There was plenty of action in the UK as investors speculate about a potential Government U-turn on tax cuts. That fact Chancellor Kwasi Kwarteng is leaving his US trip early to return for crisis talks only stirs the speculation pot faster in terms of what might happen next.
Russ Mould, investment director at AJ Bell, said: “At this stage, the nation is asking if his tax cut plan or his job are toast, potentially both.
“Always look at the bond market if you want to know what the smart investors are thinking, and a drop in gilt yields on Friday tells you one of two things. Either the Bank of England is hoovering up gilts sold by pension funds (pushing up the price and pulling down the yield) before the end of its support measures today, or markets believe the chancellor is going to rip up his mini-budget and start again. The smart money is probably on the latter.”
“It’s been a wild ride on the markets this year and there are still plenty of opposing forces which could push and pull equities, bonds and currencies in one direction or the other
“After yesterday’s yo-yo session on Wall Street where higher than expected inflation figures initially caused a slump and then a sudden reversal, European and Asian markets have chosen to take an optimistic view and moved higher. How long that will last is another matter.
“Investors need to accept that high inflation could stick around for longer and that interest rates will almost certainly move a lot higher in the near-term. It will take a lot of short-term pain to get inflation back towards central bank targets.”
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