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Another day, another Prime Minister

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By Craig Erlam

Another UK Prime Minister has resigned and I’ve now lost count of how many Chancellors we’re going to be up to if Jeremy Hunt is also replaced next week.

Liz Truss’ position was hanging by a thread and has been since the mini-budget, but that unravelled at a remarkable pace. And now the UK is once again waiting to see who will be the next Prime Minister and how the process will be decided.

Truss has no doubt been an unmitigated disaster and I’m not sure who exactly will make the country feel at ease at this point. There will obviously be calls for a general election, but that won’t provide any certainty or leadership for the country in the midst of a crisis.

It would appear there are only bad options on the table so we probably shouldn’t expect a positive outcome.

Oh, and Boris is apparently entering the race.

Tesla on the right track?

Despite Elon Musk’s best efforts to talk up Tesla’s performance and outlook, shares traded 4% lower and almost 50% from their high 12 months ago.

No doubt the company has weathered the storm of the last few years relatively well, but the global economic outlook has deteriorated significantly in that time, as Musk acknowledged, and the miss on revenue may be seen as a concern.

Still, he remains optimistic – to put it mildly – eyeing a path to the company being more valuable than Apple and Saudi Aramco combined. He never has been short of ambition.

China mulls easing Covid quarantine

Asian markets appear to have been boosted in the middle of the session by reports that the leadership is debating a reduction to Covid quarantine for inbound travellers. While a very small tweak and still desperately lagging behind the rest of the world where zero restrictions are now the norm, it is a step in the right direction.

Although I don’t think anyone should celebrate a grand economic revival just yet.

Meanwhile, the one and five-year LPRs were unchanged at 3.65% and 4.3%, respectively. The decision was widely expected after the PBOC left the MLF unchanged at 2.75% earlier in the week.

The economy still needs a boost over the coming year due to global economic headwinds, a struggling property market and Covid restrictions, but some have likened rate cuts to pushing on a piece of string as demand simply isn’t there. Support will have to come from elsewhere.

Yen under intense pressure

The yen breached 150 against the dollar for the first time in more than 30 years as the BoJ was forced to conduct unscheduled JGB purchases in order to defend its yield curve control target.

The intervention doom loop is alive and well, but pressure on the upper threshold is mounting and something will need to give eventually.

There are clearly nerves around 150 about the prospect of a sizeable FX intervention but it hasn’t yet been forthcoming. With warnings now entirely falling on deaf ears, it’s time for action as market pressures are not abating. If anything, they’re intensifying.

CBRT pours more fuel on the fire

The theme of this note seems to inadvertently be fighting fires but the one difference in the case of the CBRT is that it either doesn’t know the house is on fire or doesn’t care.

Rather than holding back the flames, it’s pouring fuel on them which is a rather unconventional and expensive approach in this climate. It even exceeded expectations on Thursday, cutting by 1.5% and lining up another before the end of this cycle.

With Turkey’s inflation officially above 83% and cuts still coming, you have to wonder what exactly has convinced them to bother stopping at all. ​

Oil settling into a range

Oil prices were higher on Thursday which comes after President Joe Biden confirmed the release of the final 15 million barrels from the SPR, as part of the 180 million previously agreed, and warned more could follow. That was already priced into the markets though and the price has fallen quite heavily over the last week and a half.

Brent seems to now be settling into a new range, perhaps between $90 and $100, a level most may be relatively comfortable with.

A good day for gold

Gold is making decent gains after earlier testing the September lows around $1,620. The yellow metal is being lifted by a weaker dollar and lower yields, but the question remains how sustainable is it?

I’m sure there are many doubters considering the lingering concerns about inflation and interest rates and that may make any gains hard-fought. If it breaks below $1,620, we could quickly see $1,600 come under pressure.

Bitcoin edges higher

There isn’t much to add on bitcoin. It continues to fluctuate around $20,000 and is currently sitting just below. It made small gains on the day, alongside other risk assets, but doesn’t currently appear at risk of exploding in either direction.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.