Truss in as new PM, the market now awaits policy changes

Hi everyone,

 

So we have just found out who the new leader for the Conservative party and the UK is and we hope to hear in 2-weeks' time how Liz Truss plans to deal with the cost of living crisis. She has promised to deliver a bold plan to cut taxes, deal with the high energy prices and long-term supply issues, as-well-as grow the economy. It will be a long 2-weeks to wait, but we can hopefully expect to see some Sterling strength around this event.

 

The Pound is currently up 0.5% across most of the board after a dismal performance last week. Kwasi Kwarteng, (the heavily favoured next chancellor of the exchequer) wrote today "the new cabinet will target a growth rate of 2.5%. That means focusing on how we unlock investment and growth, rather than how we tax and spend". Positive comments, but still a long way to go in terms of calming market fears yet. 

 

Elsewhere, Fridays announcement that Gazprom will not restart the supply of Russian gas to Europe is seriously bad news. Gas prices are up 20% today and it puts the EU's energy crisis into a critical phase. The saving grace for the Euro-Zone and the single currency here, is that gas storage facilitates are now largely full after EU states entered a gas buying frenzy over the summer (the reason for record gas prices at the time).

 

Rationing of some kind is likely throughout the winter period and it leaves 2023 uncertain, but at least there will be enough to last the short-term. It majorly dents the Euro's recovery going forward and the next question is whether Russia will switch off the oil supply before the EU's plan to ban oil imports by year-end. For now, the news hasn't caused too much of a problem to the Euro. 

 

The weeks major data comes from the ECB on Thursday with markets already pricing in the largest interest rate jump on record of 0.75%. Anything more or less will create volatility. Sterling has a strong resistance level at 1.15 mid-market against the Euro and so between this and 1.1650 will be the likely trading level for the days ahead. 

 

 
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