The pound found little to cheer in the Chancellor’s budget despite it being the budget where austerity is coming to an end. The OBR forecasts were an improvement with growth forecasts lifted for 2019 from 1.3% to 1.6% and to 1.4% in 2020 and 2021. Yet on a historical basis these still constitute poor readings for UK economic growth. Budget deficit figures were impressive, but that was no surprise for the market. The pound quickly gave up the small gains that the OBR figures inspired. Let’s not forget that the OBR is not forecasting on the basis of a no deal Brexit and given that currently there is no deal, this makes the figures rather redundant and more of a political maneuvering rather than anything more serious.
With most of Fiscal Phil’s bunnies out of the hat prior to the budget, there was little room for much surprise. As was widely expected extra funding will be directed in part towards helping the UK troubled high street. This is welcomed news, especially when we think back to last winter which was particularly severe for the British high Street. Retailers will be hoping that this gesture from Philip Hammond will help underpin the high street ahead of another potentially harsh winter prior to Brexit. Bellwether Next was already trading over 1.5% higher on the day, thanks to a general rebound in sentiment across global markets and was little moved following the announcement. Despite this being a welcomed gesture, the troubles with the UK high street run deep and the extra funding is a drop in the ocean to what is really needed to even begin to tackle the deep-rooted problem.
Overall the pound was disappointed by a budget that lacked big vision ambition but given the uncertainty of Brexit just around the corner that is hardly surprising. The pound was trading 0.1% lower when Hammond started speaking and had fallen to 0.3% lower by the conclusion. $1.28 is offering support right now, however even that is starting to look shaky.
Markets rebound after horrifying October
The weaker pound provided extra support to the rebounding FTSE as investors digested Hammond's budget and cheered HSBC’s impressive results. With almost all sectors in the black, beverages were a noticeable sectorial loser. Further tax on wine an industry set to be hit by Brexit unnerved investors late in the day.
Market across the globe jumped sharply higher after a horrifying month to date with the FTSE experiencing its best session this month. The Dax was another standout performer, as investors cheered the news that German Chancellor was set to step down from politics at the end of her term in 2021.
Despite a solid rebound in Europe, the US session was looking rather lackluster in comparison. The Dow and the S&P are clinging onto gains, whilst the Nasdaq has one again fallen into the red as investors fret over key tech firms reporting this week, including Apple and Amazon.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.