NEW YORK – The pound surged against the dollar yesterday as Britain’s fourth finance minister in as many months sensationally ripped up a tax-cutting budget that had spooked markets.
Chancellor of the Exchequer Jeremy Hunt axed almost all of the debt-fuelled tax cuts unveiled last month by the new government of Prime Minister Liz Truss, reassuring markets that had tanked and pushed the pound to an all-time low against the dollar.
The pound rose yesterday more than 2% against the greenback at its peak, while US and European equities advanced and oil prices inched lower.
“No government can control markets but every government can give certainty about the sustainability of public finances,” Hunt said in a televised address that demolished the maligned budget.
Yields on UK government bonds, or gilts, slid on yesterday’s fiscal policy U-turns as London’s benchmark FTSE 100 shares index pushed higher, along with Frankfurt and Paris.
“The markets are responding positively to the new chancellor’s plans to reverse almost all of the tax cuts announced by his predecessor,” noted Victoria Scholar, head of investment at Interactive Investor.
Wall Street rallies
All three main indices on Wall Street rebounded yesterday, with the S&P 500 winning 2.7%.
Bank of America became the latest US financial heavyweight to top estimates following on the heels of JPMorgan Chase and other banks that reported solid results on Friday.
Analysts have been hopeful that a successful third-quarter earnings season could reset a market that has tumbled in 2022 due to worries over inflation and Federal Reserve interest rate hikes.
“I think people after the last couple of bank earnings are relatively optimistic about earnings reports,” said Maris Ogg of Tower Bridge Advisors, who thinks those hopes may be premature.
“But I think that we will know in the next couple of weeks if the market has bottomed or not,” said Ogg, who notes that the market’s pullback in 2022 means “there are some pretty attractive valuations out there.”
Elsewhere, Asian equities started the week in mixed fashion.
There was a little disappointment among investors after Chinese President Xi Jinping at the weekend reasserted his commitment to the zero-Covid-19 strategy of lockdowns that has hammered the economy this year.
Beijing has also delayed the release of anticipated economic growth figures – which analysts had expected to be some of its weakest quarterly growth figures since 2020, as the economy is hobbled by the Covid-19 restrictions and a real estate crisis.
Eyes are also on Tokyo as the yen sits around a three-decade low against the dollar owing to US rate hike expectations and the Bank of Japan’s refusal to tighten monetary policy, citing a need to support the economy.
The yen is approaching 150 to the dollar for the first time since 1990, but while officials have said they are keeping tabs on developments, they have yet to intervene in markets for a second time, having done so last month. – AFP, October 18, 2022
