The British government is at the heart of things again with both the Budget and Brexit on the agenda, while on the corporate front, earnings season comes to a close on Wall Street.
Here’s our full look at the week’s main events in the markets.
Chancellor Philip Hammond delivers the first full autumn Budget on Wednesday, November 22nd. The set-piece event comes at a pivotal moment, with the government facing a possible backbench revolt and Brexit talks still leaving a lingering cloud of uncertainty over the financial outlook for UK plc.
For forex traders the most important element will be the broad economic outlook from the Office for Budget Responsibility. Also of note will be whether Mr Hammond chooses to loosen the fiscal straitjacket a little in order to boost spending – such a move would be net positive for growth, but could concern foreign investors and bondholders. According to reports, the Chancellor says he will keep to his own rules as there is no room for manoeuvre.
Any large-scale giveaways are off the agenda. With forecasts for the economy less optimistic, the chancellor’s £26bn Brexit war chest faces wipe-out and any spare cash will be needed in case the UK and EU fail to agree on a smooth transition deal.
Nevertheless there are still several specific domestic policy issues that the Chancellor may attend to that would impact a range of individual equities. For example:
Housebuilders & estate agents: Expect further support on the demand side, but anything like a more radical strategy to borrow £50bn to pay for state-backed housebuilding is unlikely to make the chancellor’s red box.
Retailers, pubs and restaurants: Action on business rates is expected but the question is how much relief is on offer. National Living Wage increases may be accelerated to help low-paid deal with rising living costs.
Airlines & travel companies: Faced with Brexit, the Chancellor may soften the blow for airlines and families by cutting the tax on trade that is Air Passenger Duty (APD).
Construction: The Chancellor is determined to raise UK productivity and further investment in infrastructure projects may be on the cards.
After the last round of Brexit talks ended on November 10th, the EU chief negotiator Michel Barnier said Britain had just two weeks to clarify or concede on key points of the divorce or face failing to move on to discuss future trading arrangements in December. That two-week deadline is up on Friday, November 24th.
Will Britain deliver the goods? It’s not hopeful: David Davis, the UK’s chief negotiator, has dismissed the deadline. The EU wants concrete proposals on citizen’s rights, the Irish border and the all-important alimony payments before it will allow the talks to progress.
Failure to move on to trade by December would be a body blow for Theresa May’s embattled premiership and would shorten the odds of a no-deal exit. Businesses from banks to airlines need to know where they stand and may have to resort to their worst-case scenario plans.
Weekly crude oil inventories from the US take on added significance as we approach the semi-annual OPEC meetings in Vienna at the end of the month. Crude prices have surged of late, with Brent, the international benchmark, climbing above $64 a barrel for the first time in two years.
Oil price gains have been driven by expectations of rising demand and output curbs beginning to bear fruit. Saudi Arabia’s crackdown on corruption has further fuelled gains as investors fret over instability in the region.
European airlines have faced a turbulent year with three of their number going under. But while some struggle, the likes of IAG, Ryanair and Wizz Air are posting record profits. On Tuesday it’s the turn of EasyJet to report full-year results.
In its October trading update, management guided profits to be at the upper end of forecast at between £405m and £410m, despite a £100m hit from currency headwinds.
Load factors improved to a record 95.6%, undoubtedly helped in the final month of the quarter by Ryanair’s travails (Sept load factor – 93.6% from 91.1% a year before). As Carolyn McCall points out; the ‘current turmoil in the sector provides easyJet with opportunities’ to capitalise on its offering.
However, low fares and overcapacity remain bugbears. In October EasyJet reported a reduction in revenue per seat of 3.7% during the fourth quarter, making for a fall of 1.4% in the second half from a year before.