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
UK Wages Bank of England Governor Andrew Bailey yesterday warned of the pressure on wages that are threatening to lead to a wage price spiral as the effects of inflation on the cost of living together with the 12 consecutive interest rate rises that consumers have experienced. The market has not enjoyed the poor inflation […]
UK inflation – June hike worthy? Yesterday’s inflation data surprised markets. The data was released slightly ahead of European core trading hours. The lighter liquidity available at this time could have resulted in the short-term spike towards 1.2450 on cable and around half a cent to the mid-1.15s within GBPEUR. However, you could, and perhaps […]
International Monetary Fund With no sign of insouciance despite its 180 degree turn in a two month timeframe, the IMF yesterday reversed its downbeat if not disastrous forecasts for the UK and stated the UK is no longer heading for a recession and nor is it the weakest member of the G7 when it comes […]