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Budget? Hardly Touched It

Published 11/23/2017, 05:19 AM
Updated 07/09/2023, 06:31 AM

GBP: Horrible growth projections a sign of things to come

Sterling has done little overnight as a result of the Budget although it is a little higher against the USD. Support could still be found from the latest GDP numbers at 09.30, however, with the second reading of Q3 growth.

The cut in Stamp Duty will naturally collect all the Budget headlines this morning but the real headline should be the swingeing cuts to the UK’s growth forecasts. Growth expectations made in March this year have been revised down to 1.5% from 2% for 2017, 2018’s to 1.4% from 1.6%, 2019’s to 1.3% from 1.7%, 2020’s to 1.3% from 1.9% and 2021’s to 1.5% from 2.0%.

These represent the weakest expectations on growth over a forecast period in the modern era and probably the largest downgrades since the advent of the Global Financial Crisis. In light of growth upgrades in major, key trading partner countries and areas these figures are even more disappointing. Of course the most important thing to remember is that these projections do not include any forecast on Brexit; the Office of Budgetary Responsibility (OBR) asked the government for data on trade flows, etc but they were directed to the PM’s speech in Florence. These growth numbers are based on everything staying as is. Thank God for the tax freeze on spirits, beer and wine because, given these numbers, we’re going to need it.

We are of the belief that Brexit and the performance of the UK economy will live and die via investment and trade. Today’s announcements have done little to assuage our fears on the first while we wait on progress on the second.

USD: Inflation doves take dollar lower

The dollar has held on to its overnight losses in thin markets courtesy of the Thanksgiving holiday. The minutes from the Federal Reserve November policy meeting showed some officials shared Chair Janet Yellen’s concern over soft inflation and traders took advantage.

EUR: High confidence, high euro

We saw some big positives for the euro yesterday as November’s consumer confidence read in the Eurozone climbed to the eighth highest reading since 1985. Despite being held back with Italian banking issues, the Catalan Independence revolt, German politics at a standstill, consumers are confident in the economic outlook.

Tomorrow morning we have the ECB minutes released to keep us interested. Draghi recently revealed that not all members backed the plan to keep the Bank’s QE program open-ended so opposition to this extension in the minutes could give the EUR a push higher.

We also have flash PMI’s (Purchasing Managers’ Index) to come which will give us early indication of the economic situation in both the services and manufacturing sectors ahead of the detailed releases next week. These numbers could create a lot of volatility especially if there is big change, however Eurozone PMI is expected to remain the same at 56.0.

AUD: Deja Vu

A void end of week for Australian data but we may be suffering from déjà vu? Record low interest rates and fumbling wage data sound familiar? The transition from relying heavily on the mining sector has seen slow and steady GDP growth but with wage data behind the curve (a 2% increase versus a traditional 4% per annum) don’t expect any rate hikes in the short term on a currency we believe to be overvalued.

NZD: Weakness follows

Kiwi bulls have been backed against the wall since the newly formed coalition. Markets like confidence and they like certainty, and neither of these can be guaranteed by baby-faced politicians. GBP/NZD has seen a 9% rally since September and with the recent GlobalDairyTrade index coming in at an eight month low, the retreat continues.

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