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LGT Navigator: Government chaos continues in the UK

October 21, 2022

After only 44 days in office, Liz Truss is stepping down as Prime Minister of the UK. The position is to be filled as early as next week. In the US, rising bond yields weigh on the stock markets. The Japanese yen continues its slide against the US dollar.

German fears of recession

US stock markets extended their losses on Thursday. The S&P 500 declined -0.8% and the Dow Jones fell -0.3%. The Nasdaq Composite lost -0.6%. Sentiment on Wall Street was initially friendly, although new economic data was mixed. The situation on the US labour market improved surprisingly: the number of initial jobless claims fell by 12’000 to 214’000 last week. Analysts had expected an increase to 233’000. In contrast, sentiment in the Philadelphia region's industrial sector brightened only slightly in October and remained at a low level. Experts had expected a significant improvement. But in the end, rising yields on ten-year US government bonds caused a shift in sentiment as they climbed to 4.239%, well above the 4% mark last breached in 2008. 

Asian stock markets trade mixed on Friday. In Tokyo, the Nikkei loses -0.4% and the Hang Seng is also -0.4% weaker in Hong Kong. The Shanghai Composite gains +0.3%.

Liz Truss resigns

The political drama in the UK is turning into the next round. After only six weeks in office, British Prime Minister Liz Truss resigned on Thursday. She made the announcement at a press conference called at short notice in Downing Street in London. Truss said, she had spoken to the King to inform him that she would be stepping down as leader of the Conservative Party. She wants to remain in office as head of government until a successor is found. That is expected to happen as early as next week, Truss said. Currently, the front-runner is Rishi Sunak, who had already run to succeed Boris Johnson and eventually lost out to Truss. The 47-year-old has come under enormous pressure in recent days after her economic policy caused severe turbulence on British financial markets. In the meantime, she has had to withdraw a large part of the planned measures, and she has also lost two of her ministers within a week. 

Japanese Yen on a downward slide

In Japan, the devaluation of the Japanese yen continues, fueling speculation about further intervention by the Japanese central bank in the foreign exchange market. On Thursday, one US dollar cost more than JPY 150 for the first time in decades – the last time the Japanese currency was worth so little was in August 1990. The Japanese yen is being weighed down especially by the monetary policy of the Bank of Japan, which, in contrast to many other central banks, is still pursuing an expansionary course. Price growth in Japan has so far been low compared to other countries. However, an annual inflation of 3% is high by Japanese standards. Already in September, the BoJ intervened in the foreign exchange market to support the currency.

 

 

Economic Indicators October 21

MEZ Country Indicator Last period
08:00 UK Retail sales (September, y/y) -5.4%

 

Earnings Calender October 21

Country Company Period
CH Sika Q3
US Verizon Q3

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: David Wolf, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

 

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