Sterling holds gains in early Asian session after surging as Rishi became PM

Sterling held gains in early Asian session after rising sharply yesterday as global markets welcomed the start of Rishi Sunak’s tenure.

The pound was trading at just above $1.14 as of 2:30 p.m. Tuesday, compared to $1.1290 at the previous close.

Meanwhile, the interest rate on a 20-year government bond stood at 3.6 percent after rising over 5 percent after ex-Chancellor Kwasi Kwarteng’s unfunded tax cuts. This effectively means that it is now cheaper for the government to borrow money.

Equity markets showed a more mixed picture, with the FTSE 100 falling 57.86 to 6956.13 at 2pm, while the more domestically oriented FTSE 250 was in the green.

In his first speech as Prime Minister, Mr Sunak vowed to fix the “mistakes” of Ms Truss’s leadership while preparing the nation for “difficult choices”.

Sterling gained more than a cent against the dollar in an hour when several ministers serving under Mrs Truss resigned, including Business Secretary Jacob Rees-Mogg.

The pound was trading at just above $1.14 as of 2:30 PM GMT compared to $1.1290 at the previous close

The pound was trading at just above $1.14 as of 2:30 PM GMT compared to $1.1290 at the previous close

The pound was trading at just above $1.14 as of 2:30 PM GMT compared to $1.1290 at the previous close

Meanwhile, the interest rate on a 20-year government bond stood at 3.9 percent this morning after rising more than 5 percent after Kwasi Kwarteng's unfunded tax cuts. It is now 3.6 percent

Meanwhile, the interest rate on a 20-year government bond stood at 3.9 percent this morning after rising more than 5 percent after Kwasi Kwarteng's unfunded tax cuts. It is now 3.6 percent

Meanwhile, the interest rate on a 20-year government bond stood at 3.9 percent this morning after rising more than 5 percent after Kwasi Kwarteng’s unfunded tax cuts. It is now 3.6 percent

Responding to the market moves, Victoria Scholar, Head of Investment at Interactive Investor, said: “Some of the political uncertainty has been eased, which has helped reignite demand for battered British assets such as the pound as Rishi Sunak takes over as Prime Minister with a takes on long and challenging to-do list.

“The pound is trading just below $1.13 as the FTSE 100 trades around the zero line with HSBC and Whitbread bottoming the index following the results release.”

The extent of the economic challenge facing Mr Sunak and Chancellor Jeremy Hunt has been revealed after data showed the UK is likely to be in a recession.

The economic downturn deepened in October, when manufacturing and services output contracted at the sharpest rates since January 2021, according to S&P Global’s Purchasing Managers’ Index (PMI).

The closely watched survey returned a score of 47.2 – well below the 50 mark that separates contraction from growth – as the cost of living crisis continued to deepen. This was a 21-month low and the third consecutive month of contracting production.

The outlook for the euro zone was also bleak as its PMI fell to a 23-month low of 48.1.

Germany saw the sharpest decline, while growth stalled in France.

Andrew Kenningham, an economist at consultancy Capital Economics, said the data showed the eurozone was “sliding into a fairly deep recession and inflationary pressures remain elevated”.

Meanwhile, national statistics in China showed that its economy grew 3.9 percent in the third quarter, which — although an improvement from the 2.6 percent contraction in the second quarter — meant the country was still short of its target of 5 percent .5 percent for the full year.

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Victoria Scholar, Interactive Investor’s head of investment, said markets welcomed that some of the political uncertainty was “alleviated” with Rishi Sunak becoming prime minister

Chris Williamson, chief economist at S&P Global, said the UK data “showed the pace of the economic decline, which is gaining momentum after recent political and financial market turmoil”.

He said: “The heightened political and economic uncertainty has caused business activity to decline on a scale not seen since the global financial crisis of 2009, excluding the months of the pandemic lockdown.”

Economic output “certainly appears to be declining in the fourth quarter after a likely contraction in the third quarter, meaning the UK is in recession,” he added. The latest official data showed that economic output fell 0.3 percent in the three months to August compared to the previous quarter. The services sector saw its first drop in activity since February 2021, just as the UK was just getting ready to emerge from definitive Covid lockdown.

John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: “Concerns about rising energy and food bills hurt consumer appetites for pubs and restaurants and demand has been scaled back.”

But there were some signs that blistering inflation was beginning to ease, as the recent rise in operating expenses was the least pronounced in 13 months.

While the Bank of England may be relieved that cost pressures are easing as it tries to dampen the rise in the cost of living, Williamson said it was unlikely officials would ever be able to take their foot off the rate-hike pedal any time soon.

The bank has hiked interest rates since December to encourage saving rather than spending and to keep prices under control. Nevertheless, cost pressures were stronger than at any time in the 20 years before the pandemic – and the service sector in particular had to struggle with rising energy bills and soaring wages.

Markets are pricing in a 0.75 percentage point hike for the next monetary policy meeting on November 3, which is expected to bring rates to 3 percent.

“Added to the collapse in political stability, financial market tensions and collapse in confidence, these higher borrowing costs will fuel speculation of a worryingly deep UK recession,” Williamson added.

The dismal data stifled any relief in the currency markets over Mr Sunak’s appointment today.

While the pound briefly rose following the announcement, it ended the day down 0.3 percent against the euro to €1.143 and 0.2 percent against the dollar to $1.123.

Economists have estimated that amid higher borrowing costs, rising inflation and increased spending on programs such as the price cap on energy bills, the government will need to find an extra £40bn in spending cuts and tax hikes to put public finances back on a sustainable footing.

But with weak growth squeezing tax revenues, that could prove a difficult task for Mr Sunak and his chancellor.

https://www.soundhealthandlastingwealth.com/uncategorized/sterling-holds-gains-in-early-asian-trading-after-soaring-as-rishi-became-pm/ Sterling holds gains in early Asian session after surging as Rishi became PM

Brian Ashcraft

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