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Saturday, December 10, 2022

Markets scream in the sky ahead of the mammoth act of the new British prime minister

Markets scream in the sky ahead of the mammoth act of the new British prime minister

Bloomberg – A currency nearing its lowest level in decades, an unprecedented rise in government borrowing costs and a record poor performance of domestic stocks: so is the bleak market landscape that awaits Britain’s next prime minister, Brittany.

The pound, which has already lost about 15% this year against the dollar, posted its worst monthly performance since the 2016 Brexit vote. Meanwhile, borrowing costs for businesses have soared after six hikes. Continued rate hikes by the Bank of England, while warnings of inflation and spiraling out of control have raised hopes of further hikes.

A trade lobby group has suggested that the country is already in the grip of a recession, pointing to rising energy costs. Falling household spending and real wages have triggered a series of strikes across sectors as the cost of living crisis begins to ease.

Once the winner of the leadership race – most likely to be Liz Truss – is announced at lunchtime on Monday, investors will be watching to see if the policies ease or accelerate the slide in British assets. . Strategists fear the truce could borrow heavily for tax cuts, which will further damage the UK’s balance sheet.

“This will lift the economic baton in incredibly difficult times and there is already speculation – and some fragility in the pound – to suggest it may drop the baton,” said Steven Barrow of Standard Bank.

Here’s a brief rundown of what’s happening in the UK markets:

pounds sterling

After a sharp drop this year, the cable is trading above $1.15, less than two cents below its weakest level since 1985. A momentum indicator called fear-greed means that sellers are firmly in control of the price. The weakness of the pound raises the cost of imports, fueling already rising inflation.

Currency Sadness |  Pandemic Vs Dollardfd .  The Pound Has Fallen To Its Lowest Level Since

state bonus

Interest rates on two-year government bonds have soared above 3.1%, the highest level since the 2008 global financial crisis, dashing investor hopes that the worst of the sell-off was over. The swaps linked to monetary policy meetings of the Bank of England show that expectations for rate hikes have risen, meaning the base rate will more than double to 1.75% before the end of the year.

Brutal Heat |  The Two-Year Gilt Yield Recently Posted Its Biggest Monthly Jump On Record Dfd

UK Stocks

The mid-cap FTSE 250 index, whose companies are heavily dependent on the domestic economy, is on track for its highest annual return compared to the export-based FTSE 100. This is because the top-notch FTSE 100 continues to be backed by mining and energy companies, which are reaping windfall gains from booming commodity markets, as well as exporters benefiting from the pound’s decline.

Tineke Fricki, head of UK equity research at Weverton Investment Management, says the benefits of any tax cuts by the new prime minister will be slow to come. “We have to beat extreme inflation expectations before we can see a trend reversal,” he said by email. “Next year could be better for FTSE 250.”

The Ftse 250'S Annual Underperformance Is The Largest Everdfd Compared To The Ftse 100

corporate debt

Borrowing costs for blue-chip British companies have risen above 5% for the first time in more than a decade, as runaway inflation plagues the country’s business sector. The yield between sterling and dollar-denominated corporate bonds is the highest since 2014, reflecting particularly intense pressure in the UK.

Read more at Bloomberg.com

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