Weekly Market Update- Week Ending 28/10/2022

The market welcomed Rishi Sunak as the UK’s new Prime Minister, in a sign of relief and a belief that he will bring some stability in the period ahead. Since it became clear the leadership contest was a one-horse race, government bond prices have increased, causing yields and the cost of borrowing to fall.

Sterling reached the ‘dizzy’ height of 1.16$/£ having looked like it might have traded near parity a few weeks ago. Given that over 80% of global contracts are priced and settled in dollars this should hopefully help slow the inflationary pressure caused by the rise in import prices.

The ever-changing fiscal plan date was pushed back a couple of weeks from October 31st to November 17th. With the markets calmer in recent trading sessions, the Chancellor felt able to give himself some extra time to figure out how to plug a fiscal hole of between £30bn and £40bn. This delay, however, may not have gone down well with the Bank of England’s monetary policy committee, which now has the difficult task of setting interest rates on the 3rd November without knowing the government’s budgetary plans.

Earnings season continues with a number of mega-cap tech misses grabbing the headlines. Falls in Alphabet and Microsoft on Wednesday were followed by a large drop in Meta’s share price on Thursday. For Alphabet and Microsoft, it wasn’t that revenue had fallen, it was more that the rate of growth in revenue had slowed. Across the wider market, so far the majority of companies have posted pretty resilient earnings and in most cases beat estimates. With the labour market so tight in the States, it seems consumers are still happy to spend and absorb higher prices.

John Naylor, Chartered FCSI – Head of Investment Committee