The “Divided Kingdom” & Congressional Cuts: The Common Observer
Keith D. Smith III
Financial Literacy Advocate | Banking & Payments | Financial Markets
Welcome back to another week of the Common Observer. If you tuned in last week, you might have been somewhat prepared for the events that unfolded. We didn’t predict the resignation of Liz Truss, but we did highlight the changes in leadership and need for a response to the heightening situation!
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1. The United Kingdom Needs a New Prime Minister
Last week, we discussed the looming bond and pension crisis taking place in the United Kingdom. It turns out that Liz Truss did not have confidence in her ability to weather the economic storm occurring in Great Britain as she resigned from her position as Prime Minister on Wednesday.
We didn’t mention it here, but The Daily Star made a Livestream recording a head of lettuce just over a week prior to Liz Truss’s resignation seeing which would last longer. It happens to be that the lettuce did officially outlive Liz Truss’s tenure.
Truss announced her resignation after only 44 days in office. This makes her term the shortest in the history of the country.
What’s next?
After a weekend of hype for the previous Prime Minister, Boris Johnson’s return, he dropped out of the race for the Tory party late Sunday night (US Time), practically handing the job to Rishi Sunak.
An official nomination of candidates will close on Monday afternoon in the United Kingdom.
Rishi Sunak and Penny Mordaunt are the two declared candidates for the position.
2. Policy Interest Rate Decisions Around the World
Big policy rate updates coming from major regions around the world this week starting with the Bank of Canada (BOC) on October 26th. The bank is expected to continue with a rate hike of 75bps after a high inflation report that was released in September.
The European Central Bank (ECB) will release its policy rate decision on October 27th, and the Bank of Japan is set to release its decision tentatively on the same day.
The Bank of Japan has been wrestling with a weakening currency as it continues to intervene, potentially by selling its US Treasuries. The Japanese Yen saw heightened volatility to end the week on these concerns.
Japanese Finance officials reinforce their commitment to addressing speculators in foreign exchange markets late Sunday night (US Time).
What is really going on with policy interest rates?
Inflation is running rampant around the world and central banks are attempting to address the high inflation by raising interest rates in order to decrease demand and therefore slow down the kind of spending that creates inflationary prices.
Central banks are raising the rate at which it believes large commercial banks should be able to borrow from each other. This is called the Federal Funds Rate.
One big issue is that as banks continue raising interest rates at which they borrow from one another, they pass this higher cost on to large organizations that want to borrow money to fund the growth of their business.
Due to the higher cost of money, companies have less incentive to borrow as these companies find it harder to guarantee returns on these higher interest rates.
Sure, it may be much more complex than that, but this is through the lens of “The Common Observer”. Please feel free to correct any inaccuracies.
Rising interest rates are also having massive effects on mortgage rates in the real estate market. In the United States, mortgage rates have reached levels seen in 2008, with 30-year fixed-mortgages rates most recently coming in at 6.94%.
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Analysts expect this to create dramatic downward pressure on the price of housing as buyers struggle to get approval on mortgages with such high-interest rates.
3. Xi Jinping Secures a Third Term
We mentioned last week that China was hosting the 20th National Congress of the Chinese Communist Party.
During this big party, Xi Jinping secured his third term as the leader of the communist party. As he secured his this term, Xi Jinping notes that the Chinese economy is “resilient”.
For some reason, this kind of remark reminds me of the comments made by Credit Suisse CEO a few weeks ago as spreads of the bank’s credit default swaps rose rapidly.
Anyways, Xi Jinping also went on to comment on the future of the country’s economic collaboration with others as they continue to develop.
Xi mentioned the need for a balanced approach to increasing economic development with other countries while maintaining national security.
His comments were somewhat vague and he rarely highlighted any specifics as to how the world’s second-largest economy would accomplish these goals.
Oh, and in case you missed it, Former Chinese Leader, Hu Jintao, was escorted away from the room as the National Congress came to a close.
This made headlines as there was just something very awkward about the timing and the way he was escorted out without even a hint of eye contact from the Party’s leader Xi Jinping.
We’re still waiting on Chinese economic data which may (or may not) come out this week.
Until next week!
This article is for entertainment purposes only and is not intended to serve as financial or investment advice.
Dirty Deeds:
Lighten Up:
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