The pound, bonds and energy: the winners and losers under British PM Truss
LONDON, Sept 6 (Reuters) - Liz Truss becomes Britain's new prime minister on Tuesday, facing inflation at 40-year highs, the biggest squeeze on household living standards in decades and a looming recession.
The newly elected Conservative Party leader has pledged to slash taxes to kick-start growth and is expected on Thursday to unveil her plan for the energy crisis. Further policy announcements are likely in the weeks ahead.
Here's a look at some of the assets that could emerge as winners and losers under a Truss premiership.
Britain's battered pound may be the short-term winner but a longer-run loser.
The currency on Monday fell to its weakest since March 2020 at $1.1444 GBP=D3 , before rebounding to $1.16 on Tuesday.
Sterling could benefit from a plan to freeze energy bills after months of policy paralysis, and from a fiscally looser government - especially if the Bank of England (BoE) hikes interest rates faster to prevent further price pressures.
But the pound has failed to get much love from the ramp-up in BoE rate hike expectations and sterling's fortunes are tied to global sentiment, which doesn't favour the UK.
Some analysts see the pound next year testing its all-time low of around $1.05 hit in 1985.
British government bonds, or gilts, are in the loser's camp.
August was the worst month for 10-year gilts since 1986, with yields surging 94 basis points GB10YT=RR .
That was partly due to another gas price surge, but also expectations that a Truss government will increase fiscal spending.
The average household energy bill is set to jump 80% to 3,549 pounds ($4,105) annually from October, with further rises on the way. Reports that Truss is considering freezing energy bills could ease inflation fears, but they also imply more government borrowing.
Citi expects fiscal support in the coming weeks to include an additional 40 billion pounds in net fiscal easing this year, and just shy of 70 billion next year.
NatWest Markets expects 10-year gilt yields GB10YT=RR to hit 3% from around 2.96% now.
British stock markets look unlikely to rebound, although they are at the mercy of global sentiment as much as Truss' policy plans.
Hargreaves Langdon analyst Susannah Streeter worries that slashing taxes and spending big will mean higher rates for longer - bad news for stocks.
Higher bond yields could really hurt growth stocks, said Investec chief economist Philip Shaw, but he cautioned that making sector-specific conclusions was difficult without policy detail.
The energy and defensive-heavy FTSE 100 .FTSE is down 1.4% in 2022, outperforming European shares that have lost 15% .STOXX . The more domestically-focused, mid-cap FTSE 250 .FTC has shed 20%.
KEEP THE WINDFALL
Truss' plans for energy are yet to be made public but she has previously ruled out further windfall taxes to pay for support.
"Overall, that will be seen as a positive for the energy sector," said Streeter.
UK energy companies, buoyed by surging energy prices, have had a stellar 2022. The FTSE 350 oil and gas sub-index .FTNMX601010 is up 40% year-to-date, set for its best year since 2016.
Streeter said targeted support could also benefit hospitality and retail, especially if Truss delivers pledges to cut value-added taxes and business rates. Streeter cited retailer Next NXT.L as one beneficiary.
Defence is a likely winner.
AJ Bell's head of investment analysis, Latish Khalaf, said Truss' plans to raise defence spending to 3% of GDP by 2030 should give defence shares "a little pump".
The FTSE 350 aerospace and defence sub-index .FTNMX502010 has risen 10% this year, after Russia's invasion of Ukraine prompted calls for more security spending.
Insurers such as Aviva VA.L and Legal & General LGEN.L could also do well.
Truss has said she wants to reform so-called Solvency II rules, which could let insurers hold less capital against their investments in assets such as infrastructure.
Defence stocks Link
Energy sector Link
Issue of Truss Link
August was an awful month for UK gilts Link
Reporting by Tommy Reggiori Wilkes, Dhara Ranasinghe and
Editing by Dhara Ranasinghe and Susan Fenton
Mga Kaugnay na Asset
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.