UK FISCAL: Latest headlines don't provide much "new" news versus early morning
Nov-14 09:15
- The story that Bloomberg is running on the income tax increases being dropped because the UK forecasts are "improved" doesn't really seem to include any real "new" news here.
- The way the OBR constructs its forecasts mean that it only takes economic "news" into account in its first 3 rounds of forecasts, the "pre-measures" rounds - the last of which was delivered to the Chancellor on 31 October. Indeed, an FT story on 28 October pointed to a 0.3ppt downgrade in productivity that would cost GBP21bln - around GBP20bln is being used in the Bloomberg story.
- The Times then reported that round 4 of the forecasts (the first to include proposed measures from the Treasury) included the plan to increase income tax by 2ppt (with a corresponding cut in employee NIC at the basic rate by 2ppt).
- Unless the OBR is breaking with its previous conventions here, the scale of the productivity "downgrade" shouldn't be news since those income tax increases were announced. And the Bloomberg story refers to a GBP20bln productivity downgrade - which as noted above is what was already assumed.
- So it seems unlikely that a change in productivity expectations relative to previous forecast rounds is having any impact here...
- Also the news on salary sacrifice was already expected to some extent - cycle to work schemes, company car schemes etc are all expected to be less generous. And potentially making these all non-NIC exempt. What the story doesn't address is whether salary sacrifice for higher rate pension tax relief or pension NIC-exemptions are under consideration.
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FOREX: Powell Ripple Effect, CNY Fix Drive USD Lower
Oct-15 09:10
- The USD Index has stepped lower early Wednesday, prompting USD to fade further off the early October highs. This leaves the USD Index 0.8% off the October highs of 99.563, however still well toward the upper-end of the month's range. The USD is lower for a second session, with European markets taking the lead of the Wall Street close and Powell's appearance just after the close.
- Markets are growing in conviction that an October rate cut is far from the last at the Fed - and Powell's focus on the downside risk for the labour market raises focus for the 10y yield, which is narrowing in on 4.00%. A major break lower here could be the next trigger to extend the USD weaker. In tandem, the stronger-than-expected CNY fix has also proved USD negative. The PBOC set the reference rate at 7.0995, the strongest level in close to twelve months.
- Japanese political uncertainty has failed to keep JPY under pressure, with the currency broadly higher against the rest of G10. Opposition talks are scheduled over the coming days and while betting markets have shifted back in Takaichi's favour. A bullish trend condition in USDJPY remains intact and the pullback from last week’s high appears corrective. The next important support lies at 149.92, the 20-day EMA. On the upside, clearance of 153.27, the Oct 10 high, would resume the uptrend and open 154.39, a Fibonacci retracement point.
- EURUSD has made further progress as markets de-risk after the suspension of France's pension reform yesterday. Increased political stability is outweighing fiscal concerns, but rallies may be contained by potential ratings downgrades on any fiscal slippage. EURUSD printed 1.1645 just after the open, meeting the 100-dma in the process.
- US September CPI was originally set to print today, but with the government shutdown extending further (and looking likely to persist well toward the end of October / early November) it's set to be a quieter session for economic data. Canada's manufacturing sales data, NY Fed's Empire Manufacturing and the latest Beige Book are still due, however.
- This should keep focus on what's already been a busy week of central bank communications. Fed's Miran, Waller & Schmid are due, as well as BoE's Breeden, RBA's Bullock and ECB's Villeroy.
GILT AUCTION RESULTS: Disappointing linker auction
Oct-15 09:07
Slightly disappointing 10-year gilt linker auction with the pre-auction mid-price above the average price. The price has fallen post-results despite the 3.49x decent bid-to-cover.
MNI: CHINA JAN-SEP NEW LOANS CNY14.75 TRLN VS MEDIAN CNY14.92 TRLN
Oct-15 09:06
- CHINA JAN-SEP NEW LOANS CNY14.75 TRLN VS MEDIAN CNY14.92 TRLN
- CHINA END-SEP M2 +8.4% Y/Y VS MEDIAN +8.5%; END-AUG +8.8% Y/Y
- CHINA END-SEP M1 +7.2% Y/Y VS +6.0% Y/Y END-AUG
- CHINA END-SEP M0 +11.5% Y/Y VS +11.7% Y/Y END-AUG
- CHINA JAN-SEP TSF CNY30.09 TRLN VS MEDIAN CNY29.90 TRLN
