This week

"We’ll probably just move back into the flat where we used to live, to be honest" – Rishi Sunak

Another week, another Prime Minister, as Monday saw Ex Chancellor, Rishi Sunak, take up the reins of power, having only been beaten for the top job by Liz Truss only about 8 weeks previously. With both Boris Johnson and Penny Mordaunt, dropping out before the 2pm deadline, the path was clear to enter no.10, or at least the flat above it.

Going back to live in the Downing Street flat he once enjoyed when he was Chancellor, it seems there will be no need to redecorate or change the furniture, "We have already decorated it and it's lovely" the new PM said. With only a week in power, from an investor perspective, it appears it’s sofa-so good for the new administration.

With a seemingly more united party cheering him into power, financial markets also rejoiced, most notably with the pound meandering its way to $1.16, erasing all the losses endured since September’s ill-fated “mini-Budget”. Both equity and bond markets also tabled their support, with the more domestically orientated FTSE 250 rallying throughout the week, accompanied by gilts yields sinking to one month lows.

Although the cabinet in his new pad may be to Sunak’s taste, a new political cabinet was certainly required, with Tuesday seeing a host of coming and goings but with one key element of stability, Jeremy Hunt keeping his role as Chancellor. Again, the decision was cheered by the markets, who saw a steady hand on the tiller as just the right tonic to restore the UK’s financial credibility.

From one address to another, Thursday saw the European Central Bank (ECB) announce another 0.75% rate rise, leaving borrowing costs at 1.5%, the highest rate since 2009. For some context, until as recently as July, ECB rates had been in negative territory for eight years. However, it looks like some further assembly may be required by the central bank, "the Governing Council took today's decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target," the ECB said in a statement. On the news, the euro dropped and European government bond yields slid, despite the move being in line with market expectations.

Turning the tables on worries of a recession in the world’s largest economy, US GDP figures, also released on Thursday, came in ahead of consensus and ended a run of 2 negative quarterly readings. Showing the US economy grew at 2.6% for the quarter, the data could be slightly misleading as the figure derives almost entirely from a 2.7% boost from net external trade. Final sales to domestic purchasers, a better measure of underlying economic demand, increased by only 0.1% annualised, the worst showing since the second quarter of 2020 when the pandemic was causing carnage to the global economy.

In company news, oil major Shell has reported its second highest quarterly profit on record with global profits reaching $9.5bn (£8.2bn) between July and September, compared to $4.2bn during the same period last year. In stark contrast, furniture retailer, was forced to stop taking orders this week after talks to find a buyer failed, pushing the group towards administration. Having only listed on the London Stock Exchange in June 2021 with a value of £775 million, the company has been hit hard by supply chain issues and a downturn in consumer, and it seems now, government spending.

Next week

The coming week, bookended as it is by both Halloween and Guy Fawkes Night, could inadvertently take on some of the characteristic of the two celebrations, as a plethora of economic data releases and central bank appearances could potentially set the tone for the coming months.

For anyone wondering just how expensive the neighbourhood is they’re knocking on doors in whilst they’re out trick or treating, the beginning of the week offers the Nationwide’s Housing Price Index data. The data will detail the change in the selling price of homes with mortgages backed by Nationwide. The data should make for particularly interesting reading for those looking for signs that the Bank of England’s moves are starting to stymie activity in what has been a very hot market since the pandemic ended.

The fireworks however, should be supplied later on in the week when the US Federal Reserve is widely expected to announce another 0.75% rate rise on Wednesday. With the month’s economic data mixed at best, it is difficult to see any clear and consistent signs that inflation in the world’s largest economy is starting to abate, leading many to believe the Fed will have to carry on its rate hiking policy until at least the end of the year.

With the recent horror show having engulfed Westminster hopefully at and end, Andrew Bailey, Governor of the Bank of England, will be addressing the media on Thursday as the central bank looks to introduce a 0.75% rate rise of its own. It will be interesting to hear of what Bailey makes of the market movements brought on by the original “mini-Budget” and if they have altered the course of the bank’s thinking on rates. Of course, the bank should remain politically impartial but currency traders in particular will be scrutinising his words for any hints or undertones.

Fittingly, the day before Guy Fawkes Night, the week should end with a real bang. The end of the first full week of the month, as ever, brings US Non-Farm Payroll data, released on Friday. A key piece of information when determining the US central bank’s next rate move. The employment data itself will be accompanied by Average Hourly Earnings, allowing us to gauge future inflation expectations as the more consumers earn, the more they tend to spend. It all combines to be a vital piece of data for the Fed and should take on added significance considering they should have just raised rates only two days previously.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 28 October 2022.