Market Update 12/09/2022 - “5 Things"

In Brief: Here are the weekly highlights of the eventful week of early September. 

 

Liz Truss was named as the next UK prime minister on the previous Monday, September 5, 2022, ECB raises rates by 75bps, Apple Expo – iPhone14 Event,  Disney Event- D23 Expo 2022, and the passing of the longest Monarch – Queen Elizabeth II’s death marks a new era for Britain.

 

 

Liz Truss was named as the next UK prime minister.

 

 

Liz Truss was named as the third woman to serve as UK prime minister after winning the Conservative race on the previous Monday, September 5, 2022, taking over from Boris Johnson. Truss won the support of her party’s grassroots with promises of tax cuts and with her fealty to Johnson.

Johnson was ousted by his lawmakers in his own party after a succession of scandals in the first half of this year. After losing support of not only the majority of his fellow Conservative legislators, but also many of his own ministers, he was forced to resign.

Truss later spent the summer campaigning against Rishi Sunak, the UK’s former finance minister who was her rival for the Conservative leadership. The contest was decided by the votes of almost 142,000 party members. Truss won with 81,326 votes, ahead of Sunak’s 60,399.

In the beginning, Liz Truss wasn’t the top choice of Conservative Party lawmakers, and a majority of Britons tell pollsters she will be a “poor” or “terrible” prime minister, but she was the favorite among the Tory activists.

Rishi Sunak, on the other hand, though the preferred choice among Conservative members of Parliament, had a tough time convincing his party’s voters that tackling inflation should come before tax cuts. Formerly a foreign secretary, Truss was a reliable NATO ally, talking tough on Russia and Vladimir Putin. She led the charge on sanctioning oligarchs — many who had been living the high life in London.

In addition to the war in Ukraine and the fallout of Brexit, the new prime minister will inherit a vast range of economic and political problems. “We will deliver, we will deliver, and we will deliver,” Truss said.

 

The response to the election of new PM. 

 

According to Liz Truss, the UK economic growth will be her top priority. Thus, in order to kick this off she highlighted a few plans: 

 

  • £30 billion of tax cuts: including reversing the 1.25% National Insurance increase, stopping the planned corporate tax rise from 19% to 25%, and even cutting taxation for general workers. 

  • To consider investing in infrastructure, which investment in infrastructure can support the building of new homes. 

  • Temporary suspension of the green levy on utility bills.

 

Liz Truss pledged to cut taxes, but it seems that the markets are not convinced by this strategy as the pound is trading at its lowest level since March 2020.

 

BBC reported, On Wednesday, the Sterling fell 0.64% to $ 1.145, a level not seen in over 35 years.

 

ECB raises rates by 75bps

On Thursday, the European Central Bank (ECB) announced a 75 basis point interest rate rise, taking its benchmark deposit rate to 0.75%, and raising the main refinancing rate to 1.25%, its highest level since 2011.  The bank also revised its inflation expectations to an average of 8.1% in 2022. ECB said it expects to hike rates further as “inflation remains far too high and is likely to stay above target for an extended period.”

Meanwhile, Federal Reserve Chair Jerome Powell in an appearance Thursday emphasized the importance of getting inflation down now before the public gets too used to higher prices and comes to expect them as the norm. Powell said that the US central bank will raise rates to tackle inflation “until the job is done.”

“History cautions strongly against prematurely loosening policy,” Powell said.

The Fed has raised benchmark interest rates four times this year, with the fed funds rate now set in a range between 2.25%-2.50%. Markets widely expect the rate-setting Federal Open Market Committee (FOMC) to enact a third consecutive 0.75 percentage point increase this month. In fact, that probability rose to 86% during Powell’s remarks. The event was Powell’s last scheduled public appearance before the Fed’s next meeting on Sept. 20-21.

 

ECB is taking a similar stance to the Bank of England and the Federal Reserve in tackling inflation at the expense of economic growth. Following the announcement, the main refinancing rate is 1.25 %, the rate on the marginal lending facility is 1.5 %, and the deposit facility is 0.75 % with effect from September 14. 

 

“I don’t think this will do much to help the euro, given the degree to which gas prices are driving the market, and the relentless nature by which the dollar continues to rally. It feels like a long shot to think that a 75bps hike will do much to control inflation, which will remain elevated, acting as a lead weight on the economy, as long as volatility in energy markets continues.” 

– Micheal Brown, Head of Market Intelligence, Caxton. 

 

ECB’s interest rate hikes could deepen a European recession predicted for the end of this year and the beginning of 2023, the hike of higher inflation will make everything from groceries to utility bills to become more expensive. Accordingly, the projections for economic growth were revised down to 3.1% in 2022, 0.9 % in 2023, and 1.9 % in 2024.

Apple's iPhone 14 Event

Apple (AAPL:US) wrapped up its iPhone event where it announced new iPhones, AirPods, and Apple Watches.

Tim Cook, the chief executive officer, unveiled the latest series of its flagship smartphone.

  • iPhone 14 and iPhone 14 Plus

  • iPhone 14 Pro and iPhone 14 Pro Max

  • Satellite emergency service for iPhones

  • Apple Watch Ultra

  • New AirPods Pro

  • Apple Watch Series 8

  • The new Apple Watch SE

 

The iPhone 14 Pro will start at $999, and the bigger model starts at $1099. That’s the same price as last year’s models, and Apple didn’t increase the prices as some analysts had expected. They go up for preorder on Friday and will ship next week.  There are several notable updates, including higher-performing cameras, better battery life, and a more-powerful processor on the higher-cost Pro model.

 

According to said Neil Saunders, managing director of research firm GlobalData Plc. Many of the features announced by Apple are incremental improvements rather than groundbreaking new innovations.

The prices for latest iPhone were stable in the United States, but raised prices in some Asian countries where currencies have dropped against the dollar in the past year. Apple should brace for a weakening of demand in China- Apple 3rd largest consumer, where the economy has been hurt by a series of COVID-19 lockdowns that have squeezed consumer spending.

 

“The dollar’s strength is the biggest risk to Apple’s earnings”, Credit Suisse analysts wrote in a note.

 

 

On the other hand,  its product releases initially haven’t always pushed the share price higher. Apple shares rise by only  1% to $155.96 following the presentation. They remain down 12% for the year. Apple’s share price later dropped to $154.46 on the next day. 

 

Alex Wilhelm, Tech analyst at Tech Crunch once said in a publication in 2019: “Investors simply don’t trade Apple based on the products or services it announces.”

 

D23 Expo 2022

Disney (DIS:US) fans flocked to California on Friday for D23 Expo 2022. It’s the first D23 convention since 2019. Chairman Josh D’Amaro shared a look into the future for Disney theme parks and beyond.

 

Highlights included are :

  • the expansion of Avengers Campus at Disneyland Resort with a third attraction; 

  • a first look at the Disney Treasure, the next ship joining the Disney Cruise Line fleet; 

  • a closer look at the Frozen-themed lands coming to three park destinations around the world; and 

  • a behind-the-scenes look at the blue-sky brainstorming of Disney Imagineers.

  • Executive Producer and Disney Legend Jon Favreau joined to share a first look at the Mandalorian and Grogu before they encounter guests starting in mid-November inside Star Wars: Galaxy’s Edge at Disneyland Park in Anaheim. 

Marvel Studios President Kevin Feige shared how Avengers Campus at Disneyland Resort will expand the Multiverse with a third attraction, along with the debut of the Incredible Hulk, who will appear in his Quantum Suit at Avengers Campus in California beginning next week for a limited time. Kevin Feige teased that his team has a plan for the next ten years of Marvel’s cinematic universe, and plans to incorporate the Fantastic Four, X-Men and Deadpool into the mix of already established Marvel heroes.

Marvel Studios

Among the highlights included are :

 

  • Black Panther: Wakanda Forever director Ryan Coogler showed an exclusive scene, revealing that the international community is after the county’s supply of vibranium in the wake of King T’Challa’s death. The movie hits theaters Nov. 11.

  • Ant-Man and The Wasp: Quantumania kicks off Phase 5 of the MCU on Feb. 17, 2023

  • WandaVision director Matt Shakman was officially revealed to be helming Fantastic Four, which opens in theaters on Nov. 8, 2024.

  • Captain America: New World Order will see Tim Blake Nelson return as the Leader and presumably face off again Sam Wilson. This movie comes out May 3, 2024.

  • Thunderbolts’ lineup was revealed to be Valentina Allegra de Fontaine, Ghost, Red Guardian, Black Widow, Winter Soldier, US Agent and Taskmaster. This dark superhero movie will be directed by director Jake Schreier and hit theaters on July 26, 2024.

  • Werewolf By Night will be the first MCU Halloween special when it hits Disney Plus on Oct. 7, and it got its first trailer.

  • Ironheart will see “tech and magic do battle” and see Anthony Ramos debuting as Parker Robbins/The Hood when the series hits Disney Plus next year and more…

 

The passing of the longest Monarch - Queen Elizabeth II’s death marks a new era for Britain.

 

 

Queen Elizabeth II ascended to the throne in 1952 and reigned for 70 years – the longest-serving monarch in British history until her death on Thursday, September 8, 2022. She was 96. 

Buckingham Palace announced her death in a short statement, triggering 10 days of national mourning and an outpouring of tributes to her long life and record-breaking reign.  “The Queen died peacefully at Balmoral this afternoon,” Buckingham Palace said in a statement at 6:30 pm (1730 GMT). “The King and The Queen Consort will remain at Balmoral this evening and will return to London tomorrow.”

The queen’s death came after the palace announced on Thursday that doctors were “concerned” for her health and recommended she stayed under medical supervision. 

The eldest of her four children, Charles, Prince of Wales, who at 73 is the oldest heir apparent in British history, becomes king immediately. All her children — Charles, Princess Anne, 72, Prince Andrew, 62, and Prince Edward, 58, flocked to her Scottish Highland retreat, Balmoral. They were joined by Charles’s sons, Prince William, and his estranged brother Prince Harry.

United Nations held moments of silence to honor her passing while flags on official buildings were lowered to half-staff.  

Queen Elizabeth II came to the throne aged just 25 in 1952 in the aftermath of World War II, joining a world stage dominated by political figures from China’s Mao Zedong to Soviet leader Joseph Stalin and US president Dwight D. Eisenhower. She met 13 US Presidents, starting with a visit to Washington to see Harry Truman before she became Queen.

In a rare, televised address during the first coronavirus pandemic lockdown, she recalled the “Blitz spirit” of Britain under siege during World War II that defined her generation. “We will meet again,” she said.

 

The implication of the news – Death of Queen brings another price tag crisis to hit UK

 

Along with the news, banks and The London Stock Exchange will be closed on the day of the Queen’s passing and a large number of UK companies are likely to follow the same out of respect for the Queen. The Bank of England has also postponed its monetary policy meeting by a week. This will be the British economy’s first significant hit. 

 

According to the Independent, In consideration of all the bank holidays, company closures, funeral expenditures, coronation expenses, and additional changes needed in replacing the image on currency, passports, military and police uniforms, stamps of Queen Elizabeth II with King Charles III, and other minor institutional changes.  It is estimated to cost around $1.6 billion to $7 billion to the British economy. 

 



Notwithstanding, “There’s no significant impact on the pound,” said Amo Sahota, director of FX consulting firm Klarity FX in San Francisco.

 

Following the news, GBP/USD was last down 0.3%, at $1.1506 while The euro rose 0.1% against the pound, to 86.85 pence EUR/GBP. The currencies continue to get back on track at $1.1684 on Monday 12 September 2022.

 

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