Market Report - 06/03/2024
Hunt set to deliver UK budget statement ; Market awaits US employment data
We have a busy day in the markets today with a breadth of important data releases and events on the agenda, across the UK, European Union and the US. Whilst the UK budget statement will draw most attention from the wider public, we have some important macroeconomic data releases that are worth keeping an eye on in addition.
City investors will be hoping that today will bring a much calmer environment than we saw 18 months ago when the last mini budget caused markets chaos in September 2022. Whilst there is a chance that there will be some tax cuts announced today, the government is seemingly sticking to its fiscal goal of showing debt falling in 5 years time. Whilst there appears to be little room for fiscal manoeuvring, the FT has already published a headline predicting £10bn of tax cuts at the core of today’s budget. Undoubtedly the Tory party be under pressure to wow voters and aim to close some of the large gap in the polls between the Conservative party and Labour ahead of the next general election.
Both the Times and the Express this morning discuss the prospect of a 2p cut in National Insurance Contributions, which is expected to play a huge part today to “put money back in worker’s pockets” . Some news outlets have described this move as a strategic move to offer voters a pre election “giveaway” which could ultimately mean steep spending cuts post election. This change in national insurance will save the average earner in the UK around £450 per year (which combined with cuts made last year, totals a saving of £900).
The chancellor is also expected to freeze taxes on beer, wine and spirits until next February, but one of the biggest policy reforms what could be expected is a modernisation in the “non-dom” regime. Hunt is(by some accounts) expected to modernise the system, potentially encouraging wealthy people to bring their foreign-held assets and money to the UK.
The City will be bracing itself for the 12:30 event in Parliament this afternoon, The Chancellor has big decisions to make and will no doubt be feeling the pressure - with the UK now in a “technical” recession, Mr Hunt is expected to outline todays budget with plans of economic growth but his fiscal calculations may well be based on tough limits to public spending beyond the election and in return place further pressure on services. The budget will no doubt be under tough scrutiny from the opposition as UK government debt has reached the highest level since the 1960s (public sector net debt excluding the BOE, % of GDP).
With the UK in recession and the next general election to take place by January 2025 at the latest, The Prime minister and Chancellor have a tough challenge on their hands as they look to convince the nation the Tories can create a stable and long-term budget aimed at growth whilst still delivering tax-cuts to the public.
UK construction PMI data was released at 09:30am this morning, as it was announced that February brought an improvement in demand for Britain’s construction sector, helping the rate of new business growth reach its fastest since May 2023. The reading came in at 49.7, which is up from 48.8 in January. S&P economics director Tim Moore said “A stabilisation in house building meant that UK construction output was virtually unchanged in February,” he also added that February’s reading was “This was the best performance for the construction sector since August 2023”.
Heading across to the continent, we have had the release of EU Retail Sales this morning - both the MoM and YoY figures, which were made public at 10am. The data released highlighted a relatively mixed bag surrounding consumer spending in the Eurozone for the month of February, with the month-on-month release coming out at a 0.1% increase in retail sales compared the previous reading of 0.8%. On the other hand, the year-on-year figure did show contraction on consumer spending in regard to retail sales, with a figure of -1 being noted.
This could well see another slight sell-off of the EUR, which has come under scrutiny of late with a host of underwhelming macro-economic data already being noted. This retail sale release, coupled with the impending UK Spring Budget, could possibly see bullish sentiment drive the GBP/EUR rate towards the yearly highs, should there be no surprises from Jeremy Hunt.
Lastly, in the US we have the eagerly anticipated ADP payroll data release, which is the precursor to Fridays Non-farm Payrolls. The February U.S. jobs report between today and Friday stands as a test for the immediate USD outlook, with the potential to rock markets if employment surprises to the upside (or downside).
Market makers will also keep a keen eye on Fed Chair Powell's speech today, which will be held in front of Congress. He is widely expected to reinforce the Fed will wait for more data before making any rate cuts, which could add hawkish stimulus to the dollar.