- The British Pound has crashed off the bank of announcements from new Prime Minister Liz Truss, causing the central bank to step in to sure up the economy
- U.S. consumer confidence rose again in September, bucking the overriding negative sentiment seen common across social and mainstream media
- Another wild week in energy markets with the European Nord Stream pipeline the subject of sabotage (according to the EU)
- Top weekly and monthly trades
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Major events that could affect your portfolio
The biggest story this week has been the upheaval across the pond. Over the past few months the UK has gone through significant change, with ex-Prime Minister Boris Johnson resigning as leader of the Conservative Party and Prime Minister.
A drawn out process finally saw Liz Truss take the reins of the country, with the first days of her leadership rightly overshadowed by the passing of the Queen.
With the state funeral and a national period of mourning concluded, Truss set out her policies last Friday in what was coined a ‘mini-budget’. The market’s reaction was anything but mini.
Truss announced wide ranging tax cuts that appear to heavily favor the most wealthy. The measures included a complete removal of the highest rate of tax, lifting of a cap on investment banker bonuses, sweeping cuts to property transaction taxes and removing proposed increases to corporations tax and social care levies.
The £37 billion in measures are in addition to the £60 billion recently announced to help provide support for households with record high energy prices. Combined, that represents almost 4% of the country’s GDP. That’s serious.
These tax cuts are to be funded by borrowing, and the market really did not like that idea. Pound Sterling dropped 5% the day of the announcement and then slid a further 2% over the following day’s trading. It has recovered somewhat since then, but only after the Bank of England made emergency interventions to provide liquidity to the bond sector, which looked on the verge of collapse.
All in all it’s not been a good first week on the job for Liz Truss.
In news that may be surprising to some, consumer confidence rose in September, with the index increasing from 103.6 in August to 108.0.
The rise was higher than most analysts had been expecting, given the Feds announcements on interest rates, projections for rising unemployment and continued volatility in the markets.
It’s one of the data points that is making it challenging for the National Bureau of Economic Research (NBER) to call the start of an official recession. With the working definition of two consecutive quarters of negative growth already met, a recession still hasn’t actually begun.
Positive consumer confidence figures have been one element of this, as well as a tight labor market and stable consumer spending.
It will be interesting to see how long the data can hold out. Unemployment looks to start to shift based on the projections from the Fed, which suggest an increase to 4.4% from the current rate of 2.7%. Consumer spending is likely to hold up as long as consumer sentiment does the same.
If sentiment starts to dip it means households are getting nervous, which will almost certainly mean lower spending. All of this could easily be accelerated with further increases in interest rates, which will exacerbate the cost of living in the short term through higher debt repayments.
All in all the Fed is trying to thread a fine needle between dampening the economy to bring down inflation, without crashing it entirely.
This week’s top theme from Q.ai
There’s also been a lot of chatter about energy this week. To start with, the Nord Stream pipeline was hit by two explosions which the EU has come out and said it was a ‘sabotage’. So far it’s not clear who was behind the attack, but many fingers are being pointed towards Russia.
It’s the latest twist in the energy sector, which has gone through some massive ups and downs over the past couple of years. The global lockdowns off the back of the pandemic saw crude oil prices fall through the floor and they even briefly went negative.
As life started to get back to normal, demand roared back and the global energy supply chain has found it incredibly hard to keep up. Russia’s invasion of Ukraine has further exacerbated the issues, with Russian oil and gas embargoes being implemented in many countries including the US, UK and the European Union.
All of this has created a perfect storm for renewable energy to become more and more a part of the power grid.
This might be accelerating things, but it isn’t a new trend. We’ve had our Clean Tech Kit in place for a while now and it’s well positioned to take advantage of the funds flowing into the renewables sector. In the U.S. alone, the Infrastructure Spending Bill and the Inflation Reduction Act is expected to pour almost $450 million into the sector.
That’s a lot of solar panels.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
Franchise Group (FRG) – The franchise holding company is one of our Top Buys for next week with an A rating in Technicals. Revenue was up 59.2% over the past 12 months.
Axonics (AXNX) – The biotech company is one of our Top Shorts for next week with our AI rating them a F in our Quality Value and Technical factors. Earnings per share are down -10.42% over the past year.
Magnite (MGNI) – The digital advertiser is one of our Top Buys for next month with an A in our Technicals and Growth factors. Earnings per share have grown 5.04% over the past 12 months.
Invitae Corp (NVTA) – Another biotech company is one of our Top Shorts for next month with our AI rating them an F in our Low Momentum Volatility, Technicals and Quality Value factors. Earnings per share is down -79.66% over the past 12 months.
Our AI’s Top ETF trade for the next month is to invest in Latin America, regional banks and the VIX and to short the bond market. Top Buys are the iShares Latin America 40 ETF, SPDR S&P Regional Banking ETF and the iPath Series B S&P 500 VIX Short-Term Futures ETN. Top Shorts are the Invesco Senior Loan ETF and the Vanguard Short-Term Bond ETF.
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