Market Update: Markets Shaken as Trussenomics Induces Gilt Trip – Business & Finance

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Arguably the most important development of the past week has been the fallout from the announcement of the new UK government’s new fiscal growth plan the previous Friday, writes Ian Slattery.


Pictured: Ian Slattery, Zurich Investments

New Chancellor Kwarteng’s budget deficit has worried investors about the UK’s future fiscal sustainability. The pound fell to a 37-year low of $1.0327 against the dollar on Monday as some of the biggest tax cuts in 50 years were due to be enacted.

Yields on 30-year gilts hit a 20-year high above 5% on Wednesday, before falling more than 100 basis points (1%) after the BoE was forced to intervene by buying temporary to long-term gilts.

The pound, however, maintained gains on Friday after a three-day advance, as investors speculated that Liz Truss’ government would reverse its planned fiscal policies.

This morning, after widespread opposition, Kwarteng backed away from plans to scrap the UK’s highest tax rate of 45%. In the United States, the S&P 500 index headed for a third consecutive quarter of losses, the first since 2009, down nearly 25% since the start of the year.

Speaking on Wednesday, Federal Reserve Chairman Jay Powell reiterated the Fed’s inflation-fighting message, assuring investors don’t expect a dovish pivot from the Fed anytime soon. This aggressiveness continues to weigh on equities.

On Thursday, the US Commerce Department reported that inflation-adjusted gross domestic income, a key indicator of economic activity in the United States, rose 0.1% at an annualized rate in the second quarter. This is a sharp downward revision from the previously reported 1.4% gain.

Within the Eurozone, record inflation of 10% year-on-year was reported last week, due to supply limitations in the bloc. This puts more pressure on the ECB to raise rates over the next few months. The euro continues to weaken against the dollar, trading at $0.981 on Monday.

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Global equities fell last week by -2.7% in euros and -1.2% in local terms. Year-to-date, global markets are down -13.4% in euros and -25.4% in local terms. The US market, the largest in the world, fell -3.3% in euros and -1.8% in local terms.

Fixed Income and Foreign Exchange

The US 10-year rate ended at 3.80% last week. The German equivalent finished at 2.14%. The yield on Irish 10-year bonds ended at 2.72%. The euro/US dollar exchange rate finished at 0.98, while the euro/GBP finished at 0.88.

Goods

Oil ended the week at $83 a barrel and is up 27.8% year-to-date in euros. Gold ended the week at $1,662 per troy ounce and is up 5.3% year-to-date in euros. Copper ended the week at $7,683 per ton.

The week ahead

wednesday 5e October

The manufacturing and services PMIs for September are published.

thursday 6e October

ECB monetary policy meeting account.

friday 7e October

US unemployment data released.

About: Zurich Investments

The Zurich Investments team is a long-established and highly experienced team of investment managers managing approximately €28.9 billion in investments, of which pension assets amount to €17 billion. To learn more about Zurich Life’s funds and investments, click here.

The Zurich Investments team is a long-established and highly experienced team of investment managers managing approximately €28.9 billion in investments, of which pension assets amount to €17 billion. To learn more about Zurich Life funds and investments, w: zurichlife.ie/funds,
Twitter: @ZurichLife,
LinkedIn: linkedin.com/company/zurich-life-assurance-plc

Warning: Past performance is no guarantee of future performance. Services may be affected by changes in exchange rates. The value of your investment can go down as well as up. If you invest in these funds, you may lose some or all of the money you invest
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