The UK FTSE 100 Index posted a small rally during the week to climb back above the 7000 points mark at the time of writing.
The UK capital markets are still coming to terms with a chaotic end to the third quarter as the new Government’s spending plan pushed the UK gilt market to the brink of disaster.
So far, the Bank of England has used £4 billion of its £65 billion of firepower to support the fragile gilt market. The pledge by the Bank of England to back-stop the gilt market is due to expire next Friday, posing a potential ‘cliff edge’ in the long-dated gilts.
Prime Minister Liz Truss tried to spell out her vision for the future in her closing speech at the annual Conservative Party conference on Wednesday after having acknowledged the policy gaff with a degree of back-pedalling.
The Government had proposed a cut to the upper rate of income tax, dropping it from 45p to 40p. However, after significant pressure, it reversed the decision. The Prime Minister explained that ‘Whenever there is change, there is disruption’ but sadly for financial markets, this has not offered much of a calming influence.
In the commodity markets, OPEC+ angered Washington with sharp cuts to global oil supply. The US have tried to contain the energy prices by releasing reserves from its own US Strategic Petroleum Reserves (SPR).
On Wednesday the cartel of oil producers, including Saudi Arabia and Russia, agreed to lower production by 2 million barrels a day. Oil markets rose with Brent crude hitting over $94 a barrel. US equity futures fell on Friday morning warily anticipating the key US non-farm payroll figures. We continue to be an environment which indicates bad news (fewer jobs) spells good news for markets whereas good news (more jobs) indicates bad news.
There is a ‘need’ for cheap money to continue to fuel higher assets prices. Should the US economy show signs of slowing, this will allow the US Federal Reserve some respite on rising interest rates. Non-Farm payroll numbers are due at 1.30pm GMT.
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