Sunak’s appointment as prime minister has been well received by markets with UK assets reacting positively on hopes of a more stable economic and political outlook.

However, the hugely important medium-term fiscal plans have been delayed until November 17th, but critically will now be accompanied by a full forecast from the independent OBR as the government looks to restore its economic credibility, with currently a £35 billion reported shortfall in the finances.

The Bank of England is set to raise interest rates by 0.75% next week, with markets forecasting a peak of around 4.85% in the second half of next year.

In the US, weaker housing data led to some repricing of the interest rate curve and a general sell-off in the dollar, as markets speculate on a lower peak in US interest rates. Despite the shift in sentiment, the economic fundamentals still very much favour the US, and we fully expect a further 0.75% rate increase next week followed by further hikes in the coming months.

The Europe Central Bank, meanwhile, raised their key interest rates by a further 0.75% yesterday as they continue to fight surging inflation, with the Euro also benefitting from a mild start to winter and the build-up of a strong inventory of gas supplies.

Global geopolitical risks are a growing concern going forward, particularly US-China relations which will increasingly drive market sentiment in the months ahead.

UK political instability continues to drive sentiment following the resignation of prime minister Truss, although UK assets had little reaction with markets hoping the new leader can restore some stability.

The medium-term fiscal plans will still be announced on October 31st as the government attempts to re-establish its fiscal credibility, likely to be at the expense of a deeper and more prolonged recession. The Office for Budget Responsibility’s independent assessment will be critical.

UK inflation has again risen above 10%, driven by soaring food prices, and retail sales figures this morning were extremely poor, further highlighting the squeeze on the consumer and ramping up pressure on the Bank of England ahead of the November 3rd meeting. The market is split on whether we get a 0.75% or a 1% hike, and the expected peak is now 5.10% by mid-2023 with long-term yields having dropped considerably over the past week. The Bank will also begin selling its stock of government bonds next month as it begins unwinding its QE program.

Markets have calmed somewhat following the reversal of most of the mini-budget but remain on high alert with politics continuing to drive short-term momentum. 

In the US, we fully expect another 0.75% hike in November as the Fed continue their aggressive path of policy tightening, whilst the European Central Bank is also forecast to raise rates by a further 0.75% next week as they continue to fight surging inflation.

Market focus is on the chancellor’s medium term fiscal plans due on October 31st as the government attempts to restore its credibility. The Office for Budget Responsibility’s independent assessment will be critical.

The Bank of England’s emergency support operation finishes today and worked well in calming markets. The Bank is fully expected to raise interest rates by 1% on November 3rd and take Bank rate to 5.50% by mid-2023.

The economy unexpectedly shrank by 0.3% in August and the risks of a recession continue to grow with much higher interest rates still to come. The jobs market remains resilient, with wages increasing by 6% and the unemployment rate down to an historically low of 3.5%. The latest inflation data is due next week, with the headline rate expected to be 9.9%, showing the stark squeeze on disposable incomes continues, despite expectations we are nearing the peak.

In the US, inflation has dropped to 8.2% but despite hopes we may have seen the peak, the Fed will continue raising rates in the months ahead with a 0.75% hike fully priced in for November 2nd, and rates expected to peak around 4.80% mid-2023.

In Europe the central bank is forecast to raise rates by a further 0.75% at the end of the month despite the ongoing concerns over gas supplies during the winter months and the growing risks of recession.

It has been another hugely volatile week across global markets with the extremely challenging economic outlook and high level of uncertainty. The unprecedented action by the Bank of England last week has brought some calm to UK assets, and the Tory party conference passed without incident.

Markets fully expect the Bank of England to increase rates by 1% next month, and for rates to peak around 5.50% next year. The chancellor will announce his much-anticipated medium term fiscal plans on November 23rd, with much focus on what the OBR’s assessment of their economic impact will be.

In the US, Fed officials have continued to be hawkish, with markets looking for another 0.75% hike next month as they continue the cycle of aggressive monetary policy tightening.

Whilst in Europe, the energy crisis will likely remain a drag on the Euro and continue to add to inflationary pressures. Despite this, the European Central Bank are still fully expected to raise rates by 0.75% later this month, with rates expected to hit 2% by year end.

Recession remains a real threat globally with central banks focussing primarily on taming inflation.

Volatility has increased across commodity markets with OPEC cutting production, leading to higher oil prices which further stokes the global inflation problems.