Written by Millan Chauhan.
Last week was an eventful week in UK Politics, as Kwasi Kwarteng was sacked as Chancellor of the Exchequer, a role which he held for only 38 days. This also came three weeks after he announced his mini-budget which caused Sterling to sell-off significantly, sent the cost of government borrowing and mortgage rates up, that led to an unprecedented intervention by the Bank of England. Jeremy Hunt has been selected as his replacement and will now make a medium-term fiscal announcement on the 31st October, if not sooner. The chaos that has unfolded over the last few weeks has put immense pressure on Liz Truss’s battle for political survival.
There were some important economic data releases last week in the UK, with GDP unexpectedly falling by -0.3% in August which was caused by a fall in the production sector. This latest data release also meant that the economy shrank by -0.3% in the three months to August. On Wednesday, we will find out the state of the UK’s inflation situation with September’s CPI data set to be released with expectations leaning towards a monthly increase of 0.4% (estimated 10.0% Year-on-Year).
US markets saw a huge intraday movement last Thursday, following the US inflation data release which saw US CPI come in at 8.2% on a year-over-year basis. This was slightly above estimates of 8.1% which sparked a very negative reaction from US markets at the open. Expectations were that we would begin to see inflation flatten as supply chains have improved and the labour market situation has recovered. US indices subsequently rebounded that day to close in the green as the underlying constituent data showed some signs of a slowdown. Time will tell whether we are at a juncture of a change in sentiment.