November 18, 2022

Daily Report 18/11/2022

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In the Autumn Statement, Chancellor Hunt announced fiscal tightening of £55bn over the next five years. Most tax allowances will be frozen for six years which will contribute to major fiscal drag. Spending levels will be capped, although most tightening will take place after the next scheduled election. Hunt announced that windfall taxes will be increased and the overall tax burden will increase to a 70-year high. The Office for Budget Responsibility stated that the overall debt/GDP ratio will increase while there will be a decline in real disposable incomes of over 7% by 2024, the sharpest 2-year decline on record which will sap the outlook for spending Sterling lost ground following the statement with an underlying lack of confidence in the longer-term outlook, although much of the more was related to a weaker tone in risk appetite as US and domestic equity markets lost ground.  The overall reaction was muted with most of the measures flagged in advance.

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The October headline Euro-Zone inflation rate was revised down marginally to 10.6% from the flash reading of 10.7%. The Euro overall was unable to make any headway ahead of Thursday’s New York open with weaker risk appetite undermining single currency support and also underpinning the US dollar. The Euro overall dipped to lows in immediate reaction to the data as equity futures lost further ground with hawkish Fed rhetoric also underpinning the currency.

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The US Philly Fed manufacturing index dipped further to -19.4 for November from -8.7 previously and well below consensus forecasts of -6.2. New orders remained in contraction territory and unfilled orders also declined sharply for the month with smaller growth in shipments. There was a smaller increase in employment for the month with a small net increase in inflation pressures which will cause some concern. Companies remained generally pessimistic over the outlook with inflation pressures expected to weaken slightly with the data overall increasing reservations over the outlook.

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