Stocks steady as Budget dust settles

​​​Budget reaction proves surprisingly muted

​Markets have taken Wednesday's budget in their stride, with both shares and the British pound showing limited movement despite the flurry of announcements. The relatively calm response suggests investors had already priced in much of the detail through the numerous leaks that preceded Rachel Reeves' statement.

​The FTSE 100 edged marginally higher in early trading, though the real action was concentrated in specific sectors rather than the broader market. This selective response is typical of budget days, where individual company fortunes can shift dramatically while the index barely moves.

​Sterling traded near a four-week high against the US dollar, holding above $1.30 as currency markets digested the fiscal implications. The pound's resilience suggests traders view the government's approach to debt management as credible, even if borrowing remains elevated.

​Government bond yields pulled back from recent highs, with 30-year gilts seeing their biggest fall since April. However, UK yields remain well above their US equivalents, reflecting ongoing concerns about the UK's fiscal position and growth outlook.

​Corporate updates paint mixed picture

​Beyond the budget drama, companies delivered a varied set of trading statements. Pennon guided towards a return to profitability after a difficult period, offering some encouragement for the utilities sector. Safestore met revenue forecasts, suggesting the self-storage market remains resilient despite economic headwinds.

​Halfords reported stronger cycling sales, a positive signal for discretionary spending in that category. However, Marshalls saw its CEO step down after what the company described as a challenging year, reflecting ongoing difficulties in construction-related sectors.

Unite Group warned that 2026 earnings would come under pressure, citing weaker occupancy rates in Leicester, Nottingham and Sheffield. The student housing specialist also flagged slower take-up at new builds, pointing to potential oversupply in certain markets.

​Sterling's rally running out of steam

​Morgan Stanley closed its bullish call on the pound, arguing that the last supportive catalyst has now passed with the budget out of the way. The bank's shift reflects a view that sterling's recent gains may prove difficult to sustain without fresh positive drivers.

​The pound has benefited from expectations that UK interest rates will remain elevated compared to other major economies, but that advantage could narrow if growth disappoints. With the budget now absorbed, currency traders will refocus on economic data and Bank of England (BoE) policy signals.

​Sterling's four-week high against the dollar came as markets priced in an 85 percent chance of a December Federal Reserve (Fed) rate cut. This expectations gap between the Fed and BoE has supported the pound, though further divergence seems unlikely.

​Gilt market rebounds but concerns linger

​UK government bonds rallied after recent weakness, with 30-year yields posting their sharpest fall since April. The move suggests some investors view gilts as oversold following the pre-budget sell-off, though yields remain elevated by historical standards.

​The rebound in gilt prices came despite the OBR projecting higher borrowing than previously forecast. This disconnect may reflect technical factors, including position squaring after the budget, rather than a fundamental reassessment of UK fiscal risks.

​Notably, UK yields continue to trade well above equivalent US Treasury yields, indicating persistent concern about the UK's debt trajectory. This premium reflects both higher inflation expectations and questions about the government's ability to control spending over the medium term.

​The gilt market's performance in coming weeks will prove crucial for the government's financing costs and for broader financial conditions. Higher yields could eventually feed through to mortgage rates and corporate borrowing costs, weighing on growth.

​Asian markets lift on Fed rate-cut bets

​Regional Asian equities rose overnight as traders increased bets on a December Fed rate cut. The 85 percent probability now priced in represents a significant shift from just weeks ago, when markets saw a rate hold as more likely.

​This repricing of Fed expectations has supported risk assets globally, though the impact on UK markets has been muted given domestic budget concerns. Asian markets are more directly exposed to shifts in dollar funding costs and US monetary policy.

​The divergence between Fed and BoE rate expectations continues to support sterling, as discussed above. However, this could reverse if UK economic data disappoints and forces the BoE to consider earlier rate cuts.

​Market outlook: selective approach required

​Today's market action reinforces the need for selectivity in current conditions. While headline indices have shown resilience, individual stocks and sectors face vastly different prospects depending on their exposure to specific risks.

​Companies with weak balance sheets or exposure to struggling consumer segments face mounting pressure. Not all businesses will navigate this environment successfully.