Osborne's statement pleases as FTSE down

A pre-election giveaway from George Osborne enlivened the afternoon session, although the FTSE 100 was still 20 points lower as the end of the day loomed. 

George Osborne
Source: Bloomberg

Osborne's Autumn Statement pleases 

George Osborne did his best to provide a relatively crowd-pleasing Autumn Statement this afternoon, announcing an end to the iniquitous ‘slab’ Stamp Duty system. In a carefully-judged move that will win over a significant number of potential Conservative voters, he announced a dramatic change that could save thousands for those in the throes of home buying. Shares in dire performer Foxtons took a hit however thanks to the changes, since its target market of high-end London homes will actually see their stamp duty bills go up.

Adding to the populist rhetoric, Osborne announced a reduction in the offsets banks can apply to past losses, which at least burnishes his credentials with the public even if the actual impact is fairly minimal.

IAG and easyJet also gained thanks to changes in air passenger duty, cutting back on the cost of travel for families. All in all, with a limited toolbox, Mr Osborne appears to have done well. 

Weak ADP number

A weaker ADP number was enough to keep US markets quiet during the opening stages of today’s session, even if the ISM non-manufacturing number was able to duplicate the improvement seen in Monday’s manufacturing update. Jobs growth in the private sector report was the slowest in three months, which has helped to take the shine off the equity rally, and the return of ‘all time high’ headlines for the Dow Jones has brought out the usual warnings about excessively high valuations.

So long as bond yields stay depressed, however, stocks are still the only area that can tempt investors with the prospect of decent returns.

Gold above $1200

The gyrations in gold continue with prices remaining above the pivotal $1200/oz level. The usual tired explanation for gold strength; a weaker dollar does not apply today so it would seem that the moves in gold are related to an expectation of looser monetary policy from the European Central Bank tomorrow. Mario Draghi, it would seem is expected to pick up the quantitative easing baton and nothing less will assuage investors. The jury will remain out on whether we are witnessing a dead cat bounce or an actual rebound so this week’s highs around $1220 will be closely watched for any upside puncture.

Oil resumed its move lower this afternoon; this was despite the fact that the Energy Information Agency showed a decline in the inventory levels in the last week. Pushed down further by OPEC’s meeting last week, the plunge in prices has impacted world economies, energy stocks, and several currencies. The subject will likely arise as a topic at tomorrow’s ECB press conference. Brent oil is holding above the $70/bbl marker presently, but the bias would be for further declines in light of global growth expectations which will hamper demand and the usual supply glut concerns.

USD/JPY notches a seven-year high

The fragility of the eurozone recovery continued to be highlighted today with some poor PMI readings. In particular, the fact that Germany printed a 16-month low in its services output has helped ramped up speculation that the ECB will embark on a more dramatic balance sheet expansion plan. Traders certainly seem to be positioning themselves for a dovish Draghi and the decline in the euro against the dollar to a 27-month low is indicative of this sentiment.

Anyone waiting for pullbacks in the USD/JPY has been left sorely disappointed in recent days with the dollar notching a fresh seven-year high. Better ISM non-manufacturing output trumped the lower-than-expected ADP employment numbers. The diverging monetary stances of the relevant central banks is the key driver. So it would seem that market participants will not be happy until the yen is trading at ¥120.

Sterling, in contrast to the single currency, has seen gains of around 0.5% against the dollar in part owing to the higher UK growth forecasts from the OBR. For now, it would seem we can ignore the budget deficit, but the lower inflation expectations would imply that a rate hike from the BoE is not imminent. 

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