A preview of the day ahead in US and global markets by Mike Dolan.
With the Federal Reserve still talking tough on US interest rates, global markets have once again turned the spotlight on Britain as it unveils revised plans on Thursday to get public finances and inflation under control with severe tax and spending cuts.
After the chaos of September’s botched gift budget, it’s clear why the UK’s story matters to global markets – revealing as it did the limit to which bond markets will tolerate unfunded tax cuts and skyrocketing borrowing in a G7 power as inflation rises.
Yields on long-term sovereign bonds fell sharply all week ahead of Finance Minister Jeremy Hunt’s new budget, dragged down largely by disinflation hopes in the United States.
UK 10- and 30-year gilt yields outperformed, however, falling to their lowest since early September before retreating slightly on Thursday. The pound also gave back some of the week’s gains in the 11:30 GMT speech.
Hunt plans to close a £55billion ($65.70billion) budget shortfall by freezing thresholds and abatements on income tax, national insurance, death duties and pensions for longer reducing public spending by more than £20 billion.
Perhaps also important to investors is what the Independent Office for Budget Responsibility, which has not released a breakdown of the impact of the September budget, makes of the new plan and its impact on an economy entering in recession.
Fascinating US Treasury yields also fell slightly on Thursday despite a mixed picture of strong US retail sales but weak industrial and housing numbers.
Fed officials seem determined not to signal the end of their tightening campaign. San Francisco Fed President Mary Daly, once one of the Fed’s most dovish policymakers, was the latest on Wednesday to say a pause in the bullish cycle was not up for discussion and that next year’s peak rates were likely “somewhere between 4.75% and 5.25%” compared to with 4.0% right now.
US housing starts figures will later provide another insight into the state of the struggling real estate sector.
US stock futures were flat ahead of the open.
The euro was further pushed back from this week’s 4-month highs, meanwhile, amid growing speculation that the European Central Bank will cut its rate hikes to a 50 basis point clip next month.
There was better news in the corporate world as German engineering and technology giant Siemens (SIEGn.DE) jumped 7.2% after saying hardware and software would plant continued to experience strong demand.
Chinese stocks fell earlier, with Hong Kong-listed technology companies (.HSTECH) falling 2.2%, food delivery company Meituan (3690.HK) down 5.7%. Tencent (0700.HK) said it would return capital to shareholders through a dividend payout on its $20.3 billion stake in Meituan, as sales fell for a second straight quarter.
Games company NetEase (9999.HK) plunged 9.1% as Activision Blizzard’s game development unit (ATVI.O) said it would suspend most Blizzard game services in China continental.
The reverberations have continued around the world since this month’s last implosion in the crypto universe and the failure of the FTX exchange. On Wednesday, leading crypto player Genesis Global Capital suspended client repayments in its lending business, citing the collapse of FTX. Court documents show Sam Bankman-Fried is facing legal action, but the beleaguered FTX founder says he now regrets his decision to file for bankruptcy and has slammed regulators.
Key developments that could guide US markets later Thursday:
* US Housing Starts and Permits in October, Philadelphia Fed Business Climate Index in November, Kansas City Fed Manufacturing Index, Weekly Jobless Claims
* US Treasury Auctions 10-Year Inflation-Protected Securities
* UK Finance Minister Jeremy Hunt announces medium-term budget statement; as well as new forecasts from the Office of Budget Responsibility. Bank of England chief economist Huw Pill and BoE policymaker Silvana Tenreyro also speak
* Federal Reserve Governor Michelle Bowman, Minneapolis Fed President Neel Kashkari, Atlanta Fed Chief Raphael Bostic, Cleveland Fed Chief Loretta Mester all speak
* Profits of American companies: Macy’s, Applied Materials, Palo Alto Networks
By Mike Dolan, Editing by Simon Cameron-Moore mike.dolan@thomsonreuters.com. Twitter: @ReutersMikeD
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