Big Budget Day for Hammond
The Autumn Budget is going to be revealed in the next hours and everyone is waiting to see what Chancellor Philip Hammond is carrying in his traditional red briefcase. Hammond has become a target of negative comments from Tory members who support Brexit, and unlike Hammond, want a budget with less austerity measures. It should be noted that Hammond performed a U-turn after the announcement of the spring budget, regarding national insurance contributions for self-employed people, a move that embarrassed Theresa May’s government.
Right after the budget announcement, the Office for Budget Responsibility (OBR), which is the government’s independent forecaster, will give its verdict on the outlook for economic growth and public finances. Analysts suggest that the OBR will revise down its estimate for the British economic growth and long-term productivity gains.
Pound Sterling – UK Markets
Today, the Pound edged up against the US Dollar with the exchange rate set at $1.32. Sterling inched lower against the Euro with the exchange rate set at €1.12. The day is dominated by the upcoming announcement of the Autumn Budget by Philip Hammond.
During the previous weeks, Chancellor Hammond faced harsh criticism from Eurosceptic Tory members because of his intention to present a tight budget. According to media reports from some days ago, even Theresa May received a letter written by Boris Johnson and Michael Gove, who stressed that certain parts of the government do not prepare for Brexit as they should. Brexiteers have asked from Hammond to present a budget that will support the country’s economy as negotiations with the European Union seem to stall. They suggest that austerity policies should be abandoned so that Brexit consequences are managed more easily. At the same time, they believe that a more giving budget would boost the government’s popularity.
Early in the morning, Hammond informed the Cabinet about the new budget. Analysts say that, historically, the first budget after a general election includes higher taxes. However, this is not going to be the case this time as wage growth is sluggish and inflation is reducing household incomes. According to media sources, the Autumn budget will not include extra money for public sector salaries, while the NHS will receive additional funds, but not to the extend that it has asked for.
US Dollar – US Markets
The US Dollar fell against the Euro with the exchange rate set just under the €0.85 mark. The US Dollar Index (DXY) which measures the value of the Dollar against six major currencies, also dropped coming in at 93.78. The most important data releases for today are the ones regarding jobless claims and durable goods orders in October.
In the evening, the minutes from November’s Federal Open Market Committee (FOMC) meeting will be published. HSBC analysts noted in their report that they expect no surprises. “The November statement had little new to say about the balance sheet normalisation programme initiated by the Fed in October. The minutes are likely to show some discussion by the Fed staff and policymakers regarding how the programme is proceeding so far,” states the HSBC report.
Market analysts at Bank of America Merrill Lynch predict that 2018 is going to be a bumpy year for investors. They forecast that stock markets will peak in the first six months, only to be followed by a drop in the second half of the year. Michael Hartnett, who is the BoAML chief investment strategist, noted that if the current bull market continues until the end of August, it will be the longest ever recorded. Hartnett said that “the air in risk assets is getting thinner and thinner. We will downgrade risks aggressively once we see excess positioning, profits and policy.”
Euro – European Markets
The Euro gained ground against the US Dollar with the exchange rate set at $1.17. The European Central Bank (ECB) is holding its non-monetary policy meeting today in Frankfurt, but this isn’t the only reason the spotlight is on Germany.
The talks about forming a coalition government seem to have stalled as Angela Merkel said yesterday that a minority government isn’t part of her plans. Frank-Walter Steinmeier, who is the German President, urged all parties to show political responsibility in order to solve the problem that has evolved into the most serious political crisis after the second World War. Steinmeier will meet political leaders today to examine what are the chances for a government to be formed. Market analysts fear that if a new election was to be called, the prolonged political uncertainty could affect the Euro.
In Sweden, the central bank of the country published a paper in which it is suggested that “high and rising household indebtedness currently poses the greatest risk to the Swedish economy.” Riksbank economists stress that the bank should implement a stricter amortisation—the process of paying off a debt over a period of time—requirement and measures that will increase the resilience of the household sector. In Norway, the unemployment rate in September came in at 4%, a bit below forecasts.
Other Currencies – Highlights
Sterling edged up against the Australian Dollar, trading at 1.75 AUD. The Governor of the Reserve Bank of Australia (RBA) Philip Lowe stated, during a speech, that “if the economy continues to improve as expected, it is more likely that the next move in interest rates will be up, rather than down.” Lowe accused employers for the low growth wages and said that this is one of the reasons the RBA won’t pick up interest rates in the “near term.”
The Pound gained ground against the New Zealand Dollar, trading at 1.94 NZD. NAB’s Cashless Retail Index showed that a marginal growth in retail sales was recorded in recent months, much less than in the second quarter of 2017. The survey indicated that spending on food and household goods slowed down, while spending on department stores picked up.
Sterling edged lower against the South African Rand, trading at 18.44 ZAR. According to data released this morning, inflation stood at 4.8% in October in line with expectations.