Market Brief: Budget day!

11 Sep 2018

Emily Maguire

Dealing team

Theresa May’s crisis-hit government is looking to today's Budget as a shot at redemption to find fresh popularity with voters. 

Today's data releases
  Key levels
12:30 UK Autumn Budget   Support Resistance
13:30 US initial jobless claims, durable good orders GBP/USD 1.3057 1.3338
15:00 University of Michigan sentiment GBP/EUR 1.1071 1.1352
19:00 Fed meeting minutes released

Market overview

Theresa May's Chancellor, Phillip Hammond, will deliver his second Budget after the customary Prime Minister’s questions. It is rare for any Chancellor not to have to conduct a juggling performance to satisfy competing claims for resources. But the balancing act seems exceptionally acute this year and the febrile political atmosphere is making things worse. The expectation is for Mr Hammond to stick to his fiscal rules – he recently chose “fiscal” as the most appropriate word to describe himself in an interview! His main aim is to protect the UK’s finances from any shock from Brexit in the near term and to boost the sluggish growth rate however he is contending with huge pressure internally to deliver a Budget to try and create a turn of fortune for the Conservatives. This has been made even more difficult by multiple factors: the likelihood that a worsening growth outlook is set to be published today; a tiny Commons majority and the willingness of certain Tory MPs to use any mistake to try and oust him.
On the Brexit front, there is some light at the end of the divorce deal tunnel as reports out this morning suggest that Britain and the EU are targeting a separation agreement within three weeks. EU sources have expressed the view that there is a better than even chance that at the 14/15 December EU Summit, an agreement that talks can move on to the next phase will be in place. The week of 4 December is considered to be the time when such a breakthrough is reached. Were this to happen, both sides would be able to progress to discussing trade arrangements.
Robert Mugabe has resigned as president of Zimbabwe, finally bowing to pressure and ending his 37-year rule. The Zimbabwean Parliament had only just begun impeachment hearings when the speaker made an announcement that he had received a resignation letter from the president. Within minutes there were celebrations on the streets of Harare with horns blaring as people poured out to celebrate Mugabe’s fall from power. It is likely that Emmerson Mnangagwa, the vice president whose sacking triggered the military action, will take over leadership of the country.

The day ahead

Of course the highlight of today is the UK Autumn Budget during which Phillip Hammond will try to walk the tightrope of fiscal discipline and political manoeuvring. This will be delivered at around 12:30pm straight after PMQs at 12pm. We also have quite a lot of data out from the US with durable goods orders, the final Michigan consumer sentiment number as well as the minutes from the November meeting of the FOMC. In addition, the weekly jobless claims have also been brought forward one day from their usual Thursday release given that it would otherwise clash with the annual Thanksgiving holiday.

Thought of the day

I was only 2 years old when the highly educated, wily politician Robert Mugabe took power in 1980. There were joyous scenes in Harare and Bulawayo (not that I would remember, but so I am told) when Mugabe won the 1980 post-independence elections. To celebrate, I had a beer with one of my old university friends from Zimbabwe last night, who’s family have suffered tremendously at the hands of the brutal dictator. However, here we are 37 years later and once more jubilant Zimbabweans celebrated late into the night. This time they celebrated the relinquishing of power of the world’s oldest president and a man who once said “only God would remove him”. In currency markets, who knows if it will take 37 years for Cable get back to the lofty pre-Global Financial Crisis highs of GBPUSD 2.00 again? What we do know is like the news out of Zimbabwe this week, currency markets are prone to random change and when that change happens, it’s often catches people out completely by surprise. Please don’t ignore this risk – give your Investec dealer a call today to ensure that you too will be celebrating, when currency markets do the unexpected!

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