This week’s major story is that British PM Boris Johnson has resigned after 59 of his ministers quit within 48 hours. The flurry of resignations followed news that Mr Johnson knew about a history of sexual misconduct concerning Assistant Whip Chris Pincher. Mr Johnson intends to remain as PM until the autumn.
Sterling reaction to political news was muted early in the week but dropped to a two-year low against the dollar on Wednesday following fears of recession and lingering inflation. The Bank of England released a report on Wednesday describing global and UK economic outlook as having ‘deteriorated materially’.
The pound traded up 0.7% against the US dollar to 1.200 on the news of Mr Johnson’s resignation.
UK house prices challenged the expected slowdown with the fastest increase in prices in 18 years at 13% in June, continuing the post-pandemic housing boom despite the cost of living crisis.
Elsewhere, inflation continues to rip around the world. Turkey reported that inflation is at almost 80% while South Korean prices rose at 6% in June, the fastest rate since the 1998 Asian financial crisis.
The Reserve Bank of Australia continued to raise interest rates to 1.35%, the highest level since May 2019 in an effort to combat inflation. AUD was buoyed by the largest trade surplus on record, up 0.6% to US$0.6815.
Last week, Eurozone inflation for May hit 8.1% as the economic area continues to be hit by war in Ukraine. The ECB is still planning to maintain its interest rate rise on July 21 at 25 basis points.
Germany reported its first monthly trade deficit since 1991 as trade disruption reduced exports, resulting in a deficit of $1 billion. The European powerhouse continued growth in imports at 2.7% while exports fell 0.5%. The disappearance of the much vaunted German trade surplus is indicative of wider troubles facing the Eurozone.
This week, the euro hit a new 20-year low against the dollar as it continues to approach parity. Rising rates in the US continue to drive the dollar up as the euro dropped below $1.02 over worries about energy supply from Russia.
The US bond market also flashed a key recession indicator on Tuesday when the US Treasury yield curve inverted. This occurs when the yield on 10 year bonds dropped below 2 year bonds demonstrating investor demand to lock in yields. A yield curve inversion has occurred within two years of every major US recession in the last 50 years.
In the UK, travel chaos continues as people protest against fuel prices on the M25, BA is cancelling another 1,500 flights amid continued airport strike action and the train drivers union Aslef ballots its members for the first drivers strike in 27 years.
This week’s slightly more unusual piece of news concerns the Sydney floods. Serious flooding in Sydney for the third time this year has sparked conspiracies that the rain has been engineered by the government to weaponise the weather against its citizens using agricultural techniques such as cloud seeding.