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What to watch

UK
  • UK political events continue to keep markets on their toes. Looking at current betting odds Rishi Sunak has a slightly greater than evens chance of becoming next PM (57% according to Smarkets). A return for Boris Johnson is now seen as the second most likely option (25%) with Penny Mordaunt at 20%. At this stage it is thought to be very unlikely that any other candidate would be able to receive the 100 votes required from Tory MPs on Monday to formally enter the race.
  • Markets will watch these odds through the day with Sunak probably the market's favoured candidate in terms of market stability. However, the Conservative party is so divided at present there are risks for any of the candidates. There have been some media stories overnight that if Johnson wins there could be some resignations from Tory MPs triggering by-elections and potentially reducing the Tory parliamentary majority.
  • Last night the Bank of England announced its gilt sales operations for the remainder of 2022. There will be eight sales ops of GBP750mln each over a six week period with an equal number of short and medium operations. MNI had been looking for operations of GBP580-750mln so this is in line with the top end of our estimate. However, the impact on the gilt market is likely to be relatively small.
  • After hours today we will see both the S&P and Moody's review their ratings for the UK. S&P (at AA but with a negative outlook) currently rates the UK a notch above Moody's (at Aa3 with a stable outlook). There are risks to both of these from the increase in borrowing costs, political stability and slowing economic growth.
  • So far this morning we have seen consumer confidence for October higher than expected and retail sales for September disappointing.
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