In this market commentary, the presenter reviews the UK government's sudden reversal of the proposed 45p top income‑tax rate, arguing the move is driven by political pressure rather than macro‑economic necessity and will likely damage fiscal credibility. He examines the immediate reaction in the foreign‑exchange market, noting a brief sterling rally and a reduction in market expectations for the Bank of England’s November rate hike. The discussion then shifts to oil markets, where WTI futures have risen above $83 per barrel on expectations that OPEC+ may implement its largest production cut since the pandemic to support prices amid weakening demand. The video also covers the ongoing turmoil at Credit Suisse, highlighting a 9% share drop, rising credit‑default‑swap spreads, and concerns—though the presenter downplays the risk of a systemic crisis, likening the situation to past restructurings at Deutsche Bank. Tesla’s Q3 delivery shortfall (343,830 vs. ~360,000 expected) and the resulting 4.5% pre‑market stock decline are analyzed. Finally, the host outlines the dense US economic calendar for the week, including non‑farm payrolls, ISM manufacturing and services PMIs, ADP employment, factory orders, jobless claims, and central‑bank meetings (ECB, RBA, RBNZ), noting their limited impact on Fed rate expectations. The commentary concludes with a reminder to subscribe.
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Hello, hope you are well. And was on holiday last week, so as ever, pretty brutal week I hear in global markets. So hopefully the things will settle down a little bit now. I'm back in the hot seat, so hopefully everyone survived and is well. But of course we're going to talk about the U-turn we've heard from the UK government, who basically have done a complete about-turn on the 45p tax rate. So I'll talk about that in in the moment. We'll also look at the pound on the charts, but we're also going to talk about a few other things. In particular, in the stock space, we've got a bit of an update on the Credit Suisse situation. Their shares are down another 9% today after what is looking like some speculation, the next systemic risk potentially to the financial system. I think that's a little bit overplayed, but we'll discuss why. And then we're also going to look at Tesla Their deliveries for Q3 were lower than expected and their shares are down quite significantly in pre-market trade to get the week underway. We've also got an OPEC meeting happening and WTI crude has managed to top back above $83 a barrel this morning in anticipation of perhaps some of the biggest production cuts we could see since the onset of the pandemic later on this week on Wednesday. Not only that, economic data, nonfarm payrolls obviously inbound on Friday, which means we get all of the major US data Manufacturing Service PMI numbers on Monday, Wednesday, ADP National Employment also on Wednesday, all to come this week. So let's get stuck in and talk about the U-turn on 45p tax rate from the UK Chancellor, which came out this morning. The move to scrap that 45p rate for people earning more than £150,000 per year became clear after dozens of MPs would refuse to back the move in the Commons, which has forced then the hand of the Chancellor to come out this morning. He's done basically the rounds. He has refused to resign. He's also refused to outright say that this was a mistake. He's instead said it was a distraction against then the very kind of pro aspects of the growth potential coming out of the overall tax cuts that have been presented by the government just last week. The market has somewhat validated the move to some respect. I mean, earlier this morning we did see a little bit of a pop-up in sterling currency. You can see here I'm looking at the British pound against the US dollar on a 30-minute candlestick, and you can see this big fat green candle here first thing in the morning when the statement came out and actually pushed us back above where we were trading towards the, the highs at the end of last week. We have faded that a little bit, and I'll discuss why in a moment. But in the rates market, we've also had some further validation in the change of policy from the government. The markets now paring back a little bit expectations for the severity of the rate hike they're anticipating from the Bank of England in November, now pricing less than 125 basis points versus the 140 basis points on Friday and as much as 200 basis points on September 26th, a few days after the UK mini-budget wreaked havoc in the financial markets. But one thing here, just looking at the pound, is where we are at the moment. We've managed to trade back close proximity to 113 handle in overnight trade, and that's pretty much an entire full reversal of the shakeout that we had when sterling hit record low levels against the US dollar down at the 103 mark. And obviously then following on from the intervention from the Bank of England and the steps that they've taken as well to steady the ship. But yeah, what a mighty ride we've been on. But actually we're at scratch pretty much despite all the fanfare that we've seen around this. Now, a couple of things. Um, for one, uh, obviously what's happened here with the reversal on the U-turn on 45p tax rate, I think that's entirely political. Uh, we saw last week then, uh, the divergence in polling, the most that it's been in a Labour lead over a Tory government since going back to the late '90s when Tony Blair was first coming in under New Labour. So I think change needed to happen, particularly in the context of a cost of living crisis. People aren't able to pay their energy bills. They're not able to then facilitate their mortgage payments given a lot of market resets that we're seeing with higher rates expected, um, and so on and so forth. So it was such a badly, uh, timed move on that specific element for sure. So this is entirely political, and I say that because I don't actually think it makes a great deal of difference from an economic perspective. And the reason for that is the 45p tax is a very small proportion of the overall tax cuts announced in the prior week, and even smaller when the energy subsidies— or subsidies, excuse me— are also taken into account. So from a macro perspective, I don't think what's happened this morning makes a great deal of difference. And so while the pound has had an initial positive response, I think it's negative on two fronts. The first front, I think, is the fact that it doesn't make a difference to the extent of the fiscal loosening, the required net government bond issuance, or the UK's external financing needs. So on that side of things, and this being just more the optics on managing the political side of the equation, I don't think economically this makes any difference at all. So the direction of travel still is a negative one for the reasons that developed in market prices last week. The second is credibility. I think that the fact that they've made such a fast U-turn, or what was a signature policy move in the mini-budget, or the not-so-mini-budget that they announced, I think is very damaging for credibility and particularly for the judgment of the new Chancellor, but also for the Prime Minister for letting that take place in a in its first instance. I just think overall, net-net, it's a negative on those two fronts. So gonna move on though from that, and let's talk about a few other things. And gonna have a look at oil prices. And this is having a look at the jump up in market prices and electronic trade overnight. And in fact, markets have actually extended on this initial move that was seen at the recommencement of trade, and we're trading above, oh, briefly $83. We're just below there at the moment in WTI front-month futures. And it comes on indications that OPEC+ alliance is considering slashing production by more than 1 million barrels a day when it meets later this week on, on Wednesday. Now, the reason why that is particularly significant is because that move would break out of their normal sequence and in fact be one of the biggest production cuts that we would have seen since the onset of the pandemic. And the rationale there is because, as we've seen, a lot of, uh, destabilization at the moment in the global market, which has been at the core of it heightened recession fears on the back of very aggressive tightening in policy to get hold of inflation. That domino effect then has led to somewhat demand destruction in the short term. Prices have continued to move lower down into this kind of into the, the high 70s region. And so they're looking to take action. And so getting ahead of further price declines and also ensuring that they keep some degree of influence over market prices. And they, the oil and energy-producing nations, will want to be staying ahead of the demand curve as well. People like Russia, obviously income is important. They are said to be backers of this deal, and the Saudis as well are also said to be on board. So it's just about the magnitude, the size of the cut that we're looking out for, and the market's already pre-positioning for that outcome this morning. Other things to speak of, Credit Suisse has been a big talking point, of course, last week. The new chief who came in, I think it was in July, has only been there for a couple of months, jumped over the street from UBS into Credit Suisse to try and fix what has been a pretty horrendous time for the Swiss institution, has given less than 100 days to deliver a turnaround strategy. It comes as the cost of insuring the firm's bonds against default climbed about 15% last week, and that level has not been seen since 2009, when, as the shares have now touched new record lows. So basically the cost of insuring against a potential default has continued to increase. Now a lot of this has come because on Friday the CEO, so a chap called Ulrich Körner, reassured staff that the bank has strong capital and liquidity position and they basically shouldn't look too much on the actual volatility in the company's stock price. Um, he sent that out to employees and said that would be sending them regular updates until the firm announces a new strategic plan, which isn't going to come until the 27th of October, so the end of the month. So for sure you're probably going to see lots more volatility in that bank share price between now and then, as well as fluctuation in their 5-year credit default swaps. Now, what's drawn particular attention— and their shares have traded down as much as really 9% in Credit Suisse shares again this morning— has come because there's lots of parallels between some of the phrasing, particularly about strong capital base and liquidity position that CEO said in his internal memo as to what the Lehman's chief was saying just before we saw the demise of that financial institution. And so there's been lots of rumor mongering about could this be the next kind of Lehman's moment? Is this a systemic risk to the financial system? I kind of— I'm very reluctant to go that far at this point in time. I think they'll be looking to follow the template and probably I would say overall similar path to what we saw Deutsche Bank several years ago, who were in a fairly similar spot. There were lots of people talking about these systemic-type risks to the system. It was looking very precarious, and the idea of them being too big to fail on the table— they ultimately, after severe restructuring and much effort, money, and time, have now managed to turn that tide. And Credit Suisse will be looking to do the same. So we continue to watch this space. More probably volatility, as I mentioned, in anything to do with that firm anticipated over the next coming weeks. Then you've got Tesla. They came out over the weekend, announced lower than expected EV deliveries in the third quarter, chiefly blaming logistical challenges overshadowing its record, record deliveries. They in fact delivered 343,830 vehicles. The very problem was the market was looking for around $360,000. So in pre-market, you can see here for Tesla, their shares are trading down about 4.5%, looking to open up at around, um, the $253 marker at this point in time. As I mentioned, for the week ahead, plenty of US data to get your teeth into, all setting the scene then for US non-farm payrolls, which we'll get on Friday. Expectations for US jobs growth are for it to have slowed again to 250,000 from around 315,000 prior. Analysts forecasting around the 175 to 350K marker. Either side of that, I don't really see it really shifting the needle, needle a great deal for Fed expectations for future rate rises. The unemployment rate is predicted to be unchanged at 3.7% according to economists. It does mean though we get manufacturing PMI from the ISM this morning. we'll get the, the related services figure later on in the week. We've also got US factory orders Tuesday, ADP national employment on Wednesday, and weekly jobless claims as well as per usual on Thursday. A few other things just to mention, you've got ECB minutes on Thursday and both the RBA and the RBNZ, so Australia and New Zealand central banks, have their rate decisions this week and both are expected to hike interest rates once again. But that is it. So thanks very much for watching. Don't forget to like and subscribe to the channel if you're not already done so, and I will see you next time. Take care.
