Toodeloo Truss
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Hi all,
This week saw a lot of focus on the UK and the current political carnage during and after Liz Truss’s premiership; with The Star’s lettuce amusingly lasting longer than her! We also take a closer look at who the next Prime Minister could be and why the Japanese Yen has fallen so significantly.
Oliver
Lightning Minister
The shortest-serving Prime Minister ever. Liz Truss will become the answer to a pub quiz question and the UK will have had three Prime Ministers within two months by the end of October. Her premiership will go down in the record books as one of the most unprecedentedly catastrophic; with her mini-budget, cabinet departures and ‘Trussonomics’.
The UK’s domestic and international reputation has been diminished significantly, with investors beginning to treat the UK like an emerging market; manifesting the economic and political behaviour that it has exhibited recently. The UK needs political stability and integrity to be reinstated in 10 Downing Street following Johnson’s tenure being littered with scandals and Truss’s disastrous forty-four days in office.
Parallels can be drawn between this and the USA in 2007 when Barack Obama was elected as president following scandals during the presidencies of George W. Bush and his invasion of Iraq as well as Bill Clinton who was impeached in 1998 for ‘high crimes and misdemeanours’. Although critics would argue that Obama achieved very little while President, it cannot be denied that he restored respect to the White House; something that the UK government is crying out for today.
Ultimately, Truss tried to employ economics that theoretically may sound great but has proven time and time again to not work in practice. Unfortunately for Truss and her ‘mini budget’, time-tested economics prevailed ahead of ‘Trussonomics’. Her inept ability to antagonise those who supported Sunak in the battle for the Conservative party leadership and make enemies with those within her own party would have made her leadership difficult at best during more ‘normal’ circumstances, let alone in the economic climate and hyper-partisanship era that we are currently enduring.
Many feel that morally the UK should have an election, with those who elected Truss - as Conservative party leader and ultimately Prime Minister - being tasked to do the same with the UK’s eventual next leader. However, the likelihood of this actually happening is essentially non-existent.
The Battle for Number 10
Who will replace Liz Truss? That is the question on everyone’s mind following her resignation on Thursday. There seems to be a trident of serious challengers for the coveted role; Rishi Sunak, Boris Johnson and Penny Mordant.
The most logical choice would be Johnson’s former chancellor who quit in July, Rishi Sunak. When Truss proposed her unfunded tax cuts, he strongly opposed them and warned of the dangers that they could present, which have since transpired into reality even more quickly than even he could have likely imagined possible.
Rumours have suggested that Boris Johnson is considering running for Prime Minister again, just months after his resignation. Many feel that it would be comical for Johnson to become Prime Minister ever again, let alone so quickly, especially given the nature of his tenure as Prime Minister; being engulfed with scandal after scandal including Partygate, creating a more pronounced division and increased tension between the people of the UK and the government, particularly the Conservative party members.
Sceptics have alluded to the possibility that Johnson supported a weak leader in Truss to make his premiership look retrospectively more successful when compared to Truss given the current economic and political climate, which would help him in a bid to return to his former role again. Having said ‘hasta la vista’ before leaving parliament, it isn’t surprising that Johnson would run again so quickly.
Penny Mordaunt, who also challenged for the Tory leadership in the summer is considered to be a strong contender for the role too. Critics would argue that she may not have the gravitas required to inherit the role of Prime Minister during these uncertain times.
How do you get up from an all-time low?
The Yen reached its lowest valuation in relation to the US dollar since 1990 and has lost 23% of its value since the beginning of 2022. The Bank of Japan is following a significantly different monetary policy from the Fed and has shown its commitment to its negative interest rate policy; which is one of several reasons for the multifaceted predicament involving the decline in the price of the Japanese Yen. The stark contrast in the respective countries’ monetary policies is further highlighted by the vast discrepancies in their bond yields, with over a 4% yield difference between the US and Japanese two-year bond yields.
Thanks for reading this weeks Market Wrap!
Oliver
Disclaimer
This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.