Europe
Further deterioration in European retail sales and the European service sector resulted in mild gains for shares in Europe as the data added pressure on Mario Draghi to enact more stimulus at Thursday’s ECB meeting.
The UK service sector saw a big jump in the November PMI, a definite positive for the UK economy but British shares were being driven by sector winners and losers from the Autumn Statement for the budget.
Airliners including easyJet Plc (LONDON:EZJ) and International Airlines Group (LONDON:ICAG) were seen as some of the biggest beneficiaries on the announcement that air passenger duty will be abolished for under-12s & under-16s after 2016. The big move higher in airline stocks reflects not just the impact of the cut in APD’s for children but also the increased likelihood the UK will follow Scottish plans to scrap it altogether.
Home builders including Persimmon gained on the changes to stamp duty which should reduce the cost of buying and selling houses for 98% of home-owners and increase demand for houses. The Bank of England has been trying to cool excessive house price growth through its MMR but an election-orientated Chancellor may have just begun a reheating.
Banks initially sold off on changes to the amount of losses than can be used to offset profits for taxes but the extension of the funding for lending scheme and tax cuts on ISA inheritance meant an overall neutral impact from the budget.
The Chancellor’s statement always contains a lot of smoke and mirrors but it seemed to be quite a populist budget which makes sense prior to the general election; but what’s good for the populace is not necessarily good for the 1% who make up the majority of UK shareholders.
US
Markets in the US traded cautiously higher after jobs growth missed expectations according to ADP data while ISM and Markit data conflicted over the state of the US services sector and oil stocks traded higher as oil prices stabilised for another day.
There is potential blowback from the UK Autumn statement for US tech and coffee corporations who have come under fire for their small international tax contributions. The likes of Apple, Google, Facebook and Starbucks have seemingly diverted profits earned in the UK into head offices in Ireland and elsewhere which have lower corporate tax rates.
FX
The US Dollar was mostly stronger today despite missed data on the expectation of further monetary easing in Europe. The notable exceptions were the British pound which responded positively to the Office of budget responsibility (OBR) forecasts.
The UK is the fastest growing economy in the G7 and is expected to grow at 3% in 2014 but that is expected to drop alongside inflation in the following four years while unemployment is expected to fall to 5.4%.
GBP/USD has been range bound with a floor of 1.56 since mid-October. Today EUR/USD broke its floor which held for a similar period so cable maybe headed the same way if the ECB meet dovish expectations on Thursday.
Commodities
Gold and crude oil traded higher in low volatility trading on Wednesday while copper prices dropped despite rumours of further easing in the pipeline from the People’s bank of China.
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