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Brexit punches hole in UK finances

Brexit punches hole in UK finances

The Pound slipped after public sector borrowing figures were published yesterday. In mid-morning trade Sterling was down 0.39% against the Dollar at 1.2384 and down 0.42% against the Euro at 1.1661. Despite borrowing figures for October printing lower than expected, it now looks increasingly unlikely that the government will meet its deficit reduction target for the financial year.

Stephen Hammond will deliver his first Autumn Statement today. As this is the first indication of post-Article 50 plans the markets are hoping to hear pro-business initiatives. Key announcements are likely to be: a reduction in corporation tax, £2Bn in funding initiatives for research and development, £1Bn for broadband infrastructure, over £2.5Bn in road improvements, £1.4Bn for 40,000 new homes and an increase to the National Living Wage. On the downside, the Office for Budget Responsibility will announce a £100Bn gap in UK finances over the next five years, instigated by Brexit.

In the US, Richmond Fed manufacturing and existing home sales data printed stronger than expected, strengthening the Dollar temporarily but the gains were soon reversed. The Dollar overall will find it difficult to gain further support after strengthening, although markets will be wary of erratic trading ahead of the Thanksgiving Holiday.

The US data for release today includes preliminary services PMI readings for November, new home sales figures, durable goods orders and EIA Crude Oil Stocks change. This evening’s release of the minutes from the Fed’s November policy meeting are likely to confirm that officials were close to their first interest rate increase in 12 months even before the Nov. 8 election, and developments since have only served to bolster the case for a hike.

The only Euro data yesterday showed that the Eurozone’s consumer confidence has soared to ten-month highs. The European Central Bank (ECB) officials did not make any substantive comments regarding December’s monetary policy announcement. With the market clamouring for inside information, the risk of rumours causing volatility are high.

The US market will be shut tomorrow for Thanksgiving. Dollar Payments will be halted for the bank holiday.

Data to watch: 8.30am German November Markit PMI, Services, Manufacturing & Composite. 9am Euro November Markit PMI, Services, Manufacturing & Composite. 11.30am UK MPC Forbes Speech. 12.30pm UK Autumn Statement. 1.30pm US Durable Goods & Durable Goods excl Transportation. Initial & Continuing Jobless Claims. 2pm US Housing Price Index. 2.45pm Nov Markit Manufacturing PMI. 3pm US New Home Sales & Change. 3.30pm EIA Crude Oil Stocks Change. 7pm US Fed Open Market Committee Policy Minutes.

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