UK FISCAL: Spring Statement Due Next Week
- Next Wednesday will see Chancellor Reeves deliver her Spring Statement, that will include the OBR's (independent fiscal forecaster) forecasts.
- The statement is due to begin at 12:30GMT followed by the release of the DMO's financing needs (including the gilt remit) around 13:30GMT. Note that Reeves has committed to no tax increases, but spending cuts are expected to balance the books with disappointing growth and higher borrowing costs likely having eroded Reeves' fiscal headroom. Having said that, we would not rule out further income tax threshold rises into later in the parliament (which could be argued by Reeves to not be a tax increase).
- We will put out our full Spring Statement preview next week, along with full analysis of sellside remit expectations. Based on our preliminary findings expectations for the gilt remit for 2025/26 range from GBP292bln to GBP315bln (median GBP302bln). There is a greater skew towards shorts than in previous years (median 36.2% vs 34.3% this year), albeit with estimates ranging from 33.9% to 38.5% for this bucket. The proportion of longs sees the smallest reduction versus the current fiscal year.
- There is also a large range of views surrounding the size of the unallocated bucket (ranging from GBP10.5bln to GBP28.0bln) as well as whether there will be an increase in net T-bill stock (estimates range from flat to a GBP10bln increase with the median at GBP5bln).
- The one notable thing that we have not seen mentioned much in sellside previews is the impact of the already announced switch from aid spending to defence spending. Aid spending is current spending while at least some of the additional defence spending is likely to be capital spending. Reeves' fiscal headroom is based on the current budget balance (and hence the switch from aid to defence spending helps here). It may be that this has not been fully accounted for in expectations, which may mean that cuts need to be less than expected. However, we have long argued (since the last Budget) that further cuts / tax rises would be needed down the line - and that was before rates and inflation remained as sticky as they appear to be now.
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EQUITY TECHS: E-MINI S&P: (H5) Key Resistance Remains Exposed
- RES 4: 6205.38 0.764 proj of the Jan 13 - 24 - Feb 3 price swing
- RES 3: 6200.00 Round number resistance
- RES 2: 6178.75 High Dec 6 and key resistance
- RES 1: 6162.25 High Jan 24
- PRICE: 6132.00 @ 14:26 GMT Feb 19
- SUP 1: 6075.54 20-day EMA
- SUP 2: 6014.00/5935.50 Low Feb 10 / 3
- SUP 3: 5892.37 76.4% retracement of the Aug 5 - Dec 6 bull leg
- SUP 4: 5842.50 Low Jan 14
S&P E-Minis have faded off highs intraday, but remain firm and hold the bulk of the recent phase of strength. Attention remains on resistance at 6162.25, the Jan 24 high. Clearance of this level would expose the key resistance at 6178.75, the Dec 6 ‘24 high. A move above this hurdle would resume the primary uptrend. On the downside, initial key support has been defined at 6014.00, the Feb 10 low. A break would highlight a bearish development.
EQUITIES: US Cash opening calls
US Equities are set for a negative open, the pullback in futures was mostly Tech led as oppose to new fundamentals or Headlines.
European Estoxx has been trading in overbought territory, and was possibly due for some unwind, while the SPX reached a new all time record high Yesterday.
- Calls: SPX: 6,118.1 (-0.2%); DJIA: 44,429 (-0.3%/-128pts); NDX: 22,132.7 (-0.1%).
EURIBOR OPTIONS: Call fly buyer
ERM5 97.9375/98.0625/98.1875c fly, bought for 1.25 in 7k.
