Week in Review: 45 Days

Her government collapsed in the wake of the market turmoil sparked by her proposals to cut taxes for the country’s top earners and boost borrowing and spending. The frontrunners to replace Truss as prime minister are former chancellor of the Exchequer (finance minister) Rishi Sunak and former prime minister Boris Johnson.

U.S. stocks recorded strong gains over the week, as investors reacted to some prominent earnings reports and signals that the Federal Reserve might need to moderate its pace of interest rate hikes. The S&P 500 and Dow Jones gained 4.7% and 4.9%, respectively, while the Nasdaq rose 5.2%. It was the best week since June for all three major averages.

About 20% of the constituents of the S&P 500 Index have so far reported third-quarter results, with 73% of companies exceeding bottom-line expectations, while 53% of companies have beaten sales projections. Mega-tech counters, Apple and Microsoft are among the 150 S&P 500 companies reporting in the week ahead.

Shares in Europe were also stronger on the week following the resignation of Prime Minister Liz Truss and the scrapping of her fiscal policies. In local currency terms, the pan-European STOXX Europe 50 Index ended the week 2.81% higher, while the UK’s FTSE 100 Index added 1.62%.

The U.K. consumer price index rose 10.1% in September (year over year), while core prices rose 6.5%. Increasing food, transport and energy prices were the biggest contributing factors to the higher inflation print. Investors are pricing in a significant chance of a 100-basis-point rise in the Bank of England’s policy rate at the central bank’s next rate-setting meeting on 3rd November.

China’s stock markets recorded a weekly loss after Beijing delayed releasing key economic data with the broad, capitalization-weighted Shanghai Composite Index ending 1.1% lower. The twice-a-decade Communist Party Congress ended on the weekend with China’s President Xi Jinping securing a historic third term as the country’s leader, cementing his place as the nation’s most influential ruler since Mao Zedong (the founding leader of the People’s Republic). The Central Committee of the Chinese Communist Party (CCP) elected Xi as its general secretary for a precedent-breaking five-year term. The CCP also named a seven-member Politburo Standing Committee (PSC) led by Xi, its inner circle of power dominated by the party leader’s allies.

Market Moves of the Week 

The Consumer Price Index (CPI) in South Africa declined slightly in September to 7.5% from 7.6% in August.  The main drivers of inflation in September were food and transport. Core inflation, which excludes volatile items like food and fuel, accelerated to 4.7% from 4.4%, suggesting that underlying prices pressures are still building. The slight easing of inflation is unlikely to sway the Reserve Bank from raising interest rates in November as inflation remains above their 4.5% year-on-year midpoint target.

In the week ahead, Finance Minister Enoch Godongwana is expected to deliver his Medium-Term Budget Policy Statement on 26 October.

In corporate news, MTN Group has walked away from talks to buy Telkom SA in a deal that would have created South Africa’s largest mobile phone operator.South Africa’s financial regulator, the Financial Sector Conduct Authority (FSCA), posted a brief notice this week indicating that cryptocurrency assets will now be classified as financial products, enabling them to be regulated. The regulator indicated that the 2002 Financial Advisory and Financial Intermediary Services Act (FAIS) has now been updated to include a definition of crypto assets, a move that has been anticipated for several months. With its implementation, cryptocurrencies will be regulated in South Africa for the first time.The JSE All-Share Index ended the week 1.9% stronger with the financial and resource sectors gaining 5.2% and 2.03% respectively. By Friday close, the rand was trading at R18.08 to the U.S. Dollar.  

Chart of the Week 

Holding office for only 45 days, Liz Truss has become the shortest-serving prime minister in British history after announcing her departure from Number 10. George Canning previously held the record, serving 119 days in 1827, when he died. Rishi Sunak, who served as chancellor under Johnson, is now one of the favourites to succeed Truss.