Market Reaction to Sunak's Spending Spree

Market Reaction to Sunak's Spending Spree

Brexit 10

Rishi Sunak unveiled his first Budget today. Despite a nervous start he was soon in his stride as went on to announce a huge spending spree.

Going into the Budget concerns over coronavirus were front and central. The Chancellor acknowledged these concerns and also highlighted that they should be temporary. He pledged £30 billion stimulus package to counter the impact of the coronavirus hit, aimed at mainly helping the small and medium sized businesses address the supply/demand shock that coronavirus is expected to bring, and its impact on cashflow.

However, his spending didn’t end there, and Rishi Sunak went on to announce a wide array of measures from duty freezes, to flood defence spending to huge spending on infrastructure projects. The measures in total will cost £175 billion over the coming 5 years. The Budget will put government borrowing at the highest level in 30 years. This marks a sharp turnaround from his predecessors and brings an end to years of austerity.

The OBR expect GDP to reach 1.1% this year and 1.8% in 2021.
Debt to GDP will be 2.1% this year, rising to 2.8% in 2021. These figures don’t take into account the hit to the economy that coronavirus could bring.

Market reaction
The pound’s reaction has been fairly muted given today’s events. With the BoE cutting interest rates by 50 basis points this morning and the Chancellor unveiling a huge spending plan in the afternoon the overall impact appears to be one of stability. This is the coordinated response that the markets have been looking for. GBP/USD 

The Pound is holding steady at $1.2950 slightly off the high of the day, whilst the FTSE is also trading steadily at -0.2% lower. The FTSE 250 which has a more domestic focus and is often considered a truer reflection of the UK economy than the more international FTSE 100, was trding slightly off -0.1%.

Equity Winners & Losers
Firms with big exposure to the infrastructure space such as Kier (+16% )and Balfour Beatty (+12%) are performing well, along with broadband providers BT and Spirent Communications. The pub sector should theoretically benefit from the freeze on beer duty and discounts on business rates although, this is not showing through owing to the coronavirus disruption. House builders have also failed to react despite £12.2 billion investment in affordable housing.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account