The UK government's budget announcement will need to show fiscal discipline to satisfy gilt investors, and while our baseline sees enough credibility to nudge the risk premium in gilt yields lower, we are well aware of significant upside risks too. Foreign gilt investors are relatively important and could even gain in importance in the future
A December Fed cut is back as a baseline scenario for markets, but the dollar has remained relatively strong. Our short-term valuation metrics point to significant risks of a USD correction, unless data prompts a hawkish repricing. Geopolitics will remain in focus, both for European FX (Ukraine peace talks) and the yen (Japan-China tensions over Taiwan)
We think markets are right to price in more Bank of England easing, but the upcoming budget on 26 November can still bring both bullish and bearish surprises. Meanwhile, concerns around the US job market are offsetting the positive impact of a likely government reopening on risk sentiment
The dollar enjoyed a second round of support yesterday as Powell's relatively hawkish press conference continued to resonate with data-starved markets. But the conditions for another big leg higher in USD aren't there, in our view. Meanwhile, Japan has intervened verbally to curb JPY volatility, and GBP is looking closely at Reeves' political position
This year's Autumn Budget could be seismic for UK markets. We think it's more likely to push gilt yields down than up, yet there are several ways – from fiscal rule changes to dubious austerity pledges – which could cause borrowing costs to spike
Global bond yields are pushing lower amidst a broader flight to safety, with Gilts leading the way. Even now, Gilt yields still seem high, driven by a hawkish Bank of England and a material risk premium. Gilt swap spreads were more sensitive to French turmoil than to dynamics in US Treasuries or Bunds, but this should change with more budget certainty
The euro’s outlook remains tied to developments on US tariffs and on Ukraine peace talks. EUR/USD took a hit late Friday after the Trump-Zelenskyy incident, but has rebounded since trading resumed on Sunday evening – perhaps on the news that Ukraine remains open to a mineral deal with the US and that the EU is actively trying to bring the US back to the negotiating table with Ukraine.
The UK published on Friday data showing a net public sector surplus of £15.4bn in January, which fell short of the £20bn estimated by the Office for Budget Responsibility in October alongside the Budget.
