IFX Market Report: Friday 18th November 2022

As mentioned in yesterday’s report, Jeremy Hunt’s budget statement did not come as a shock to the markets as he laid out the plan to fill the £55bn fiscal hole. £35bn of spending cuts, and £25bn of tax rises which saw the threshold for the 45% top tax rate bracket move from £150,000 to £125,000. The main purpose of these tax rises and spending cuts was to reassure the markets that the UK were taking control of the nation's resources.

Mr Hunt said that the primary going forward is to support the BOE in the fight against rising inflation, which currently stands at 11.1% with a target to bring it down to 7.4%.

The pound fell initially to around 1.18 against the dollar, however UK bonds rallied to finish flat on the day. The pound also rose back yesterday afternoon to around 1.1860.

This morning's data showed that UK retail sales grew more than expected in October. Month on month they rose 0.6% which was double the 0.3% estimated, however for the 3 months up to October sales volumes fell 2.4%.

Federal Reserve James Bullard, said previous interest rate rises had “only a limited effect on observed inflation” and that the central bank’s main policy rate could increase above the forecasted level to between 5 per cent and 5.25 per cent at least.

The ECB Vice president Luis de Guindos has said that the Eurozone now has around an 80% chance of falling into deep recession as people and firms are already feeling the impact of rising inflation and the slowdown in economic activity,”

There is limited major data out for the remainder of today but Bank of England policy maker Haskel is speaking at 17.15 today, so there could be a little volatility before markets close for the weekend.

GBPUSD resides at 1.19

GBPEUR resides at 1.1479

EURUSD resides at 1.0365