10 October 2024: The Conservative Party leadership ballot is down to its last two contenders

If the first week of the year’s final quarter is any guide, October is set to be a very long month.

The interminable search for a new leader for the Conservative Party has finally reached its “final lap” while Rachel Reeve’s first Budget as Chancellor of the Exchequer drives almost daily speculation about what it will contain.

The Leader of the Conservative Party will be Robert Jenrick from the right of the Party of Kemi Badenoch, who is from the even more right wing.

The party that was in Government for the past fourteen years imploded after its landslide election defeat in July but has not lurched as far right as was feared in trying to compete with Reform UK.

Both Labour and the Conservatives will battle for the hearts and minds of the centre of the political spectrum, as neither believes that being either hard left or hard right will endear them to voters.

The decision will be announced on Saturday, November 2nd, although whoever is chosen faces a prolonged opposition period.

Market expectations about what the Budget will contain are growing exponentially.

The means testing of the Pensioners Winter Fuel Allowance has already been announced and is now cast in stone, as the DWP sent letters to everyone who received it last year confirming that changes have been made about who will receive it.

Reeves is desperately trying to convince the public that this Budget will be about investment and not about filling the twenty-two-billion-pound black hole in this year’s balance sheet, which she allegedly found when she came into office.

Taxes are going to be increased, but since her Party’s Leader has pledged to leave income tax, employees’ national insurance and VAT unchanged, it will be investors, the sector of the economy being relied upon to boost growth, who are likely to see a rise in capital gains tax.

By the time October 30th arrives, the hammer will have come down on Labour’s honeymoon period and their get-out-of-jail-free card, which allows them to blame the previous Government for the mess they inherited.

Deputy Prime Minister, Angela Rayner, has found another “pet project” that is deemed worthy of her attention. She believes that the country’s rich maritime heritage is the key to growth in the economy.

Maritime sustainability and its operational impacts, how the supply chain will adapt, regulatory drivers and market-based measures have all come under the microscope at a UK Chamber of Shipping event.

The UK Chamber of Shipping-led Shipping UK 2024 event saw the UK Secretary of State for Transport Louise Haigh, who has been given the task, recognize the economic importance of the maritime sector in her keynote address.

Economic growth rests on maritime growth. My pledge to you is that I will place maritime at the heart of the Government’s bold plans for change,” Ms Haigh said.

Government funding, already reaching some GB£206M, has resulted in more than 100 emerging maritime-related projects in the UK, and Ms Haigh pointed to the global shipping energy transition as driving new economic opportunities in the sector.

The pound lost ground yesterday as the FOMC published the minutes of its most recent meeting. It fell to a low of 1.3055 and closed at 1.3070. The major level of support is set at 1.3010.

One of Donald Trump’s closest economic advisers has spoken of plans for the Chair of the Federal Reserve to have a “shadow” appointed at least one year before his or her term ends to allow a smooth transition.

The proposal from Scott Bessent, chief executive of the hedge fund Key Square, is for Trump to nominate and seek Senate confirmation of Powell’s replacement well over a year before Powell’s term ends in May 2026.

Naturally, this is dependent on him being elected.

While the nominee would have to wait to chair the Central Bank’s powerful Federal Open Market Committee, which sets one of the nation’s most important interest rates, that person’s guidance, predictions, and potential criticism of the Fed’s actions would weigh heavily on financial markets.

Were Trump to win the election, which will be held in less than a month, he is expected to replace Powell, who he has been critical of over his monetary policy decisions during the Biden presidency.

His view is not necessarily shared by Wall Street, which sees Powell’s performance this year as being remarkable given the fact that a majority of economists, analysts and Bank CEOs were fearful that historically high interest rates would drive the economy into recession.

A “substantial majority” of Fed officials at the September meeting backed starting a period of looser monetary policy with a significant half-point rate cut.

However, there was even a broader consensus that this initial step would not lock the Fed into any specific pace for future rate cuts, according to the newly released minutes from the meeting.

The Minutes from the September 17-18 gathering also noted that supporters of the half-point rate cut “observed that this adjustment in monetary policy would help align it more closely with recent inflation and labour market indicators.”

However, “some” participants favoured only a quarter-point cut, while “a few others” mentioned they could have supported that decision as well.

The Minutes emphasized that “it was important to convey” that the move “should not be seen as a sign of a more negative economic outlook”.

In addition, the Minutes indicated that future policy adjustments would depend on incoming data, while also noting that if the economy performs as anticipated, “it would likely be appropriate to gradually shift toward a more neutral policy stance.”

The dollar index barely reacted to the publication of the minutes for two reasons; first traders believe that the minutes are “old news” since the cut took place some time ago and in any case, today’s publication of the September Inflation rapport is far more newsworthy and will be of more reliance to future changes in monetary policy.

Headline inflation is expected to have declined to 2.3%, the level it was two months ago, while core inflation is still stubbornly high at 3.2%. The decline in the oil price before Iran’s rocket strike on Israel drove headline inflation lower, but its rally since may slow the pace of any future decline.

The index rallied to a high of 102.93, and it closed at 102.90.

Following a period earlier in the year when every comment emanating from the ECB’s Governing Council was hawkish, it is now difficult to find a single member of the rate-setting committee who favours tighter monetary policy.

It has taken a long time, possibly longer than was necessary, for the ECB to perform its pivot from inflation to economic growth.

The Head of the Greek Central Bank, Yannis Stournaras, believes that the ECB’s inflation target of 2% will be met in the first half of 2025, far earlier than the Bank’s current view.

He also believes that the Bank’s highly restrictive rates risk permanent damage to the economy,

Italian Deputy Prime Minister and Foreign Minister, Antonio Tajani, on Wednesday called on European Central Bank (ECB) President Christine Lagarde to deliver bigger interest rate cuts than those made so far.

“There is a problem with rates,” Tajani said at an event in São Paulo as part of a visit to Latin America. “We pay more in interest on government debt than we spend on health care, The time has come for Ms Lagarde to finally lower rates more substantially”.

“The Central Bank is independent, but I am free to express my opinions and say what I think, “if you want to grow, at this moment in time, you have to lower the cost of money”.

Germany’s government has significantly downgraded its forecasts for economic growth, expecting the economy to contract for a second year in a row, as the traditional driver of the eurozone economy continues to trail its peers.

The German economy should contract 0.2% this year, Germany’s economy ministry said in a fall economic projection, considerably lower than the 0.3% rise it anticipated in April.

That would mean Germany’s economy would shrink for the second straight year, it contracted 0.3% in 2023, for the first time since the early 2000s.

That marks a contrast with other developed economies, such as the U.S., which grew 2.9% last year and 3% in the second quarter of this year on an annualized basis.

Germany’s reputation as an export-driven economy is under severe pressure from China, which has made great strides in both the quality and volume of its manufacturing output.

Germany is also desperate for the EU not to follow Donald Trump’s threat to introduce tariffs on imported goods.

Emmanuel Macron has called for the region to introduce protectionist policies to protect the Union’s domestic markets which are seen as a huge advantage, while in his recent report to Ursula von der Leyen, Mario Draghi recommended both massive state investment and a restructuring of the regions manufacturing base.

The Euro lost further ground as the possibility of a fifty-basis-point rate cut was thought to be being considered. It fell to a low of 1.0936 and closed at 1.0939.

Have a great day!