Must read: FTSE 100, British pound, new chancellor, ASOS, Vodafone 

As we await a revamped mini-budget from new Chancellor Jeremy Hunt, these are the big news events to be aware of Monday. 

GLOBAL MARKETS 

European markets have opened flat with the FTSE 100 trading just below the flatline. Banks like Standard Chartered (LSE:STAN) and housebuilders like Persimmon (LSE:PSN) and Taylor Wimpey (LSE:TW.) which were hit hardest by the market mayhem following the mini budget are staging gains this morning, trading near the top of the UK index.

Utilities like Severn Trent (LSE:SVT) and United Utilities Group (LSE:UU.) are also outperforming. However UK exporters like Coca-Cola HBC AG (LSE:CCH) and Diageo (LSE:DGE) are trading towards the bottom of the FTSE 100, pressured by today’s rebound for sterling. 

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Wall Street closed sharply lower on Friday after hotter-than-anticipated inflation figures and the start to US earnings season.

UK MARKETS 

‘A week is a long time in politics’ let alone a fortnight. 

Under pressure to outline his economic strategy after a weekend of media interviews, the new Chancellor Jeremy Hunt is bringing forward some of his tax and spending announcements to today. His aim is to reassure the markets and the electorate that he is focused on fiscal discipline and sustainable public finances by reversing some of his predecessor’s unfunded mini-budget announcements a fortnight ahead of schedule. 

Among other potential U-turns, the chancellor could delay the 1 pence reduction in income tax to 19 pence by a year. Hunt said he will be looking across all government departments to find spending cuts and said some taxes may even need to rise, in yet another dramatic U-turn from the Truss administration. It is estimated that there is a £72 billion black hole that the Treasury must fill, prompting fears of a new era of austerity. 

The markets have reacted positively to Hunt’s expedited timeline, which alleviates some of the fiscal uncertainty, lifting the pound against the dollar and the euro. The FTSE 100 is trading flat with the banks, housebuilders and utilities outperforming while UK exporters suffer from the pound’s appreciation. 

It is the first day of trade for the UK gilt market after the end of the Bank of England’s emergency bond-buying intervention. Out of the gates, UK gilt yields are trading mostly lower as bond prices push higher, suggesting that the sacking of Kwasi Kwarteng and the appointment of Jeremy Hunt have helped to stabilise the market to some extent, reinstating some confidence in the UK government borrowing market.

The Bank of England this morning also helped to reassure markets with a soothing statement on the end of its gilt market operations, suggesting that some support remains with the availability of its Temporary Expanded Collateral Repo Facility (TECRF) which is available until 10th November. 

However international investors remain cautious towards the UK with gilts and the pound still grappling with below normal trader appetite amid the fiscal uncertainty. 

The governor of the Bank of England Andrew Bailey warned on Friday that interest rates will have to rise further and faster to bring inflation back down towards the central bank’s 2% target after the mini-budget sparked turmoil in the gilt market and sent mortgage rates soaring, compounding price pressures in the UK economy. 

Following recent events, Goldman Sachs has downgraded its forecast for 2023 UK economic output from -0.4% to -1%, now forecasting a ‘more significant recession’. Meanwhile, the analyst team expects the Bank of England to raise rates by 0.75% at its next meeting on 3 November.

ASOS 

ASOS (LSE:ASC) has confirmed that it is in the final stages of agreeing an amendment to the future financial covenants in its Revolving Credit Facility, which matures in July 2024. This gives ASOS ‘increased financial flexibility against the uncertain economic backdrop.’ The comments are in response to media speculation over the weekend that the online fashion retailer could be in financial trouble. 

With the pandemic online shopping boom fading, painful cost inflation, squeezed UK consumers and a backdrop of volatile financial markets, ASOS has had a difficult time lately with shares down 80% over the past year. When it reports earnings on Wednesday, new CEO José Antonio Ramos Calamonte needs to produce a convincing strategy to reassure investors about how he will reinvigorate the business and its share price performance. ASOS has suffered a series of price target downgrades from the analyst community and shares tumbled in September after a negative read across from rival Boohoo Group (LSE:BOO) which cut its full-year outlook.

In its September trading update, ASOS said it expected full-year profit to come in at the bottom end of company guidance on the back of softer consumer demand and accelerating inflationary pressures.

VODAFONE 

Activist investor Cevian Capital has slashed its stake in Vodafone Group (LSE:VOD) amid concerns about the telecoms giant’s weak performance. According to the Financial Times, Cevian had amassed enough shares and derivatives to become a top 10 shareholder, but it sold most of its stake in June after failing to bring about a turnaround at the group. Meanwhile Vodafone has announced a joint venture, FibreCo to deliver faster fibre broadband in Germany. 

Vodafone has been very clear about its ambitions to engage in tie-ups with European rivals as it looks to fend off a declining share price, stiff competition, and a tough regulatory burden. It is also struggling with decreased pricing power, rising net debt and volatile financial markets. Despite this, shares in Vodafone have been relatively resilient amid this year’s market turmoil, shedding less than 10% versus many other stocks which are down by more than 50%.