Jenson Holmes, from Titan Wealth, offers this week’s round-up of global markets
CHANCELLOR John Healey’s first budget, announced last Wednesday, was far from memorable.
Most of the giveaways – such as removing standing charges on utility bills, freezing fuel duty and delaying the reversal of VAT cuts on electricity by three months from April – had been signalled well in advance. Elsewhere, Healey outlined a £100 energy bill rebate for households in lower-valued council tax bands, at a cost of £2.6 billion, and boosted funding for the National Wealth Fund by £20 billion.
In the details, the government outlined another smorgasbord of tax increases to partly fund the various cost-of-living measures. Healey raised gambling taxes and the bank surcharge rate to 6%, though the latter increase is only scheduled to last 15 months and is estimated to raise just £1.5 billion in total. Other small changes to corporation and self-assessment taxes and taxes on savings and property income raised £3.5 billion combined.
The Office for Budget Responsibility, the UK’s independent fiscal watchdog, cut its forecast for economic growth in 2027/28 by 0.5 percentage points to 1.1% year-on-year as “higher global energy prices and increased interest rates weigh on activity”, but raised its growth forecast for 2029/30 by 0.3 percentage points.
Higher inflation boosts forecast public sector revenue receipts by 1.2% between 2026/27 and 2029/30. However, this will be largely offset by an increase in debt interest costs of £12.7bn in 2029/30 compared to the Spring Statement. The government’s financial buffer against its fiscal rules in 2029 was cut to £15 billion, from £23.6 billion.
In the US, the Federal Reserve left interest rates unchanged following September’s 25 basis point increase. Officials had indicated that any further interest-rate rises would be gradual and dependent on incoming economic data. This was reflected in the decision and the tone of the meeting and subsequent statement. Markets are currently pricing in further interest-rate increases over the next year, which is more than the median Federal Open Market Committee members anticipate and more than we expect.
The European Central Bank announced that interest rates would be held at 2.5%. It noted that the energy shock caused by the US-Iran war was likely to increase inflationary pressures and weigh on the growth outlook. However, underlying inflationary pressures have remained broadly stable, and wages have not shown a material response so far. ECB president Christine Lagarde also announced that she would step down in February, a little earlier than expected.
Equity markets had a challenging week and US technology stocks, in particular, came under pressure amid concerns over AI-related spending and an earnings slowdown.
Partway through the reporting season, while earnings growth remains impressive, there are signs that it may have peaked for the market, particularly in the technology sector.
Consequently, the market is more sensitive than usual to earnings news, with companies that miss expectations seeing significant falls in their share price. We’ve seen evidence of this following earnings announcements from Amazon and Alphabet, for example.
On a positive note, there is also evidence that investors are re-allocating out of tech and into other more cyclical and defensive areas and undervalued opportunities, which is supportive for the broader market.
