As early Monday trading got underway, the pound opened above the closing price of Friday, following the announcement late on Sunday that Boris Johnson would not be in the running to replace Liz Truss as prime minister. With Johnson out of the race, Rishi Sunak is now the favourite to become the next UK prime minister. The news was welcomed by investors, as Sunak is widely regarded as a safe pair of hands to lead the country at a time when it is in the crosshairs of the markets. The former chancellor is expected to retain Jeremy Hunt as chancellor of the treasury, meaning that the new administration will remain on the path of fiscal prudency embraced by the UK administration, following the U-turn on the previously proposed unfunded fiscal expansion. Should this scenario be confirmed, it will be welcomed by the markets and sterling should remain supported around the current levels.
Ricardo Evangelista – Senior Analyst, ActivTrades
European indices fluctuated at the start of the new trading week, paring some of the gains registered last Friday as investors digest the latest batch of mixed macro data from Asia and brace for another volatile week. The fresh boost to risk appetite provided at the end of last week by whispers of a potential “pivot” from the Federal Reserve during the incoming meetings, is fading after some Fed officials tempered the tone over the weekend saying rates needed to keep tightening for now. In addition, today’s bullish sentiment is also being impacted by the latest slew of major macro news from China, displaying a mixed recovery with strong GDP and industrial production data while imports, retail sales and unemployment disappointed investors. Furthermore, the fact President Xi Jinping, freshly re-elected for a third term in office, placed loyalists at the summit of power is also weighing on market sentiment. The move has compounded concerns that China is likely to maintain the economically harmful zero covid policy firmly in place in the country, while keeping US-Sino tensions alive.
That said, the trading mood may change several times this week as investors brace for many key macro data, starting today with PMIs from France, Germany, the European Union and the US while the earnings season will continue to roll.
Pierre Veyret– Technical analyst, ActivTrades
Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.