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Truss resignation pushes gilt yields lower and sterling higher

Liz Truss

The weaker tone for European markets initially persisted, against a backdrop of concerns about the growth and earnings outlook, resilient yields, and a rising US dollar, however we’ve seen a bit of a turnaround in the afternoon session, on the back of more buoyant US markets, and yields have started to slip from their intraday highs.


Dechra Pharmaceuticals shares initially fell sharply, hitting a one year low, before pulling back, after reporting that it is trading in line with full year expectations, and that it is expected to see an acceleration of performance in the second half of the year.

Bunzl is also lower despite reporting an 18.8% rise in Q3 revenue, while at the same time keeping its full year guidance unchanged, with group operating margin expected to be slightly lower than that achieved in 2021.

UK homeware retailerDunelm shares have slipped back after reporting Q1 sales of £357m, a decline of 8% year on year. While this seems like a big fall, sales got a big boost at the beginning of 2021 as the UK economy was reopening after another series of restrictive lockdowns. On a 3 year basis, sales rose by 36%, with the company reiterating its guidance for 2023.  

On the plus side UK housebuilders are slightly more resilient after Deutsche Bank said that there was the potential for a rebound in the wake of the brutal drop seen so far this year, with Barratt Developments, leading the way along with Bellway Homes.

Financials have also seen a modest rebound after yesterday’s losses with Lloyds seeing the biggest recovery.  


After finishing the day lower for the first time this week, US markets initially continued their weaker tone today, opening lower after Tesla disappointed on its latest Q3 earnings numbers. However we’ve since seen a modest rebound with the gains being primarily driven by the  Nasdaq 100 which is leading the turnaround, after IBM beat expectations.

IBM shares performed well in Q3 beating on revenues and profits, with revenues coming in at $14.1bn and profits of $1.79c a share. The company also raised its full year outlook, with the shares ticking higher

Tesla shares opened lower after Q3 revenues and margins came in below expectations, with the electric car company citing the strength of the US dollar as a significant headwind.

American Airlines has followed in the footsteps of its rival United Airlines earlier this week, beating on Q3 revenues and profits, while upgrading its Q4 forecasts for profits to between $0.50c to $0.70c a share from $0.27c. Q3 revenues came in at $13.46bn, an increase of 13% from pre-pandemic levels which is just as well given the higher costs from fuel and wages, which have eroded profitability. This result in a modest profit of $483m, however the shares have slipped back a touch.  


The US dollar has continued to edge higher, hitting the 150.00 level against the Japanese yen for the first time since September 1990, with little sign that the Bank of Japan was likely to intervene again ahead of their next monetary policy meeting which is due to take place Friday week.

The pound has undergone a modest rebound and UK gilt yields have slipped back after UK PM Liz Truss announced she was stepping down, making history as the shortest serving PM in British history.

While this has brought about a brief respite to the political risk premium it’s hard to see how any replacement will be able to coalesce around any form of unity of policy in this dumpster fire of a government.

The Conservative party in its current form is so riven by partisanship that even if Rishi Sunak does take over, as is widely being predicted, there will always be those working in the background to undermine him. If, as is being reported, Boris Johnson was to make a return then we really would be through the looking glass.

On the monetary policy side, the Bank of England indicated that a substantial rate rise was on the way in two weeks’ time with the only question being whether we saw a 75bps rate rise or a 100bps one.


Crude oil prices have rebounded on this mornings’ reports that China is looking to cut the duration of quarantine for inbound visitors, in a sign that perhaps the government might be looking to try and mitigate some of the worst effects of its zero-covid policy. The reality is its unlikely to make much difference given that as the weather gets colder, covid infection rates are only likely to increase, making this tinkering pretty much irrelevant.


Shares in Proctor & Gamble popped higher off the back of Q3 earnings news yesterday, although gains proved short lived, with the company’s reliance on overseas earnings and a strong US dollar combining to take a toll. The stock, which added as much as 4% at one point, closed less than 1% ahead, with daily vol advancing to 56.39% against 39.07% on the month.

Price action for commodities remains dominated by energy markets, with US Heating Oil once again being the stand out. Prices continue to be squeezed, although talk that US refineries could be hit with an export ban in a bid to stabilise the domestic market this winter would go some way to explaining this at a time when underlying crude prices continue to rise. One day vol on US heating oil came in at 59.7% against 51.53% on the month.

Finally, Chinese tech stocks are also still struggling. A combination of concerns over the nation’s economic outlook plus a rise in COVID cases half way through the CCP’s major conference are weighing. CMC’s proprietary basket of US listed Chinese tech stocks broke through the May 2022 lows during Wednesday’s trade and as an example here, the Baidu ADR is now close on the levels seen as the scale of the COVID pandemic was realised in early 2020. One day vol on the basket came in at 68.78% against 60.48% on the month.

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