The week began with Chancellor Kwasi Kwarteng announcing the reversal of his proposed scrap of the 45% tax bracket. This came only 10 days after it was first unveiled in the mini budget. It is anyone’s guess if this will be the only reversal of the mini budget – the Chancellor and Prime Minister remain under intense pressure following the mini budget and subsequent market reaction.
After much scrutiny within his own Conservative Party and triggering turmoil in financial markets, Chancellor Kwasi Kwarteng is set to bring forward the publication of his medium-term fiscal policy. There were significant concerns that the original publication would not be available until 23rd November; it is hoped that an early fiscal statement will help calm the markets and “reduce the upward pressure on interest rates”.
After 225 days since Russia invaded Ukraine, President Zelensky announced a surprise bid for fast-track membership to join NATO. He has recently ruled out talks with Russia’s President Putin after Moscow claimed to have annexed four Ukrainian regions. Zelensky appears intent on showing that Putin is failing in one of his main war goals- preventing Ukraine joining NATO. Ukraine is certainly looking to the future and restabilizing their country and economy, announcing they have joined Spain and Portugal in a joint bid to host the 2030 football World Cup. Hosting such a major sports event would help to boost Ukraine’s construction and tourism sectors. It is estimated the 2022 World Cup in November will bank Qatar $20 billion. The Olympic Stadium in Kyiv most recently hosted the final of the 2018 Champions League.
US Jobless Claims data yesterday was a little worse than expected with 219k claims against a projected 203k. This is a measure of new applications for unemployment benefits and the rise in claims is the latest sign of a cooling labour market, something the US Fed will be keeping close eyes on. Staying with the US the equity market started the new quarter with a bang, with significant gains on Monday and Tuesday. This was the best two-day period for US equities since April 2020 and also the best start to a quarter since 1938. The rally in equities coincided with falling government bond yields in the US and a weakening USD. Sterling rose above $1.13 at the start of the week, although gave back some of the gains by Friday.
US Non-Farm Payroll numbers were released this afternoon with 263k jobs added against a forecasted 250k. This is below the 350k jobs created last month and the least since April 2021 (although still a healthy number). The immediate market reaction was for bonds and equities to sell-off, most likely on the view that this jobs data will do little to deter the US Federal Reserve from raising interest rates further.
We aim to end this weekly round-up on a light-hearted note and what better way than to discuss Elon Musk’s Twitter bid being back on. Performing “U-turns” must be a buzzword at this point, as Elon Musk revived his bid for the social media platform, with the hope the proposal will eliminate the pending court trial later this month. Banks funding a large portion of Mr Musk’s $44 billion deal could be facing significant losses. Investors have certainly lost the appetite for leveraged loans as riskier debt does not go hand in hand in the current market environment of rapid interest rate hikes.
The continued volatility in bond and equity markets can be uncomfortable, but as we have often highlighted, it can also create opportunities, particularly for long-term investors. Markets are forward looking and it’s important not to get too distracted by the short-term noise, instead focusing on where asset prices could be over the coming years.
Nathan Amaning, Investment Analyst
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