Market Extra: ‘No more Santa Sunak.’ New U.K. prime minister faces a battle to keep markets calm, say analysts.

by | Oct 24, 2022 | Stock Market

U.K. bond markets rallied on Monday as former Chancellor of the Exchequer Rishi Sunak was handed the keys to Downing Street, but analysts cautioned that even under a government expected to be more austere, the calm may not last. Holding steady from earlier, the yield on the 10-year gilt 
TMBMKGB-10Y,
3.740%
 fell 23 basis points to 3.82%, that of the 30-year gilt 
TMBMKGB-30Y,
3.749%
 dropped 18 basis points to 3.88%, while the 2-year gilt 
TMBMKGB-02Y,
3.375%
fell 24 basis points to 3.42%. Yields move in the opposite direction to prices.

The pound
GBPUSD,
-0.08%
was weaker, down 0.8% to $1,1282, but having still recovered ground from a low of $1.1061 on Friday. News that Sunak won the Conservative Party leadership contest had largely been priced in earlier, with news that former Prime Minister Boris Johnson had bowed out also helping. “Sunak is seen as having a safer pair of hands than his predecessor, with his constant warnings about the disastrous consequences of Liz Truss’s economic policies being proven correct,” said Nigel Green, chief executive officer of deVere Group. “However, we expect the current relief rally of the markets will be over sooner rather than later because the U.K. still faces a storm of economic problems. There’s the brewing deep and painful recession, soaring energy price, inflation running at more than 10%, labor gaps, ongoing supply chain dramas, and the Bank of England intent on hiking interest rates,” Green said in a note. Investors were greeted by sour data on Monday, with the S&P Global/Cips flash UK composite output index for October falling to a 21-month low, the third such sub-50 reading, meaning many companies are seeing a contraction in activity. Analysts say Sunak and current chancellor, Jeremy Hunt, who is expected to stay in that post, will likely present a united front of pinching pennies, even ahead of the tough …

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