Written by Chris Ayton.
In a volatile week of trading, The MSCI All Country World Index fell -0.4% but the FTSE All Share Index recovered +1.6%. The Bloomberg Global Aggregate Index also made some positive ground and was +1.7% in GBP Hedged terms.
UK media last week was dominated by the news of the election of Rishi Sunak as Prime Minister just seven weeks after the ill-fated ascension of Liz Truss. Markets reacted with relief to Sunak’s appointment and the retention of Jeremy Hunt as Chancellor, with long-term gilts now having fully recovered the extensive losses triggered by the package of unfunded tax cuts announced by Truss’s regime. The pound also climbed back to $1.16, although this was partially due to broader weakness in the US Dollar. The more UK domestic focused FTSE 250 mid-cap Index also reacted well to what markets consider an economically safer pair of hands, rising +4.2% over the week. Nevertheless, Sunak and his new team have their work cut out to address what they themselves refer to as a “profound economic crisis”.
In the US, Google’s parent, Alphabet Inc., reported an unexpected downturn in its core advertising business. Microsoft followed with a warning of a slowdown in its cloud computing business, a division previously thought to be economically insensitive. Then Meta, the parent of Facebook, reported another quarter of declining revenues and Amazon followed suit, also warning that an economic slowdown was starting to bite. Despite these individual setbacks, a strong finish to the week still saw the NASDAQ 100 Index up +2.1% in local currency terms although, due to the recovery in the pound, this translated to -1.6% in Sterling terms.
In China, President Xi Jinping tightened his grip on power at the Chinese Communist party’s 20th national congress, securing a third term and likely beyond. He also successfully surrounded himself with loyal allies prompting fears of less checks and balances, a continued shift from market-friendly policies to ones promoting common prosperity and security, no change to Xi’s economically damaging zero Covid policy and potentially more unfriendly geopolitical rhetoric. Investors were also unimpressed with the subsequent delayed announcement of 3.9% GDP growth which fell well short of China’s full year target of 5.5%. MSCI China fell an astonishing -12.3% over the week in GBP terms.