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Tax cut u-turn hardly inspires confidence

Good morning


Welcome to Q4. We’ve only been in it a few days and already there’s plenty of news. The UK chancellor has backtracked on the higher rate tax cut, an ill thought out and badly received policy change. Truss has said it was all Kwartengs idea, he is also getting bad press for attending a party with hedge funds after the mini-budget, its not going well for him.


S&P have put UK on negative outlook after the tax cuts and help for energy bills. A lot of spending and not much clarity as to how this will be paid for. Truss insists it is all under control. Not many people believe her. The conservative party conference begins today, both Truss and Kwarteng are speaking. Can’t imagine the standing ovations going on for too long.


GBP has actually taken a little comfort in the news the plans to cut the 45p tax rate will be scrapped, or at least delayed. GBPUSD has been up to 1.1250 this morning, currently 1.1210, while GBPEUR has traded to 1.1470 before settling back at 1.1420. It has been pointed out that scrapping the top income tax plans will save £2bn over the next couple of years, not really a patch on the $45bn overall cost of the recent mini-budget. If the move over the past week or so has been partly down to lack of confidence, the u-turn is hardly likely to enforce a great deal more confidence. Still think risks are for GBP downside.


A lot of talk about Credit Suisse and Deutsche Bank, and whether we are near seeing a Lehman’s style default. Credit Suisse in particular spent most of the weekend reassuring client and counterparties that the banks capital and liquidity are in good shape. More to come from this story, I’m sure.


USDJPY is trading up at 145.00 as FinMIn Suzuki says sharp moves are undesirable, but so far we have seen no sign of additional intervention. Acting alone may slow the yen depreciation but is unlikely to turn the trend. Meanwhile BoJ have said that for the first time since 2014 when data was collected, their estimate for CPI in the coming years has reached 2%.


RBA look set to raise rates by 50bps again today although a lot of talk doing the rounds that we may see only a 25bps rise. This has led to AUD being sold off. If RBA did go for 25bps it would be a sign that central banks are starting to look at economic risks other than just high inflation. If they do opt for a 50bps rise it is widely expected they will combine that with a dovish statement. GBPAUD has been up to almost 1.7500 this morning, currently 1.7385.


It is golden week in China. President Xi has taken the opportunity to warn of great struggles ahead. I’m sure he is talking mostly about the economy but as you know I still feat for Taiwan and I do wonder if part of the struggle Xi mentions is aimed at getting Taiwan firmly back under Chinese control.


Finally, the question of how to class renewable energy is in the headlines as Drax, who run one of the UKS largest power stations, have received billions of pounds in subsidies for green energy, has been accused of cutting down vast swathes of Canadian forests to create the wood pellets that power the plant. Drax obviously disputes the claims but there is rarely smoke without fire, especially when it comes to burning wood.



- 09.30 UK S&P manufacturing PMI

- 10.00 UK PM Truss speaks

- 14.05 Feds Bostic speaks

- 14.30 CAD S&P manufacturing PMI

- 14.45 US S&P manufacturing PMI

- 15.00 US manufacturing ISM

- 16.00 UK chancellor Kwartend speaks

- 16.45 Feds Barkin speaks

- 19.15 Feds George speaks

- 20.10 Feds Williams speaks

- 00.30 Japan tokyo CPI

- 01.30 AUS building permits

- 04.30 RBA rate announcement



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