It's budget day in the UK and normally that would mean the normal discussions around the UK’s finances and the government’s plans for the next 12 months, however this time we will have the added issue of Brexit. The chances are we won’t hear how hard the general public have been hit by the cost of the Brexit negotiations, but instead the Chancellor will be fully briefed to give a rose tinted view of post-Brexit Britain, despite there being very few signs of positivity from either party. However, the UK Budget is not only about Brexit, there is a big emphasis on housing, as we have seen leaked already from the Chancellor's speech, with two measures to firstly encourage more social housing, and secondly build more homes as there continues to be a shortage of homes in the UK. However many will want to see just what the chancellor will do to help first time buyers get on that property ladders. Building more homes is a big step forward, but not if the average person can’t afford to live in them.
A big question always is, what do the markets want to see? The answer to this is actually, usually not very much. With the major UK markets and the pound largely ignoring the budget, however with Brexit looming over everyone the markets may be a little more interested. There will be the normal market moving points, such as the GDP and inflation estimates, with traders looking to see if these differ to the forecasts made by the Bank of England. We already know that inflation is not only running above the 2% target rate, but also above the BoE forecast for 2017, and with wage growth stagnant to nonexistent in many industries and interest rates moving higher there is a real pinch on the finances of many households.
The pound is little changed so far this morning ahead of the Chancellor's speech, but has been creeping higher since the start of November. It feels a little like the pound is becoming a bit battle weary when it comes to Brexit headlines. Since late November we have sat in range between the double top area at 1.3345 and double bottom area down at 1.3025. Yes there are a few points in that range but over the last month no matter what has come out from the dire Brexit talks, the pound has managed to hold its ground.
So we may not expect to see too much today in terms of FTSE100 or pound moves, unless the Chancellor breaks the mould and announces polices out of left field that could have a significant effect on what Brexit means for businesses, or measures that will ease the pressures on the economy as the UK enters 2018, a year that holds far more economic questions than it does answers.
It’s not just the Budget that we focus on today, elsewhere the calendar is particularly full of data as Thanksgiving means that data is brought forward a day to allow for the festivities. However, as you may have seen from the Thanksgiving travel images all over the internet, volume is likely to be thin in the US session as traders leave their desks for the holidays. The lower volume does not always mean a quiet session however as lower volume can also bread some bigger, more irrational markets moves, so volume may drop but volatility could well increase.