UK financial markets
UK markets rose this week, with the FTSE 100 Index gaining 0.8% to trade at 7,032 points at the time of writing, after investors welcomed Rishi Sunak’s confirmation as the UK’s new Prime Minister on Tuesday. The UK 30-year gilt yield fell to 3.57%, as markets reacted with relief to Sunak’s emergence as the sole candidate for the Conservative Party leadership.
The move means long-term bonds, which were at the centre of a chaotic sell-off last month that prompted emergency intervention from the Bank of England, have recovered the losses triggered by Liz Truss’s package of tax cuts.
The new UK government has pushed back the announcement of fiscal plans by more than two weeks to November 17th amid reports that officials are considering bigger spending cuts and tax hikes to fill a massive fiscal hole threatening the country’s economic growth.
The European Central Bank raised its key interest rate by 75 basis points to 1.75% on Thursday, bringing borrowing costs to their highest levels since 2009, in an attempt to bring inflation back down to its 2% target. European policymakers signalled more rate increases to come but the size of future hikes will depend on the evolving outlook for inflation and the economy.
Commodity markets
In the commodity markets, Brent crude futures traded around $96 per barrel on Friday and are on track to end the week higher, underpinned by a tightening supply outlook, record US exports and a sharp retreat in the dollar.
The US exported a record amount of crude and fuel last week, even as fuel inventories hit seasonal lows in domestic markets, weighing on the supply outlook. Oil prices are on course to gain in October, breaking four months of losses, driven largely by an OPEC+ decision to cut output by 2 million barrels a day from November, as well as escalating Western sanctions on Russian oil.
Gold prices traded around $1,650 an ounce on Friday and are on track to gain for a second straight week, benefitting from sharp declines in the Dollar and Treasury yields, on growing expectations that the US Federal Reserve would slow the pace of rate hikes later in the year. The Federal Reserve is widely expected to deliver its fourth straight 0.75% interest rate rise in November, although markets have started to speculate that the US central bank would turn less aggressive in December amid concerns about overtightening.
US equity markets
US equity futures traded lower on Friday, as disappointing results from Amazon added pressure to the main indexes. Amazon plunged approximately 14% in pre-market trading, after missing third quarter earnings and revenue estimates, and issuing weak fourth quarter sales guidance.
In regular trading on Thursday, the Dow Jones Industrial Average gained 0.61%, while the S&P 500 and Nasdaq Composite declined 0.61% and 1.63% respectively. These moves came as investors digested better than expected third quarter US GDP numbers, while disappointing quarterly reports from mega cap names weighed on the technology sector.
Facebook-parent Meta sank almost 25% on Thursday, after missing earnings estimates and offering weak guidance for the fourth quarter. There were also disappointing reports from Alphabet and Microsoft earlier in the week.
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