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.