IFX Market Report: Tuesday 18th October 2022

On Monday morning, the newly appointed Chancellor, Jeremy Hunt, announced a reversal of most of Prime Minister Liz Truss’ economic policies, bringing the financial markets into a maelstrom. Jeremy Hunt announced that the corporation tax rise will go in as planned from 19% to 25% in 2023, he confirmed the scrapping of the plan to cancel the 45% top rate for high earners, cancelled plans to cut the basic income tax rate to 19%, stop the freeze on alcohol duty and VAT-free shopping for non-UK visitors. Plans to reverse the 1.25% rise in National Insurance, to remove Stamp duty on the first £425,000 for first-time buyers and £250,000 main residence purchase have been kept.

The pound rose by almost a percent yesterday after the Chancellor’s announcements. However, the Bank of England is set to continue its bond-buying scheme until markets regain confidence, but expectations for the next rate hike are now for a 75 basis points increase in lieu of the 100 basis points increase before the announcement.

With the political and economical turmoil, Prime Minister Liz Truss is facing immense pressure from both the opposition and within her own party just six weeks after taking office in Downing Street. Calls to resign from within her own party surfaced this weekend and over a hundred Tory MPs are believed to have submitted letters of no confidence after a disastrous first month into office which saw Cable reach its lowest level ever.

France is also facing economical turmoil as strikes extend to a number of industries in both the private and public sectors. Tensions remain between TotalEnergies, Esso and the unions demanding a 10% pay rise as inflation grips the country despite slowing down to 5.6% in September.

China delayed the release of its latest economic growth figures as the Communist Party Leadership gathers to re-elect Xi Jinping for a historic third term this week. The Asian giant saw slow growth in 2022 as strict zero-covid policy was enacted and saw major hubs face lockdowns like Shanghai, Shenzhen and Beijing in the spring and the summer. The communist party announced measures to support growth and Chinese banks and companies have launched massive stock buy-back schemes to support the yuan.

Cable rose by 0.99% yesterday after the Chancellor’s announcements. GBPUSD opened at 1.1177 and closed at 1.1353.

EURUSD followed a similar trend with the euro gaining 1.01% after Italian CPI met expectations and ECB’s vice president De Guindos' speech. The pair opened at 0.9726 and closed at 0.9838.

GBPEUR saw a more moderate hike for the pound as the pair opened at 1.1497 and closed 1.1542.

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