Market Update – 6th March 2024.

Inspector. Graphics are my design and artwork. Thanks. The United Kingdom Budget statement is made by the Chancellor of the Exchequer, a member of the Government who is responsible for all economic and financial matters. He controls HM Treasury. ands the revenues gathered by Her Majesty's Revenue and Customs and the expenditure of public sector departments and can raise taxes and duties according to the needs of the economy. After the Prime Minister he is the most important state officer. The Budget is normally an annual event in March, but in more recent times a mini budget has also been held in November. The budget speech is always carried to the House of Commons in a red briefcase, known as Ministerial Boxes, or Red Boxes’. This red briefcase has become representative of the annual UK Budget. Historically, it dates back to the first use by William Gladstone in 1860.

It has been a tense week for markets thus far with investors holding their breath ahead of key economic data and updates.

The National People’s Congress in Beijing has set ambitious goals to tackle economic challenges head-on! The government is rolling out measures to stimulate growth amid a property market downturn and deflation. China set its annual growth target for 2024 at approximately 5%, aligning with last year’s figure. This growth target significantly outpaces other major economies which are grappling with stagnation or negative growth. In addition, the central bank’s governor has hinted that there is room for further reserve requirement cuts.  Markets have welcomed the possibility of additional support, as seen at the longer end of the yield curve whilst the Hang Seng made gains closing up 1.7%. Premier Li has taken a bold step by cancelling the traditional post-parliament conference. While this move has sparked debates about transparency, it could benefit markets by reducing unnecessary noise.

US markets took a breather this week with investors looking ahead to key labour market data. In addition, the Fed chair will be heading to Capitol Hill today and tomorrow for semi-annual testimony before Congress. It’s been two years since the central bank began its aggressive battle against surging inflation, but with the economy powering along and inflation inching towards the Fed’s target, Powell will make the case for why officials are in no rush to lower rates. Any hints about interest rate changes or other policy tools will impact investor expectations and market pricing.

In a recent report on retail sales, the UK saw a 1% year-on-year rise in like-for-like sales in February 2024. However, this growth fell short of expectations due to factors such as adverse weather and cost-of-living pressures. Non-food items declined by 2.5%, while food sales rose by 6%. Also, in the UK the services PMI fell slightly in February but remains higher than at any point in the second half of 2023. The composite PMI also rose, indicating a solid expansion of business activity. Signs are pointing to a turnaround for the UK economy after a recent recession.

European markets are subdued as investors await the European Central Bank’s (ECB) interest rate decision on Thursday. Eurozone inflation dipped slightly to 2.6% in February, but the ECB has continued to push back against talk of interest rates. Policymakers are highly expected to keep interest rates unchanged; markets are pricing in 90 basis points of cuts this year, down from 150 basis points at the start of 2024.

Spring Budget 2024 – commentary

Although we still have the scars from the chaotic market reaction to Kwasi Kwarteng’s mini budget in 2022 fresh in our minds, the truth is, with the exception of that mini-budget, financial markets rarely react to either the Spring Budget or the Autumn Statement.

This is because the bulk of the announcements from these events tend to be discussed and then leaked well in advance – and today’s Spring Budget was no exception as Jeremy Hunt didn’t pull any rabbits out of his hat.

In fact, not only was the 2-percentage point cut to National Insurance and British ISA well flagged, but it was rumored last month that the Budget would introduce a duty on vapes, while tobacco duty would be increased to ensure vaping remains the cheaper option – hence today’s actual announcement had no material impact on the share prices of either British American Tobacco or Imperial Brands.

Even the freezing of alcohol duty until February 2025 to help “the great British pub”, only saw a small positive change in the share prices of Wetherspoons; Mitchells & Butlers (owners of All Bar One, Nicholson’s and O’Neill’s); and Marston’s.

As such, today’s Budget statement was a damp squib with a speech full of partisan rhetoric and jokes at the expense of the opposition.

In fact, we found the most interesting part of today’s speech by Jeremy Hunt was news that the Office for Budget Responsibility is now in tune with our thinking and forecasting UK inflation will fall below the 2% target within the next few months – so fingers-crossed we will soon see policymakers at the Bank of England cutting UK interest rates.

Investment Management Team

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