The Cambridge Weekly – 24th October 2022

The world beyond the UK

Given the volatility in UK politics last week, broader capital markets felt like a sea of calm in comparison. As far as the outcomes from the political side are concerned, markets had already priced in the upside on sterling, based on the belief unfunded tax cuts were no longer on the agenda, but not another leadership hiatus or even the possibility of an early general election. This perhaps explains that after initial cheers, sterling settled at where it had been against the US dollar before Liz Truss tendered her resignation.

A primer on bond market mechanics

Bond market dynamics have been making headlines all year long. Following the UK fiscal policy chaos of the last few weeks, UK Government bonds (Gilts) have found some welcome stability, with yields falling below 4% since current Chancellor Jeremy Hunt reversed enough of Kwasi Kwarteng’s ill-fated “mini-budget” to make it finally worthy of its name. Regular readers will know that bond yields and their volatility are an essential component of any investment outlook, but the recent attention and the pain experienced by bond holders has led to many questions over how this all hangs together.

China: how much isolation can Xi afford?

Attention was on Beijing last week, which was hosting the 20th National Congress of the Chinese Communist Party. There is no bigger political event in the world, and in the most populous nation, so investors would do well to take note. Held every five years, the Congress decides key party posts – which in turn decide state, military and commercial appointments – and sets the policy agenda for the next half a decade. The biggest but least surprising thing to come out of this year’s edition was the inevitable reappointment of Xi Jinping as leader.