasts that long, of course. The u-turn this morning was even more historic than the initial mini-budget. A humiliating moment after a chaotic period for Truss in which confidence in her in the markets, the public and her own party, it seems, has been decimated.
That said, we are seeing some improvement from a market perspective. It just took reversing almost all of the unfunded tax cuts to achieve it. Who’d have thought? The job isn’t done yet though, the new Chancellor has done what was necessary now but the harder decisions arguably come later this month in the budget.
How low can it go?
The yen is continuing to slide against the US dollar, hitting 148.89 this morning and trading beyond the level the country intervened at in 1998 and, of course, last month. We’ve had the usual plethora of commentary from various officials overnight; “high sense of urgency”, “ready to act” etc.
It does seem only a matter of time until we get another powerful intervention in the FX markets, it’s just a question of what they’ll do differently this time as doing the same again every few weeks simply isn’t sustainable. The question is whether the yen will surpass 150 against the dollar first.
Settling down?
It’s been another turbulent few weeks in oil markets from global growth concerns to super-sized OPEC+ output cuts and it seems they’re yet to fully settle down. Brent has seen lows of $82 and highs of $98 so perhaps what we’re now seeing is it finding its feet somewhere in the middle. Whether that will satisfy the oil alliance only time will tell but there will be some relief that it’s not back in triple figures already, even if that is a result of the ever-worsening economic outlook.
An encouraging rebound
Gold is seeing an encouraging rebound after another pretty terrible week. It’s trading more than 1% higher on Monday after slumping more than 3% last week. Lower global yields and a slightly softer dollar are probably behind the move, with traders no doubt hoping that peak inflation and rate pricing are nearly in sight. The recent economic data hasn’t offered cause for much optimism but that could change over the coming months, with central banks now surely not far from their terminal rates. That could favour gold, especially as the economy falters. Resistance ahead could be found around $1,680 and $1,700, although some traders may be encouraged by the failure to breach September’s lows.
A positive start to the week
Bitcoin’s relationship with risk assets hasn’t been perfect recently but the last week has seen it look far more aligned. The US inflation disappointment almost sent it into a tailspin but then the wild turnaround happened and it quickly bounced back and powerfully. It came within a whisker of $20,000 once more before pulling back and now it’s trading on the front foot again with its sight set on that level. The gains today mirror those in equity markets, with risk assets more broadly getting the week off to a good start.
