Skip navigation Scroll to top
Scroll to top

LGT Navigator: Government crisis in London escalates

October 17, 2022

US stock exchanges are once again floundering, even though the first quarterly figures from the financial sector were received mainly positively. In the UK, Prime Minister Liz Truss is fighting for her political survival. At the start of the party congress in China, state and party leader Xi Jinping prepares his country for difficult times.

International Monetary Fund

Asian stock exchanges start the week with losses and thus follow the weak guidelines from the US. In Tokyo, the Nikkei loses -1.4% and the Hang Seng is -1.1% weaker in Hong Kong. The Shanghai Composite loses -0.1%. 

On Wall Street, the recovery ended after just one day and the main indices closed weaker on Friday. The S&P 500 lost -2.3% and the Dow Jones declined -1.3%. The Nasdaq Composite slipped -3.1%. Financial stocks were in focus after various banking heavyweights presented their quarterly results. While the shares of JPMorgan Chase, Citigroup and Wells Fargo ended the day in the plus, Morgan Stanley failed to convince, and the stocks dropped more than -5%.

The latest economic data were also mixed. Thus, the mood of US consumers has brightened somewhat in October, but pessimism remains high. In particular, the high inflation rate is weighing on consumer sentiment. In addition, the retail sales stagnated in September. Analysts had expected an average increase of 0.2% over the previous month. 

This week, investors focus on more quarterly results, including Netflix, Tesla, Johnson & Johnson, AT&T, Verizon and Procter & Gamble.

British prime minister remains under pressure

Meanwhile, the political chaos in the United Kingdom continues. On Friday, Prime Minister Liz Truss fired her finance minister, Kwasi Kwarteng, after only 38 days in office. On the same day, she presented his successor: former Foreign and Health Minister Jeremy Hunt will take over the financial affairs of the kingdom with immediate effect. Hunt had applied to become party leader of the Conservatives himself in the summer, but had failed. Truss herself is also under enormous pressure to resign after only five weeks in office. So far, however, she has refused to do so.

However, Truss has partially withdrawn the massive tax cuts she announced. The planned fiscal package, called mini-budget by the government, has led to severe turbulence on the British financial markets in recent weeks. “We need to act now to convince the markets of our fiscal discipline,” Truss said Friday at a press conference in London. Accordingly, the corporate tax will now be increased after all. But she wants to hold on to other tax breaks. Whether that will succeed is questionable, however, because Hunt has already hinted over the weekend that there could be further changes to the government's tax plans. The prospects of billions in debt-financed tax relief triggered tremors on the British bond and currency markets at the end of September, forcing the Bank of England to intervene repeatedly to calm the markets.

Xi Jinping prepares country for tough times ahead

Opening the Communist Party Congress, China's state and party leader Xi Jinping warned of “potential dangers” and difficult times ahead. In a two-hour speech to some 2300 delegates at the Great Hall of the People in Beijing on Sunday, the president called for people to prepare for the worst. “Therefore, gear up and be prepared to withstand strong winds, heavy seas and even dangerous storms,” he said. The next five years will be crucial for this. Xi also reiterated the intention to adhere to the zero-covid policy. The congress will continue until October 22, with the focus on expanding Xi Jinping's power and re-electing him for a third term. It is considered certain that parliament will re-elect Xi next March.

 

Economic Indicators October 17

MEZ Country Indicator Last period
05:00 China Exports (September, y/y) +2.5%
05:00 China Imports (September, y/y) +2.3%
06:30 JP Industrial activity (August) +2.7%
14:30 US NY Empire State Index (October) -1.5

 

Earnings Calender October 17

Country Company Period
US Bank of America Q3

 

LGT helps you make informed investment decisions

All about global economic and market trends at a glance

Subscribe to LGT's research newsletters

You can also follow us on Facebook or LinkedIn – or visit MAG/NET and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

 

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

 

Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is intended only for your information purposes. It is not intended as an offer, solicitation of an offer, or public advertisement or recommendation to buy or sell any investment or other specific product. The publication addresses solely the recipient and may not be multiplied or published to third parties in electronic or any other form. The content of this publication has been developed by the staff of LGT and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its correctness, completeness and up-to-date nature. The circumstances and principles to which the information contained in this publication relates may change at any time. Once published information is therefore not to be interpreted in a manner implying that since its publication no changes have taken place or that the information is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax or other matters of consultation, nor should any investment decisions or other decisions be made solely on the basis of this information. Advice from a qualified expert is recommended. Investors should be aware of the fact that the value of investments can decrease as well as increase. Therefore, a positive performance in the past is no reliable indicator of a positive performance in the future. The risk of exchange rate and foreign currency losses due to an unfavorable exchange rate development for the investor cannot be excluded. There is a risk that investors will not receive back the full amount they originally invested. Forecasts are not a reliable indicator of future performance. In the case of simulations the figures refer to simulated past performance and that past performance is not a reliable indicator of future performance.

The commissions and costs charged on the issue and redemption of units are charged individually to the investor and are therefore not reflected in the performance shown. We disclaim, without limitation, all liability for any losses or damages of any kind, whether direct, indirect or consequential nature that may be incurred through the use of this publication. This publication is not intended for persons subject to a legislation that prohibits its distribution or makes its distribution contingent upon an approval. Persons in whose possession this publication comes, as well as potential investors, must inform themselves in their home country, country of residence or country of domicile about the legal requirements and any tax consequences, foreign currency restrictions or controls and other aspects relevant to the decision to tender, acquire, hold, exchange, redeem or otherwise act in respect of such investments, obtain appropriate advice and comply with any restrictions. In line with internal guidelines, persons responsible for compiling this publication are free to buy, hold and sell the securities referred to in this publication. For any financial instruments mentioned, we will be happy to provide you with additional documents at any time and free of charge, such as a key information document pursuant to Art. 58 et seq. of the Financial Services Act, a prospectus pursuant to Art. 35 et seq. of the Financial Services Act or an equivalent foreign product information sheet, e.g. a basic information sheet pursuant to Regulation EU 1286/2014 for packaged investment products for retail investors and insurance investment products (PRIIPS KID).