Spreadex Market Update
UK Bonds Rally As Rishi Sunak Confirmed New UK PM
Freshly appointed UK PM Rishi Sunak, the fourth PM in as many years, will address the UK under his new role for the first time today. UK markets appear bolstered by Sunak’s win with UK bonds trading back up to their highest level since before the mini budget at the end of last month. However, given the dire economic conditions gripping the UK, Sunak certainly has his work cut out for him. Additionally, with growing calls (including an online petition run by The Independent with over 400k signatures) calling for a general election, political uncertainty is likely to remain a threat to UK asset prices.
Key Factors for Today
- USD lightly bid but focus shifts elsewhere (for now)
- Rishi Sunak announced as new UK PM
- Risk markets rally as bond yields fall
- Higher-yielding FX lead the way
- JPY giving back BOJ gains
- Metals and oil muted
Coming Up
- USD US Consumer Confidence
- USD US Richmond manufacturing index
- USD FOMC’s Waller speaks
Equities Rallying Amidst Falling Bond Yields
A stronger start for risk markets across the European open on Tuesday. Despite the US Dollar seeing a decent bid so far today, most indices look to be trading in the green. The move looks to be linked to softening bond yields over recent days as traders unwind the risk premium which had built up on the back of the UK mini budget crash. However, the broader backdrop remains troublesome, underscored by yesterday’s raft of negative PMI readings for the US, UK and Eurozone, a reminder of recessionary fears still lurking.
Big Names reporting Today in US Earnings Season
US earnings season gets back underway today with several key names reporting. Coca Cola, GM, Microsoft and Spotify will all report third-quarter performance today with mostly positive expectations. The above stocks each saw decent gains yesterday amidst the broader uptick in risk sentiment and look poised to advance further should we see any upside surprises in today’s releases.
Risk FX Leading
In FX, the turnaround in risk sentiment this week has played nicely into the hands of higher-yielding currencies. Both AUD & NZD are trading higher today, though both currencies remain not far off recent lows against the Dollar. As such, both are vulnerable to further downside if we see any sudden rebound in USD.
JPY Surrendering Gains
Safe-havens have been the weaker performers today with both CHF and JPY seeing diminished demand amidst the focus on risk assets. USDJPY is currently sitting around the halfway point of Friday’s BOJ-driven spike lower. Traders now await the BOJ decision later in the week to see if there will be any shift in outlook or guidance to help consolidate the move.
Muted Action in Metals & Oil
In the metals and commodities space, both gold and silver are under pressure today. Despite the better tone to risk appetite, USD is seeing decent demand too which is dampening sentiment in the metals market. More so for gold, however, with silver deriving some support from the lift in equities prices. Oil prices are seeing muted action again today, mimicking the price moves we’ve seen over recent sessions as the market awaits fresh directional drivers.
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