New British Prime Minister Liz Truss’s policies keep money managers on guard

New British Prime Minister Liz Truss’s policies keep money managers on guard

But there was enough detail in its energy package to elicit a negative reaction from bond markets.

Silvia Dal Angelo, chief economist at Federated Hermes Inc. London-based: “Gold and currency markets have not reacted well to the government’s energy package.” concerns about fiscal sustainability, “resulting in higher risk premiums,” she said. “While markets tend to overreact, sustainability concerns are not going to go away,” she said.

On fiscal intervention and government spending, TwentyFour’s Shannon said: “The problem is that the level of these kinds of interventions has been lowered.” “I don’t argue with that, but now you’re going to be spending over £100bn on gas – so what is the one-in-a-generation problem next year (the problem that needs spending) – the market won’t tolerate which – which.”

Ms Dall’Angelo said the fiscal measures outlined by Ms Truss would temporarily boost growth and put an end to inflation. Federated Hermes manages $632 billion in assets under management.

But this effect may be short-lived.

If fully enacted, the fiscal measures would “likely have a significant impact on inflation, lower it now, but limit its downward trend later,” Matteo Comineta, chief economist at Barings Investment Institute, said in an email. The Institute is the Barings Proprietary Research Unit Money Manager. Barings has $349 billion in assets under management.

Ms Truss said the energy cap could cut peak inflation by 5 percentage points in the coming months. But the financial package of roughly £200 billion – the equivalent of 8.6% of UK GDP – “fully funded by additional borrowing, will support spending in the next two years. In the context of the still-constrained supply, the additional payment should be inflationary, or at least limit deceleration of inflation over the medium term,” Mr. Komineta said in an email.

The limited impact of the energy cap on inflation is due to the fact that inflation in the UK is “very broad, driven by many factors beyond energy, as evidenced by core inflation, which combines energy and food and is currently at 6.2%” – the highest in 32 years, he added.

Over the medium term, the inflationary environment will need to be combated with “more aggressive policy tightening. Higher inflation and policy rates, along with above-trend budget deficits for years to come, all evoke a somewhat unpleasant mix for UK bonds.” ‘ said Mr. Comineta.

Mr Comineta added that sterling was likely to remain under “extreme pressure, as the highest inflation rate in the (Group of Seven) mixed with slowing growth and continued Brexit uncertainty, all of which should keep volatility high”. .

While the bond and currency markets will reflect reactions to Ms Truss’ leadership and policies, LGIM’s Mr Rowe said: “What that means in equities is less clear, as UK equities are global.” He said that if companies are exposed to the dollar exposure to their earnings, a weaker pound means stocks are up. So, when it comes to stocks, “everyone’s first thought should be what happens to the sterling and commodity sectors, because we have very high weights for the UK commodity sector,” said Mr Rowe.

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