Gilts, sterling shrug off Spending Review

Forex

Not a lot ultimately to get markets too excited, in fact markets took the Spending Review in their stride. Gilt markets shrugged off the Chancellor’s set-piece despite a massive splurge in borrowing that produced some heady numbers that really we have never seen before in this country – it’s fair to say the bond vigilantes are conspicuous by their absence these days.

The UK is forecast to borrow a total of £394bn this year, which is equivalent to 19% of GDP and a record amount. No mention of the inevitable tax raid that is coming…but it is undoubtedly is coming. The Bank of England has foursquare got the government’s back these days (not quite outright financing but as good as) and the global bond market is so squashed by central banks that these eyewatering borrowing numbers can be shrugged off by the market.

UK 2-year gilts were down at -0.039% and 10-year yields at 0.307%. Yields are actually lower on the day, which is probably due lack of momentum today in the reflation trade (n.b. pro-cyclical equity rotation without reflation has been killer for gold but as per prev. notes the inflation will start to show in CPI prints in US and lead gold higher), and the curve remains negative out to four years with real rates still deeply negative.

GBPUSD moved a little lower to 1.3340 area but bounced on this support and the pair remains well off the day’s lows. US data crossing showing higher-than-expected initial and continuing jobless claims whipped the cross back to 1.3360 at the bottom of the hour before coming down. US durable goods were strong at +1.3% vs 1% expected, with core durable goods at 1.3% vs 0.5% expected.

The package unearths some very substantial near-term problems for the UK economy. The economy will contract by 11.3% this year and growth next year has been slashed to just 5.5% from 8.7% expected in July. Economic output will not return to pre-pandemic levels until the end of 2022. Unemployment will rise to 7.5% in Q2 2021 – it’s always darkest before the dawn. Vaccines emerging in the second half of next year will start to see this trend reverse, it is hoped.

Elsewhere ahead of the US open the Dow is set to open 40-50pts lower at a whisker under 30,000. FTSE 100 also steady at -0.6% just under 6,400.

Chart: GBPUSD not fussed much

GBP is not too fussed about the UK Chancellor's major borrowing plans.

Week Ahead: Brexit courtroom drama, US inflation and euro area PMIs

Forex
Week Ahead

Welcome to your guide to the week ahead in the markets. This week, Brexit is inescapable and Euro data comes in.

UK Supreme Court ruling 

One thing is certain – the Brexit comedy/tragedy will continue this week following the drama of the Supreme Court. Boris Johnson will find out this week whether his decision to suspend Parliament was legal. Meanwhile rumours of the chances of a ‘deal’ between the UK and EU will no doubt do the rounds. 

Sterling will remain exposed to headline risk and be more volatile than peers, although until there is real clarity, GBP pairs may lack direction over the coming days. 

US PCE inflation 

The Fed is relaxed about the uplift in the core CPI readings, which jumped to 2.4% last time out. On Friday markets will be focused on the Fed’s preferred inflation gauge – core PCE. 

While announcing a quarter point cut to rates last week, FOMC members left their inflation expectations for this year and next unchanged. If the PCE gauge follows the CPI indicator, there may be some concern that inflation is rising faster than policymakers are forecasting. 

Eurozone data 

Following the ECB interest rate cut, markets are shifting to eco data to show whether there’s any sign of uplift in the Eurozone economy. Flash manufacturing and services PMIs are due Monday, while the German Ifo business climate report is released on Tuesday. 

RBNZ decision 

Reserve Bank of New Zealand governor Orr has said the central bank is in wait and see mode as it assesses the impact of cuts this year. Markets don’t expect any change to the main cash rate on Wednesday, but recent GDP slowing does suggest the RBNZ will maintain its easing bias and accommodative stance. 

Corporate Diary

Keep these dates in your diary, as results come out for Manchester United, Nike and more.

Sept 23rdCintasQ1 2020
Sept 23rd Manchester UnitedQ4
Sept 24thNikeQ1 2020
Sept 26thAccentureQ4

Coming Up on XRay

It’s a busy week on XRay, make sure you don’t miss out on these live video sessions. Tune in live, or watch on catch-up when it suits you.

07.15 GMTSept 23rdEuropean Morning Call
17.00 GMTSept 23rd Blonde Markets
15.45 GMTSept 24thAsset of the Day: Oil Outlook
19.00 GMTSept 25th Asset of the Day: Indices Insights
18.00 GMT Sept 26thThe Stop Hunter’s Guide to Technical Analyis (Part 4)

Key Economic Events

Lots of US and Euro data out this week, so expect to see some reaction in the currency markets.

07.15-08.00 GMTSept 23rdEurozone Flash PMIs
13.45 GMTSept 23rdUS Flash Manufacturing PMI
08.00 GMTSept 24thGerman IFO Business Climate
14.00 GMTSept 24thUS CB Consumer Confidence
02.00 GMTSept 25thRBNZ Official Cash Rate and Statement
14.30 GMTSept 25thUS Crude Oil Inventories
12.30 GMTSept 26th US Final GDP
12.30 GMTSept 27thUS PCE Inflation, Core Durable Goods

CySEC (EU)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • 1,000,000 insurance cover** 
  • Negative Balance Protection

Products

  • CFD
  • Share Dealing
  • Strategy Builder

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under licence no. 092/08 and FSCA under licence no. 43906.

FSC (GLOBAL)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover** 

Products

  • CFD
  • Strategy Builder

Markets.com, operated by Finalto (BVI) Ltd by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • £1,000,000 insurance cover** 
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by Finalto Trading Ltd. Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection
  • $1,000,000 insurance cover**

Products

  • CFD

Markets.com, operated by Finalto (Australia) Pty Ltd Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

Selecting one of these regulators will display the corresponding information across the entire website. If you would like to display information for a different regulator, please select it. For more information click here.

**Terms & conditions apply. Click here to read full policy.

Marketsi
An individual approach to investing.

Whether you’re investing for the long-term, medium-term or even short-term, Marketsi puts you in control. You can take a traditional approach or be creative with our innovative Investment Strategy Builder tool, our industry-leading platform and personalised, VIP service will help you make the most of the global markets without the need for intermediaries.

La gestión de acciones del grupo Markets se ofrece en exclusiva a través de Safecap Investments Limited, regulada por la Comisión de Bolsa y Valores de Chipre (CySEC) con número de licencia 092/08. Le estamos redirigiendo al sitio web de Safecap.

Redirigir

Are you lost?

We’ve noticed you’re on the site. As you are connecting from a location in the you should therefore consider re-entering , which is subject to the product intervention measures. Whilst you’re free to browse here on your own exclusive initiative, viewing the site for your country will display the corresponding regulatory information and relevant protections of the company you choose. Would you like to be redirected to ?