GBP/USD rises towards 1.1350, adding to gains last week after former PM Boris Johnson bowed out of the leadership contest. Rishi Sunak, the ex-Chancellor, could win the race to be PM today, meaning that the 31st October budget is unlikely to be delayed.
· Hang Seng falls to a record low on China XI appointment concerns
· USD/JPY rises again after falling below 150.00 on suspected Japanese intervention
· Eurozone and US PMI data is in focus, which could shed more light on the health of these economies
Wall Street soared higher on Friday following a report in the WSJ that some policymakers at the Fed could look to slow that pace of rate hikes from December to 50 basis points. The report was significant because it was written by Nick Timiraos, the same reporter who released an article during the Fed blackout period in June, saying that the Fed would hike by 75 basis points. In other words, Fed whispers are suspected to be sent to Nick for publication.
The prospect of the Fed finally easing its foot off the hiking gas sent US stocks soaring. The S&P500 closed the day 2.4% higher, and the Nasdaq 2.3% higher. Meanwhile, the US dollar index fell 0.77%. However, there are some doubts over the shelf life of this story, particularly as recent Fed speakers have been firmly hawkish, with no signs of slowing hikes.
Hang Seng
The upbeat finish on Wall Street has transferred to a positive session in Asia. Instead, Hong Kong stocks tumbled, and the yuan weakened after President Xi’s appointments to top governing positions raised fears that XI Jinping will double down on ideology-driven policies at the cost of economic growth. Tech giants such as Alibaba and Tencent plunged 7% while the Hang Seng dropped 5% to a record low.
On the data front, China’s GDP rose 3.9% in Q3 annualised, rebounding faster than expected. However, this wasn’t enough to cheer the market.
UK PM
European indices are pointing to a stronger start to the open. However, the FTSE is set to lag. Miners could act as a drag on growth concerns in China. The strong pound could also act as a headwind.
The pound is rising, adding to gains of over 1% from last week after ex-Prime Minister Boris Johnson said over the week that he would not enter the leadership contest to be Prime Minister. His move leaves former Chancellor Rishi Sunak as the favourite to win. Voting begins today, and should Sunak be the only candidate to win over 100 votes, he could be announced as Prime Minister as soon as today. This would reduce the likelihood of a delay to the 31st October budget, which is helping the pound rise and will draw attention to the gilt market when it opens this morning.
GBP/USD trades 0.5% higher at the time of writing at 1.1350.
USD/JPY
USD/JPY is creeping higher after falling 1.7% on Friday after a suspected intervention from Japanese authorities. USD/JPY rose to 151.94 on Friday, a new 32-year high, before the intervention saw the pair close the week at 147.70, snapping a 12-day winning run. While Japanese authorities say that there are plenty of reserves to shore up the yen, the results could prove to be limited while the BoJ – Federal Reserve divergence remains so acute. Today USD/JPY trades +0.9% at 148.93 at the time of writing.
Looking ahead
Attention will be on the release of PMI data from Europe and the US, which could provide further clues about the health of these economies. The composite PMI, considered a good gauge for business activity, is expected to slip further into contraction at 47.6 in October, down from 48.1. Meanwhile, the composite PMI in the US is forecast to decline to 49.1 from 49.5. The level 50 separates expansion from contraction.
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