Marketmind: Truss drama deepens

A look at the day ahead in European and global markets by Anshuman Daga

Britain’s political drama is getting more and more interesting.

The abrupt resignation of UK Home Secretary Suella Braverman, who had been critical of Liz Truss, reflects the ongoing erosion of the Prime Minister’s authority after just a few weeks in office.

Officials on the 1922 committee responsible for running Conservative Party leadership contests in Britain will meet on Thursday to discuss the escalating leadership crisis, Christopher Hope, co-editor of The Telegraph, tweeted.

And as markets watch the political chaos, there seems to be no respite for the battered pound.

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Sterling received no support from UK inflation, which rose back into double digits, likely putting more pressure on the Bank of England to step up interest rate hikes next month. The pound, which is down 17% so far this year, slipped 0.1% to $1.1206 in Asian trading on Thursday.

Markets in the region are fixated on the yen, which is teetering on breaking 150 against the dollar, a level that would mark a 32-year low and has long been viewed as psychologically important to market participants.

The Bank of Japan said it would conduct emergency bond purchases and offered to buy about $667 million in government bonds, a move aimed at undercutting bond prices.

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The yen has depreciated about 23% so far this year, making it the weakest major currency in Asia.

Asian equities fell on Thursday on the back of rising yields, interrupting a brief rally sparked by strong earnings reports from US and European companies.

Even comments from the US Federal Reserve that inflationary pressures are easing failed to lift stocks.

Economists at ING said: “The market has been looking for evidence of a Fed pivot for weeks, but now that they are there they seem to be ignoring them.”

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“This sets the stage for a possible ‘light bulb moment’ followed by strong gains in equities and a fall in front-end bond yields and the US dollar.”

Japan’s history of supporting the yen https://graphics.reuters.com/GLOBAL-MARKETS/jnpweqoqxpw/tLg3Z-japan-s-history-of-supporting-yen.png

British pound whipped by Trussonomics https://graphics.reuters.com/BRITAIN-ECONOMY/lbpgnqkrevq/chart.png

Key developments that could impact markets on Thursday:

Economic Data: Eurozone Current Account Aug

European Proceeds: Ericcson, ABB, Akzo Nobel, Nordea and

Volvo

US October Philly Fed Index, September Existing Properties

(Reporting by Anshuman Daga; Editing by Kim Coghill)

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