Truss resigns, markets fade, and Morgans runs the ruler over the banks

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

MARKETS WRAP

MAJOR HEADLINES

• US markets give up early gains, close lower

• Liz Truss resigns as British PM after just 44 days

• Fed officials ask Wall Street if a UK-like meltdown could happen in US Treasury market
• Fed sees economy running hotter than thought, pointing to much higher rates ahead
• Fed's Evans hopeful rate hikes already signaled can take down prices but warns tightening still expected
• Fed's Bullard expects central bank to end its frontloading of aggressive interest-rate hikes by early next year
• Retail investors take shelter in cash after stock market rout with almost $140B pouring into money market funds
• Traders, fund managers increasingly dependent on biggest large-cap stocks which control market direction
• Markets braced for intervention as yen slides to 32-year lows and nudges key 150 level
• BoJ conducts emergency bond purchases to defend JGB yields under YCC
• 60/40 model down 20% this year, its worst return since 2008, making it cheap again
• BoE officials were excluded from mini-budget discussions
• UK treasury to transfer £11B to BoE to cover QE losses
• Chinese officials debating whether to reduce mandatory Covid quarantine for inbound travelers
• Survey finds two-thirds of US adults say they are worse off financially vs a year ago
• More market-based measures, surveys show increasing expectations for a US recession 

THE DECISION

The big news overnight was the decision by UK PM Liz Truss to resign. Normally a political resignation wouldn't be the main story in a financial article, but she managed to have such a significant impact on markets, in such a short space of time, that it's noteworthy. Her tax cuts roiled markets, threw the British pound into chaos, pushed up living costs for voters and enraged much of her own party. Even the Bank of England and President Biden withdrew support for her due to the economic program. 

I will say nothing of the rest of her politics but, at a time of financial and economic uncertainty for many people, the last 44 days simply have not been good enough. Let's hope the UK doesn't spiral into an extended period of political uncertainty... that will not be good for anyone. 

THE CALENDAR

The chart above is courtesy of the BlackRock Investment Institute, the research arm of the world’s largest money manager. It really hammers home just how tough this year has been across a range of asset classes, with most underwater and most close to their lows for the year. 

Is it too early to start hoping for a Santa Clause rally?

Morgans has run the ruler over the banks and come up with a more positive outlook on a couple of them. 

The research team have upgraded Commonwealth Banks (ASX: CBA) from reduce to HOLD, citing the bank as the highest quality of the majors. It also has, according to Morgans, the strongest return on equity. The target price jumps from $77 to $94.57. Don't get too excited though, it closed at $100.77 yesterday and Morgans is calling for a whopping 0% return over the next 12 months, inclusive of the 6% yield. 

Morgans has also upgraded Westpac (ASX: WBC) from hold to ADD, with the target price jumping from $24.00 to $26.71. They see WBC as offering the greatest value and upside of the big four on a medium-term view. Interestingly, Morgan Stanley was also out recently, reiterating their overweight view on WBC. 

For the sake of completeness, Morgans rates ANZ Banking Group (ASX: ANZ) and National Australia Bank (ASX: NAB) as HOLDS, but has tinkered a little with their target prices. ANZ falls from $30 to $26.45, whilst NAB falls from $34 to $30.30. 

Chris Conway wrote today's report.

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