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Jul-31 10:06
LARGE Euribor Call Spread: * ERU6 98.6875/98.875cs, bought for 1.25 in 36k vs +2k ERU6 98.25p....
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UK FISCAL: Welfare vote this evening and wider implications for markets (2/2)
Jul-01 10:04
- But perhaps even more significantly, the precedent this sets is that it is going to be very difficult for the government to cut spending. Which was always the case to some extent but almost a year ago when the government entered office (4 July 2024) it was thought that the large majority of the Labour party would make reform easier. If it is this hard for the government to control spending so soon after such a large majority, it makes it even harder as the parliament progresses and the next election starts to approach.
- Of course, on top of using up half of the headroom with these U-turns on spending cuts, yields are higher than at the time of the last Budget, inflation is still relatively sticky while the growth and labour market appear to be deteriorating. With more spending cuts looking increasingly difficult, this sets up the potential for more tax rises in the Autumn Budget (with the fiscal rules unlikely to be modified while Reeves is Chancellor. The market (and consumers) are likely to continue to worry where these tax rises will come, which isn’t going to be great for confidence over the next few months.
UK FISCAL: Welfare vote this evening and wider implications for markets (1/2)
Jul-01 10:03
- Later today, the Commons will hold a debate the on the second reading of the welfare reform bill. The debate is scheduled to finish by 19:00BST with a vote to be held thereafter (so expect results 19:10-19:20BST unless the vote starts earlier than expected).
- This bill is formally known as the “Universal Credit and Personal Independence Payment Bill”. While the government, in one of an increasing series of U-turns to appease the left of the party, has offered major concessions to Labour rebels, it remains to be seen whether this will prove enough to avoid MPs approving an amendment that would scupper the legislation for this parliamentary session.
- To put some context around this, the welfare reforms as originally set out were expected to save GBP5bln per year. The concessions (the main of which is that the changes only apply to future claimants) are expected to cost GBP3bln per year (according to the Resolution Foundation). So only GBP2bln out of the intended GBP5bln would be saved. And the winter fuel payments are expected to cost GBP1.25bln per year (based on Treasury figures). And another concession announced today is that some of the spending in the “Pathways to Work” programme will be brought forward with an extra GBP100mln in FY27/28 and GBP200mlin in FY28/29 before revering back to the previously announced cost in FY29/30. All of this together means that of the GBP9.9bln headroom under the government’s day-to-day spending rules, almost half has already been used.
EQUITIES: Estoxx Future is extending some losses
Jul-01 10:02
- Estoxx futures extends losses, similar falls are seen in wider European indices, but Volumes are still on the lower side and the VGU5 is still short of 5282.00, Yesterday's printed low.
- Overall the Stoxx600 is still mixed today, just down 0.37%, Utilities lead, up 1.36%, and at the other end, Media is down 1.55%.
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