Truss energy cap brings hope that inflation can be controlled

Liz Truss’ pledge to freeze energy costs brings optimism on her first day, while the Nasdaq underperforms despite stronger service PMI data.

Liz Truss energy plans bring hope that inflation can be brought under control

“The pound has outperformed many of its peers today, with Liz Truss delivering a much-anticipated shock and awe announcement aimed at bringing energy prices under control. In a week that is dominated by central bank announcements from the RBA, BoC, and ECB, it should be noted that monetary policy’s ability to bring inflation under control in the face of weakening currencies and soaring energy prices is somewhat limited. The decision to freeze UK energy prices ahead of next month’s widely anticipated spike will arguably provide a greater impact on inflation expectations than a 75bp hike in interest rates. The dramatic Covid spending package enacted under Rishi Sunak looks to be just the beginning, with this package costing up to £130 billion over the coming 18 months. For the near-term this seems and effective way to bring greater certainty and relieve the pressure on the Bank of England, but the long-term consequence will undoubtedly result in another pile of debt that will ultimately need paying through higher taxes.”

US services jobs remain strong as PMI highlights continued growth

“A belated start to the week for US markets has brought fresh losses at the open, with growth names driving underperformance for the Nasdaq. Today’s ISM services PMI reading brought plenty of grounds for optimism, with a surprise rise accompanied by a declining price growth, rising employment growth, and particular strength for new orders. With 83% of Friday’s 315k payrolls reading coming from the private services sector (263k), there is no doubt that rising prices are yet to stifle employment in the critical segment of the economy. ”