The Brief: The market was upbeat yesterday upon Rishi Sunak’s confirmation as the country’s newest PM. According to The Financial Times, the 30-year gilt yield fell to 3.67%, while the 10-year gilt followed suit at 3.64%, closer to its pre-mini-Budget level of 3.50%.
Why It Matters: Truss’ unfunded tax cuts and Kwarteng’s long delayed economic report were the primary reasons why the gilt market experienced a severe rout. News of gilt yields returning to lower levels is a respite from weeks of devastating financial news.
Finanze® Foresights: Yesterday’s market reaction was quite different during Truss’ election win when the FTSE was down 0.7% and sterling traded -0.14% at $1.1503 against the dollar. But the market sentiment today is quite expected since investors have long waited for a change of leadership — and Sunak may just be the fresh start that they need. But not everyone will be comfortable with Sunak’s next decisions moving forward. Today, Lloyds Banking Group reported a dip in its pre-tax profits to £1.5 billion, lower by £500 million from the previous year, owing to bad loans. This may just be the beginning of a tougher year for the banking industry as Sunak is most likely to impose additional taxes on bank profit surcharge and a potential fall in asset prices in the coming months. Furthermore, asset quality will still be affected as borrowers, especially mortgage holders, are still being squeezed by the cost-of-living crisis, which forces them to be at risk for defaults.
To the fullest extent permitted by law, Finanze Ltd are not responsible for any errors or omissions in any statements, views, opinions, facts, figures, commentary or any other material in the articles contained herein, or for loss arising from its use or performance, or for the results of any actions or lack of action taken on the basis of information provided in articles.
The topics covered in articles are complex and do not substitute the need for financial, legal, accounting, tax and other advice before making any decisions or taking any action based on information in articles.