By Haith Nori
October has continued the volatile theme witnessed in September. The situation in Ukraine has continued to deteriorate with Russia having annexed certain areas of Ukraine. The explosion on the Crimean Bridge was crucial for deliveries of arms to Russian troops. Russia has since threatened nuclear warfare, which is seeing countries rally to Ukraine’s aid, especially the US. The Defence sector is seeing strong gains whilst the US, the UK and the EU are all increasing their budget on defence to ensure protection. With the world on the brink of nuclear warfare, companies are attempting to create armaments purely for the purpose of destroying missiles before they land, hence protecting lives. The Bank of England have continued to provide emergency support to gilt markets. The UK government have reversed their initial budget plan of cutting the 45% tax rate and Liz Truss has resigned as Prime Minister, and after a short period of time Rishi Sunak was appointed as the UK’s new Prime Minister. OPEC have had a meeting to cut production by 2 million barrels of oil a day. Germany has authorized 200 million Euros, the German Stabilisation Fund, to dedicate to energy during the current crises which is being unwelcomed by other members of the EU. 15 countries are urging the EU to introduce a price cap on energy. With the hyped activity surrounding Elon Musk and his takeover of Twitter this year, the $44 billion acquisition is now complete with Musk firing top executives in the business.
In the UK, there has been a lot of turmoil since the new government has taken office. Since the new budget was released, we have seen the value of the pound drop to ‘levels not seen since the 1980s’[i]. At the end of September, it hit its lowest point of $1.035 after the budget was announced. Later in October, the UK pound recovered to levels seen before the new finance minister, Kwasi Kwarteng took office. However, confidence in the UK is clearly feeling the pinch as the UK government has reversed its bold plans of axing the 45% tax rate. The Bank of England have stepped in to buy both long dated gilts and Inflation-Linked Gilts, stating this would end on 14th October, with Governor Andrew Bailey telling ‘pension fund managers to finish rebalancing their positions’[ii]. The aim of the fiscal policy from the new government is to support both households and businesses during the current period of increased energy prices. To add to the chaos, a new finance minister, Jeremy Hunt, was appointed who tore up almost of the original budget plans and Liz Truss announced her resignation on Thursday 20th October, making her the UK’s shortest serving Prime Minister. Following the resignation came a short period of uncertainty in the race for the new prime minister to be appointed in the hope that some levels of normality can be restored within UK Politics. The uncertainty has made the UK appear unstable which does not bode well for investor confidence. Rishi Sunak was appointed the new Prime Minister to lead the Conservative Party officially on Tuesday 25th October, where he has decided to keep a number of ministers in their existing posts in order to try to bring the party together and install confidence once more. For instance, Jeremy Hunt has remained as Chancellor of the Exchequer. Some positive news came as the value of Sterling recovered some ground as investors welcomed Sunak’s victory. This may well be the beginning of confidence being restored in the UK. However, all eyes will be focused on the fiscal statement announcement which was scheduled for 31st October but has been delayed until November 17th following the appointment of Rishi Sunak’s new government. This, in theory, will be designed to stop markets spiralling out of control once again. Whilst the delay may initially seem frustrating it will allow the government to carefully prepare their announcement.
On Thursday 13th October, the US released CPI data for the 12 months ending in September of 8.2%, little changed from August’s 8.3% (9.1% in June and 8.5% in July). The US has also experienced many companies releasing quarterly earnings throughout October. For example, it was a brutal earnings week for large Tech names (other than Apple who beat revenue expectations). Alphabet and Microsoft provided disappointing revenue, with Alphabet declining c.7.4% and Microsoft declining c.6.9% following their individual announcements. Meta Platforms declined c.22% on the 27th October and Amazon also saw declines. Combined, the four big Tech names ‘lost over $350 billion in market cap after offering concerning commentary for the third quarter and the remainder of the year’[iii]. In the UK Shell posted profits of £8 billion for the quarter with the share price increase c.5% on 27th October. UK CPI data was released on 19th October dropping to 10.1% for the 12 months ending in September after 9.9% in August and matching the July 40 year high. The ECB met on 27th October and made the decision to increase interest rates by 0.75% to the highest rate in over a decade. Both the Bank of England and The Federal Reserve will hold their meeting in the first week of November before announcing their decision on interest rates.
In Japan, the Yen has been declining against the dollar for some time. The Bank of Japan has intervened for the second time on 21st October spending ‘a record 5.4 trillion to 5.5 trillion yen ($36.16 billion to £36.83 billion) in its yen buying intervention’[iv]. The dollar maintained its value but weakened after S&P Purchasing Managers Index data showed a fourth consecutive contraction.
Overall, October has witnessed the volatility continue with further unprecedented affairs, especially in the UK. At the end of the month Global Markets saw a late rally despite mixed corporate earnings season; European equities increased c.9%, US equities increased c.8% and UK large cap equities increased c.3%. Investors seem to be reconsidering the possibility of a soft landing in the US in 2023. We still believe a focus on diversification across asset types, styles and strategies remains of critical importance to portfolios. Bond yields remain to high in value. After the OPEC meeting the price of Brent Crude is trading c.$95 per barrel. Sterling has become extremely volatile against the dollar.
[i] https://www.forbes.com/sites/qai/2022/10/07/the-british-pound-has-fallen-to-its-lowest-level-against-the-us-dollar-since-1985heres-why/?sh=4edb4d5c74a7
[ii] https://www.reuters.com/world/uk/bank-englands-bailey-tells-pension-funds-they-have-3-days-rebalance-2022-10-11/
[iii] https://www.cnbc.com/2022/10/28/big-tech-falters-on-q3-2022-results-as-meta-has-worst-week-ever.html
[iv] https://www.cnbc.com/2022/10/24/forex-markets-currencies-japan-yen-bank-of-japan-intervention.html
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