Market Report: UK Budget, Super Tuesday and Gaza deadlock to dominate
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The FTSE 100 has opened in lacklustre fashion and is set to struggle to gain significant ground at the start of a week overcrowded with potentially market moving political events, while speculation over the prospect for interest rate cuts in major economies keeps bubbling. Super Tuesday in the US, the start of the China National People’s Congress and the UK Budget will all draw intense focus, while central bank policymakers’ comments will also be closely watched for indications about the path of monetary policy, with Fed Reserve Chair Jerome Powell set to testify in Congress. Ahead of the flurry of events, there is likely to be some treading water, with US indices hanging onto new ground reached on Friday, with enthusiasm for AI continuing unabated, and boosted by strong corporate earnings.
Speculation over what’s in and what’s out of Jeremy Hunt’s budget is reaching fever pitch, ahead of the big reveal on Wednesday. What appears clear is that the chancellor has a lot less fiscal room to play with than he hoped, which is why he’s played down speculation about significant tax cuts. Warnings are coming thick and fast, from the Office of Budget Responsibility and the International Monetary Fund, about the financial irresponsibility of offering big sweeteners. Given the huge borrowing commitments the government already has to honour, it seems unlikely there will be a big fanfare of an income tax giveaway. However, a further cut to National Insurance is still on the cards. There is though likely to be a good deal of other tinkering by Houdini Hunt, who is set to show a sleight of hand with an array of smaller moves to try and please the voters ahead of the election.
The FTSE 100 isn’t expected to make much progress in early trade and the index is still lagging international peers. US stocks have been riding high and Japan’s Nikkei has reached fresh levels, boosted by technology stocks, while the UK’s blue-chip index has failed to regain the high it climbed to just over a year ago. With blue-chip stocks finding it hard to regain their mojo and the swoop on British companies continuing, rumours are swirling that Jeremy Hunt will try and revitalise the London markets, by offering tax incentives to retail investors. While and increase to the annual ISA allowance would be hugely welcome, he should steer clear of introducing a ‘British ISA. This would add unnecessary complexity and could have a negative impact on UK investors. Even if such a move did persuade people to invest more in the UK, it could end up increasing risk for investors. It could unnecessarily concentrate portfolios, which could be a detriment, especially if there was more volatility in the London markets compared to others. A separate British ISA might end up providing no additional boost to UK investment. Those who already max out their £20,000 ISA allowance could simply hive off all their existing UK holdings to the British ISA, and use the extra wiggle room to invest more overseas in their usual ISA.
The temperature of US politics will be under scrutiny this week with Super Tuesday, when more than a dozen primaries will take place, and it’s set to be pivotal in terms of determining Trump’s power in the Republican Party and could spell the end of Nikki Haley’s race. President Biden will make his State of the Union address and, with optimism is fading for a diplomatic breakthrough in Gaza, it looks set to be a difficult and delicate speech to deliver. The tense and unpredictable situation in the Middle East is keeping upwards pressure on oil prices especially with speculation also swirling that OPEC+ will extend production cuts, with Brent Crude is hovering around $83 a barrel.”
