Sunak named as the next UK PM

The news shaping the markets today

The head of NATO warned Russia about its false claims of Ukraine looking to use a “dirty bomb.” Despite the ongoing tensions, the US dollar index traded slightly lower this morning.

South Korea’s Composite Consumer Sentiment declined by 2.6 points to a reading of 88.8 in October. However, the KRW/USD forex pair remained under pressure.

Brazil’s current account gap widened sharply to $5.7 billion in September, from $1.9 billion in the year-ago month, sending the BRL/USD pair lower in forex trading this morning.

Canada’s total manufacturing sales fell 0.5% in September, after a 2% decline in the previous month. The CAD/USD forex pair remained broadly flat after the news.

Moody’s Investors Service lowered the UK’s sovereign credit rating outlook from stable to negative, but maintained the debt grade at ‘Aa3.’ The GBP/USD pair climbed in forex trading this morning.

What’s happening: Former British finance minister Rishi Sunak has been named as Britain’s next Prime Minister.

What happened: On Thursday, Liz Truss resigned as the Prime Minister of UK, after only 45 days of being the British premier.

The resignation came amid significant financial market turbulence after the new government announced its mini budget.

Why it matters: Liz Truss exited 10 Downing Street last Thursday after being Prime Minister for only six weeks, making her tenure the shortest and most chaotic in UK’s history.

Late on Monday, former British finance minister Rishi Sunak was named as UK’s next Prime Minister, the third UK PM in three months. The latest move by the Conservative Party averts a general election, which could have further derailed the financial markets. Various experts believe some confidence may return in the government’s fiscal plans after this move and provide relief to the nervousness surrounding the UK economy’s outlook.

The British pound and the UK equity markets already showed signs of stabilisation on speculations of Sunak being appointed as the next PM and hopes of him being able to restore UK’s finances. The GBP/USD forex pair had already rallied to 1.13 on Monday morning, while the FTSE 100 had added 0.5% to climb above the 7,0000 mark on expectations of Sunak’s premiership.

UK markets had been pricing in a rate hike to 6% after the announcement of the disastrous mini budget. However, experts said the Bank of England is now expected to take a less hawkish stance, easing mortgage repayments for homeowners.

The FTSE 100 closed 0.64% higher on Monday, while the Stoxx 600 added 1.4%, with all sectors in positive territory. Utilities, retail and construction stocks added more than 2%. The GBP/USD forex pair gained 0.15% to closed trading at 1.1296.

What to watch: Investors await Rishi Sunak’s fiscal policy, especially key policies like the triple lock or benefits cuts. Markets will also monitor how well Sunak is able to ease the tensions surrounding the soaring cost-of-living crisis.

The markets today

Gold will be in focus today after closing lower on Monday

Context: Gold settled lower with a modest loss, while silver recorded gains on Monday.

Details: Gold remained highly volatile last week. The yellow metal declined to its weakest level in around two and a half years at one point during the final session in the week.

Markets are expecting the US Fed to continue with its hawkish stance and raise interest rates by 75 basis points at its upcoming meeting. This has been supporting the US dollar, which ended Monday’s trading higher. This exerted pressure on gold, as strength in the greenback generally makes commodities priced in the currency more expensive for foreign buyers.

Gold for December delivery fell $2.20 to settle at $1,654.10 an ounce, while silver for December delivery added 12 cents to $19.19 an ounce on Monday. December copper slipped 4 cents to close at $3.43 a pound in the session.

“Gold could potentially rally to $2,250 per ounce in case of a sizable U.S. recession and fall to $1,500 per ounce in an ultra-hawkish Fed scenario,” Goldman Sachs analysts said in a note.

What to watch: Traders will keep an eye on speeches made by Fed officials to get more insight into the central bank’s rate hike plans. Some market experts believe the Fed could increase rates by another 50 bps at its December meeting.

The release of major economic reports will also be in focus.

Other Markets: US trading indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.34%, 1.19%, and 0.86%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Saudi Arabia’s balance of trade, South Africa’s leading business cycle indicator, Spain’s producer price inflation, Turkey’s manufacturing confidence index and capacity utilization, Germany’s Ifo business climate indicator, Ifo current conditions indicator and Ifo expectations, UK’s CBI industrial trends orders, Brazil’s FGV consumer confidence index and IPCA-15 consumer price index, Mexico’s economic activity, US Redbook index and API crude oil stocks, China’s foreign direct investment, as well as Argentina’s retail sales.