UK: Bank Rate may hit ca. 4.5%, but... it's not that bad considering earlier values
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The risk rebound in the markets has stalled and equity markets are down around 1% on Thursday following quite a good run over the last month.
The day we’ve all been waiting for
The Autumn Statement has been a long time coming after the disastrous mini-budget almost two months ago. The UK’s fiscal credibility was in the gutter, the pound was crushed and borrowing costs soared. Since then, a lot has changed and today’s budget highlighted just how much that is the case.
Fully regaining credibility won’t be easy but markets appear far happier now than they were back in September. The pound is lower on the day but only marginally so and the bulk of the announcements will have been priced in as they were leaked in recent days. Borrowing costs are slightly higher on the day and Bank Rate is expected to peak around 4.5%, still very high but far from the levels reached in September.
All in all, the government may be pleased with how today has gone but time will tell whether the public agrees as everyone pours over what was quite an extensive budget. It’s not just the markets that needed convincing today after all, with a little over two years until the next election and a significant deficit still to overcome in the polls.
US data reinforces Fed position on rates despite weak housing
The latest US economic data represented a continuation of what we’ve seen for months. A housing market suffering under the pressure of higher interest rates and a labour market that is incredibly resilient to them. While the former may be a concern for the central bank as it further raises rates in the months ahead, the latter remains the reason why many at the Fed support such moves as it increases the possibility of inflation remaining stubborn on the way back down.
Risks remain tilted to the downside
The ripple effects of the FTX debacle continue to flow through the crypto industry revealing other vulnerabilities and weighing heavily on prices even amid a broader financial market risk rebound. Bitcoin is trading relatively flat today around $16,500 but the risks remain skewed to the downside amid immense uncertainty.
For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/
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