GBP Bolstered by New Chancellor’s Fiscal U-Turn & BOE Chatter

GBP was seen trading higher yesterday as traders responded to the latest UK political developments. Following the unexpected firing of former UK chancellor Kwasi Kwarteng, his replacement Jeremy Hunt gave a televised address yesterday essentially announcing a reversal of the controversial mini budget offered by his predecessor. Hunt announced major U-Turns on a host of the mini budget’s key elements which seemingly reassured markets somewhat, leading GBP higher.

Additionally, the FT is running a piece today saying that it expects the BOE will further delay the start of its quantitative tightening program. The bank had already delayed the start of its QT operations from October 6th to the end of October. However, the sell-down of roughly £840 billion worth of UK bonds is reportedly due to be extended further given the BOE’s concern over the fragility of the bond market.

Key Factors for Today

- USD correction deepens as market attention moves elsewhere – for now
- BOE poised to delay QT further, GBP rallies on new chancellor appointment
- Equities bolstered by better risk backdrop, weaker USD
- Safe-haven FX under pressure
- Muted action in metals
- Oil restrained by Biden SPR sale plans

Coming Up

- USD US Industrial production
- CAD Canadian Foreign securities purchases
- EUR German ZEW economic sentiment

Equities Rallying as USD Correction Deepens

Equities prices are benefiting nicely this week from the ongoing correction in the US Dollar. A major reversal in UK fiscal policy along with expectations of further BOJ intervention are both detracting attention from USD currently. We’ve seen key indices rebounding across the board today. In the US, stocks are being bolstered by encouraging Q3 earnings so far this season while European assets are benefiting from lower gas prices. The S&P and the Dax are now up around 8% and 7% respectively from recent lows.

BofA, BNY Rallies on Q3 Earnings Beat

Shares in Bank of America, BNY surged higher yesterday as the bank posted a positive set of Q3 earnings. The posted Q3 EPS of $0.81, above estimates for a $0.77 result, on revenues of $24.5 billion, above the $23.5 billion forecast. The group reported a rise in profits due to increased net-interest on the back of higher rates.

Risk FX Rallying, Safe Haven FX Falling

In FX, the correction in USD has allowed for a reversal of recent trading themes with risk currencies swinging back into demand. NZD is the strongest performer today, taking over the mantle from the Aussie. JPY has been the weakest performer today due to a lack of safe-haven demand as risk assets enjoy the USD downturn.

RBA Minutes Show Bank Concerned with Economic Risks

Overnight, the latest RBA minutes showed that the smaller rate hike last month was decided in line with the risks of economic slowdown. The bank still judges that further rate increases will likely be necessary but accepts that risks in the economy are finely balanced.

Biden Mulling Huge Oil Reserve Sale

In the metals and commodities space, both gold and silver have seen better buying over the last 24 hours, benefiting from a weaker USD. However, with traders chasing better returns elsewhere (stocks, commodities) neither have been able to fully rally yet. Oil prices have been restrained this week also on the back of news that President Biden is reportedly considering selling around 100 million barrels of oil from the US SPR this week in a bid to push prices down.