Following the departure of Kwasi Kwarteng as Chancellor, the circus at Westminster has continued this week. Having been in office just 45 days, Liz Truss claimed the title of shortest tenure ever as UK prime minister by announcing her resignation on Thursday. Her successor will be elected in a Tory leadership contest, to be completed in the next week.
The market reaction was pretty muted on the resignation news, having reacted positively earlier in the week to the reversal of most of the promised ‘mini budget’ tax cuts. The new Chancellor (for now) Jeremy Hunt faces a tough challenge to restore credibility and stability.
Earnings season got up to a trot this week with a string of high-profile names updating the markets. Going into this reporting season, earnings expectations had been falling and confidence amongst investors was pretty low. So far, the data has been broadly encouraging with the majority of banks beating estimates. Consumer giants Nestle and Procter & Gamble also both beat forecasts, managing to raise prices without affecting volumes too much. This suggests that many consumers are still able to absorb higher prices in the period ahead.
Next week sees more of a gallop with Microsoft, Alphabet, Apple and Exxon Mobil (to name a few) due to report. Whilst the data is important, it looks backwards; what the market really wants to know is where are we going. With that in mind, it will certainly be interesting to hear from the management teams on their guidance for the period ahead.
Reading the media at present paints something akin to a doomsday picture. It could, however, be the case that conditions on the ground are not as bad as the press would suggest. With inflationary cost pressures being faced by all sectors and businesses, challenges for growing earnings are certainly present, although it might be that with expectations pretty low, there is the prospect for some positive surprises in the weeks ahead.