Morning Brief – Second time lucky Sunak

Charles Porter
Tue 25 Oct 2022

Second time lucky Sunak

 

It may be second time lucky for incoming Prime Minister Rishi Sunak, but the wait from his first attempt wasn’t too long to endure. Following the withdrawal of leadership race competitor, Penny Mordaunt, he will be appointed as the UK’s youngest modern era PM by King Charles later today. As we wrote of recently, other candidates should they have been successful in the race to number 10 presented a risk to GBP. Their lack of time served in key offices of state could be seen as a further risk of political instability, something the UK has been beleaguered with over the past few months. Sunak has some of that experience serving as chancellor within Boris Johnson’s government following the resignation of self-proclaimed puppet Sajid Javid.

 

Sterling has not had a momentous relief rally so far following the news. The changeover of Prime Minister could allow some of the significant net short positioning behind GBP to be unwound as investors take profit on outflows to date from Sterling. Markets are not oversold GBP from a positioning perspective. Net open interest in GBP is well above its lows from earlier this year. However, markets have on the whole remained short GBP for well over a year now and it is possible that given some quiet from Westminster that Sterling could recover.

 

Rishi Sunak delivered popular and immensely expensive fiscal packages to support an economy imperilled by the pandemic. He has experience in this crisis era governance, however, the corner that the UK has backed itself into is one of austerity and fiscal restraint. How the incoming Prime Minister copes with this very different type of crisis, one which you cannot spend your way out of, will be watched closely by markets. Initially, the formation of his cabinet will be imperative with markets awaiting confirmation that Jeremy Hunt will remain serving as Chancellor. It is widely expected that he will having backed Sunak in his leadership bid and been relatively well received as Kwasi Kwarteng’s successor to stable the ship.

 

 

 

Discussion and Analysis by Charles Porter

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