UK FISCAL: Weekend roundup of Budget press stories
Oct-13 07:27
- Bridget Phillipson, the Education Secretary who is running for Labour Deputy Leader, said on Sky News in an interview over the weekend that she was "confident that we as a Government will do the right thing by children growing up in poverty in our country." She followed by saying that "There's an urgency to this. With every year that passes more children are moving to poverty because of the two-child limit." Note that this policy is expected to cost more than GBP3bln and is not included in most estimates of the fiscal shortfall of around GBP30bln that Chancellor Reeves is expected to be needing to raise in the 26 November Budget.
- There were also a number of reports that Reeves is looking to increase fiscal headroom above the c. GBP10bln seen in the last two fiscal events. The Guardian is reporting a Treasury source stating "We would like more headroom. We want to try to insulate ourselves better against the volatility in the bond markets." More headroom is something that the MNI Markets team has been advocating for some time. If headroom is not sufficient then even small economic disappointments can lead to concerns that taxes will need to increase further down the line which creates uncertainty for both consumers and businesses (potentially delaying investment).
- There are reports that the Treasury is considering responding to farmers' concerns through a proposal put forward by CenTax over the inheritance tax reforms. At present the reforms are due to kick in at 20% after the first GBP1mln (half the normal 40%) but the report notes that thresholds of between GBP1.5-5.0mln may be considered with the standard 40% tax rate applicable after that. This would undoubtedly be a popular policy in rural communities.
- There are lots of opinion pieces on how stamp duty and council tax could be reformed (with the former particularly in focus after Badenoch stated that the Conservatives would abolish it). But at present it is unclear whether any reforms to either of these taxes are seriously under consideration.
- Furthermore, see our bullet earlier on the IFS options for the budget (7:45BST).
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AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
Sep-12 21:45
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
Sep-12 21:16
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Sep-12 21:07
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
