The Chancellor delivered his budget speech this afternoon to the House of Commons. The event, as expected, received little market fall out as investors largely disregarded the spending promises given the political tumult caused by Brexit. Nevertheless, the news was positive: upgraded growth forecasts from the Office for Budget Responsibility; higher spending across the board; significant movements in taxation thresholds; and new treasury revenue streams. Despite the largely positive announcements backing up May’s Conservative Party Conference pledge to end the decade long commitment to fiscal austerity, Sterling failed to catch a bid, dropping through 1.28 against the Dollar mid-speech. In Germany this morning, a surprise announcement that Chancellor Merkel will step down as CDU leader caused a strong and sudden sell-off in the Euro. Adding to extant political risk within the Eurozone, Merkel also announced that her time in front-line politics is over when her present term in the Bundestag ends in 2021. Given that Merkel’s four term-strong Chancellorship has been a flagship of stability for the Eurozone’s most significant economy, the news was met with a considerable uptick in net short positions against the European single currency. However, as markets came to learn that Merkel intended to see out her term, only relinquishing the premiership of her Christian Democratic Union and not the Chancellorship of Germany, the Euro did gain some footing to re-test 1.14 against the Dollar. With mid-term elections in the US taking place next week, the Dollar managed to add to its already elevated value, trading more than 0.5% stronger on the day. Core personal consumption expenditure in the US was read today for the month of September, coming in perfectly in line with consensus forecasts, at 2%, equal to last month’s reading. The Dollar had been under pressure over the weekend as a combination of stock market jitters and Trump’s condemnation of the Fed’s tightening cycle led traders to begin pricing out the probability of a December rate hike late in Friday’s evening session. However, by avoiding the scathing criticism of Brexit and the crisis in Italy, the greenback secured good demand as its domestic interest rate expectations were restored.
Discussion and Analysis by Charles Porter
Sterling No sooner had the financial press written that Sterling was on the skids due to the Chancellor being on the way out, than PM Starmer woke up to the need for some TLC for his beleaguered Chancellor and executed a handbrake turn to administer some gruesome bedside cheer to the apparently on life support […]
EU Inflation With the ECB annual symposium meeting in sunny Sintra, Portugal, inflation is very much on President Lagarde’s mind ; that is because it is showing signs of rising with the monthly inflation rate showing an increase of 0.3% and that presages a break above the target 2% rate just as she and her colleagues […]
Gold With Gold accounting for the second highest proportion of Central Bank reserves after the USD and the mood music shifting to it assuming a greater influence on future reserves management, it is worth looking at the numbers behind that. In the 1960s, Central Banks held the highest amount historically of 38,000 tons of gold. […]