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UK: focus on Autumn Statement

Appetite in oil is fading given the looming uncertainties on how to deal with Iran and Iraq’s request to be exempt from a production cut, and how would the other OPEC members react to an eventual discharge. 

 

Given the complexity of negotiations, the large pallet of idiosyncratic factors in play and severely squeezed finances, it would be a miracle if the OPEC members succeeded to seal a deal for a satisfactory output cut at the November 30th meeting in Vienna. If however an agreement is reached, the barrel of oil is expected to recover to $55 by the end of the year.

 

The US dollar softened against the majority of its G10 counterparts, except the pound and the Norwegian krone. Due today, the FOMC minutes from November's meeting are expected to trigger little enthusiasm given that the market already assesses a 100% probability for a Federal Reserve (Fed) interest rate hike in December.

 

Commodities gained on the back of a softer US dollar. Iron ore futures soared 7.33%, zinc rose 0.81%, as copper gained 0.26%.

 

FTSE started the day slightly upbeat; basic materials (+1.42%) lead gains. Banks and insurers started behind the curve, while appetite in UK homebuilders remained limited before the UK’s Autumn Statement due later today.

 

Taylor Wimpey (+0.33%)

Persimmon (+0.17%)

 

The pound is under decent selling pressure heading into the Autumn Statement.

 

Today’s statement will be Philip Hammond’s debut as Chancellor, and the first since Theresa May became Prime Minister after June’s Brexit referendum.

 

The new Chancellor is expected to reveal the cost of the Brexit and the impact that it would have on public finances.

 

Hammond is given the hard task of supporting the UK's economy after it decided to leave the European Union. On today’s menu are the possibilities of an increase in the national living wage to £7.50, slowing benefits for new workers, prospects of an increase in housebuilding, and potential restrictions on agent fees. It is a sure thing that higher spending should increase jobs, generate revenue and steer economic activity away from a severe recession. Yet the UK government doesn’t have bottomless funding.

 

According to a recent Bloomberg survey, the UK government would borrow an additional £100 billion, given that slower post-Brexit growth would hammer tax revenues. Based on this consensus, the UK’s budget deficit would run at £30 billion, instead of turning positive by 2020, as promised by the pre-Brexit Chancellor George Osborne.

 

Hammond has already warned that the UK's “eye-wateringly large debt” would give him little room for manoeuvre. 

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