A look at the day ahead in European and global markets from Anshuman Daga
Just two months ago, Liz Truss said her government’s defining mission would be to revive the economy.
That job has become even more tougher for whoever is chosen as the next British PM after Truss was ousted following six chaotic weeks marred by policy shocks.
Sterling edged down in Asian trade after a short-lived rally on Thursday following news of Truss quitting, and analysts pointed to little respite for the battered currency.
In a note titled: “New leader, old problems,” Mansoor Mohi-uddin, chief economist at Bank of Singapore, said the UK budget deficit is “still set to exceed 5% of GDP, the current account deficit is a huge 8% of GDP” and forecast that the UK will contract by 0.8% of GDP in 2023.”
He said that even if former finance minister Rishi Sunak wins and retains Jeremy Hunt as chancellor, the risks are that a new PM will struggle against old challenges.
Market research firm GfK’s survey showed on Friday that UK consumers remain close to the gloomiest on record, with households facing double-digit inflation, rising interest rates and political chaos.
Asian stocks weakened further as the rally in U.S. Treasury yields strengthened on reinforced expectations that persistent labor tightness in the world’s biggest economy would force the Fed to keep raising interest rates aggressively, possibly throwing the economy into recession.
Two-year Treasury yield hit a 15-year high of 4.623%, while the 10-year also rose to multi-year highs of 4.243%.
Currency markets remained on heightened alert for further dollar-selling intervention by Tokyo after the dollar strengthened to 150.29 yen overnight, a new 32-year-high, after breaking the key psychological level of 150 on Thursday.
Meanwhile, European Union leaders ended another debate on the bloc’s response to the energy crunch without agreement on whether to cap gas prices.
Key developments that could influence markets on Friday:
UK retail sales, mortgage loans, public finances
Speakers: Fed Reserve Bank of New York president Williams talks
(Reporting by Anshuman Daga; Editing by Kim Coghill)