The dust has settled on the Budget and we can safely say that, while not irrelevant, the economic impact of Chancellor Osborne’s speech was fairly negligible. We did see the Office for Budget Responsibility revise this year’s growth target higher to 0.8% vs. 0.7% but this was widely expected and received little excitement. In fact from a markets point of view you’d have been hard pressed to realise the Budget was being delivered; maybe that’s a good thing. We’ve had far too many surprises of late to be honest.
I’m not going to pore over the details of the “Granny-tax” or the lowering of the 50p tax rate – every business section of every newspaper has done that this morning – but I will say that it is our belief that the Chancellor could have done more to help Britain’s businesses. Fuel duty could have been cut, incentives for businesses to invest in the UK, not just set up HQs which is very different, could have made the Budget a much clearer sign that “Britain is open for business”. Some help will come from the cut in corporation tax but a cut in National Insurance contributions could really help SMEs as well.
As we expected yesterday, the minutes of the latest Bank of England meeting caused a lot more movement than Osborne’s missive. The minutes showed that two members of the MPC, David Miles and Adam Posen, both voted for an increase in asset purchases by £25bn and so it seems like the battle between the doves (those who favour looser monetary policy) and the hawks (tighter monetary policy) of the MPC will continue through 2012. Although the votes for the increase in QE comes from the two most dovish members of the Bank of England, voting for an additional £25bn seems like a bit of a cop out although supporters will portray this as fine tuning. It did cause sterling to lose ground against the dollar and euro falling 0.35% and 0.3% respectively in the minutes after the announcement.
Overnight we have seen some further movement following the publication of the latest manufacturing numbers from China. The preliminary reading of manufacturing PMI fell to the lowest level since November and has reignited worries that we may see a pronounced slowdown in the Far East. Weakness was found in the new orders component and equities, oil and the AUD in particular took a leg lower as a result. As a result we expect equities to open in the red and the dollar to remain supported at current prices versus GBP and EUR.
The data from the UK doesn’t stop with the Budget and we receive February retail sales at 09.30. The figure is expected to be negative from the surprise jump of 1.2% seen last month. Some will put this down to further fears over the purse strings but we see it as more likely as a result of retailers ending their festive session of price-discounting. The market is expecting a decline of -0.5% but we believe that the figure will be lower and sterling should slip as a result.
We also receive details of the latest round of PMIs from Europe. It is a similar story to last month however, with Germany expected to grow, France expected to stagnate and the rest to remain below 50.0 and therefore still contracting. There is certainly no suggestion that the peripheral economies are going to bounce back this month.
US data comes in the form of initial jobless claims which bulls will be hoping remains in a declining trend. The market expects a figure of 351k.
Indicative Rates Sell Buy
GBPEUR 1.2026 1.2050
GBPUSD 1.5833 1.5860
EURUSD 1.3146 1.3175
GBPJPY 131.19 131.50
GBPAUD 1.5258 1.5284
GBPNZD 1.9600 1.9630
GBPCAD 1.5758 1.5789
NZDUSD 0.8066 0.8090
GBPZAR 12.17 12.22
USDZAR 7.6780 7.7077
GBPPLN 5.0073 5.0346
EURJPY 109.00 109.27
Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offered Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time. The rate you will receive will depend on the amount and currency you require.
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