Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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London Quick Take – 24 Nov - Stocks start week in the green on Fed cut hopes, defence stocks hit by Ukraine peace hopes, UK Budget looms
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
For the latest Budget update check out our mini series with BlondeMoney's Helen Thomas.
Key Points
- Stocks climb after Friday's bounce on Wall Street
- NY Fed Williams stokes rate cut hopes ahead of shortened trading week
- Defence stocks and crude oil slip as Ukraine peace deal gathers momentum
- UK Budget looms as markets brace for tax hikes
'How did you go bankrupt? Two ways. Gradually, then suddenly.'
Ernest Hemingway may not be the genre favoured by the current crop of bright young things at the Treasury, but they might relate with this quote from the Sun Also Rises after the Budget this week. They should also read Lewis Carrol: "The rule is, jam tomorrow and jam yesterday—but never jam today."
By promising jam today and the tough medicine tomorrow, the Chancellor, Rachel Reeves, risks a gilt market tantrum. To increase welfare costs in this Budget shows a staggering degree of hubris. Weekend press reports suggest Rachel Reeves will end the two-child benefit cap. This will raise welfare spending in the short term at least. She’s promising to crack down on benefit fraud and tackle welfare reform in return, but banking on the market giving her a free pass on that seems risky. Given the government has consistently failed to push through any reforms or cuts, to assume it can impose restraint in 2029/30 is scarcely believable. As someone put it at the weekend, every government meets its fiscal rules yet we are slowly bust. Buying back some credibility from the market and reducing the premium the UK pays (and so getting some extra headroom without painful tax hikes that squeeze more and more of the most productive elements of the economy), requires tough medicine now and jam tomorrow, not today. For a Chancellor who has hung her credibility cap on the bond markets, a tantrum could be very dangerous indeed.
Stock markets rallied early Monday at the start of Budget week in the UK as fresh confidence in the Federal Reserve cutting interest rates next month gave a boost to risk sentiment, sending stocks on Wall Street to a positive finish on Friday, though the S&P 500, Nasdaq 100, and Russell 2000 all posted weekly losses.
The FTSE 100 rose a touch off a one-month low but weakness in crude oil and defence names weighed on the index. Anglo American rose a touch after BHP walked away from a brief flirtation with buying its smaller rival in a bid to upset Anglo’s planned tie-up with Teck Resources.
New York Federal Reserve President John Williams said Friday he expects the central bank can lower rates, describing monetary policy as being “modestly restrictive”, and that he sees room for “further adjustment in the near term”. His comments sent market odds for a cut at the 10 Dec meeting up to around 75% from 40% before. There’s a real split on the FOMC so I wouldn’t be so sure a cut is coming. Boston Fed president Susan Collins said “I have not made a decision” about a rate cut. The fact that the November payrolls report has been delayed to after the Dec meeting indicates to me they will wait and see.
There is a tonne of US data coming down the pipe in the next three days in what’s a holiday-shortened trading week due to the Thanksgiving holiday. Tuesday’s retail sales report should show strength as higher income shoppers more than offset the hit to lower income consumers. September’s PPI inflation report should get a lot of attention – tariffs could make this a little hotter after the CPI surprised on the downside.
Crude oil prices were on the back foot with Brent at a one-month low after the US and Ukraine said weekend peace talks in Geneva were "highly productive". The comments and the apparent speed at which we could be careening towards a peace deal has also shocked defence stocks, which are sliding again today. Rheinmetall, the big ammo maker from Germany, slid another 4% to take its decline to 25% since its September peak. Saab, Leonardo and others were also lower in a broad peace-hope-sell-off as declines for BAE Systems, Rolls-Royce and Babcock weighed on gains for the FTSE 100.
By promising jam today and the tough medicine tomorrow, the Chancellor, Rachel Reeves, risks a gilt market tantrum. To increase welfare costs in this Budget shows a staggering degree of hubris. Weekend press reports suggest Rachel Reeves will end the two-child benefit cap. This will raise welfare spending in the short term at least. She’s promising to crack down on benefit fraud and tackle welfare reform in return, but banking on the market giving her a free pass on that seems risky. Given the government has consistently failed to push through any reforms or cuts, to assume it can impose restraint in 2029/30 is scarcely believable. As someone put it at the weekend, every government meets its fiscal rules yet we are slowly bust. Buying back some credibility from the market and reducing the premium the UK pays (and so getting some extra headroom without painful tax hikes that squeeze more and more of the most productive elements of the economy), requires tough medicine now and jam tomorrow, not today. For a Chancellor who has hung her credibility cap on the bond markets, a tantrum could be very dangerous indeed.
Stock markets rallied early Monday at the start of Budget week in the UK as fresh confidence in the Federal Reserve cutting interest rates next month gave a boost to risk sentiment, sending stocks on Wall Street to a positive finish on Friday, though the S&P 500, Nasdaq 100, and Russell 2000 all posted weekly losses.
The FTSE 100 rose a touch off a one-month low but weakness in crude oil and defence names weighed on the index. Anglo American rose a touch after BHP walked away from a brief flirtation with buying its smaller rival in a bid to upset Anglo’s planned tie-up with Teck Resources.
New York Federal Reserve President John Williams said Friday he expects the central bank can lower rates, describing monetary policy as being “modestly restrictive”, and that he sees room for “further adjustment in the near term”. His comments sent market odds for a cut at the 10 Dec meeting up to around 75% from 40% before. There’s a real split on the FOMC so I wouldn’t be so sure a cut is coming. Boston Fed president Susan Collins said “I have not made a decision” about a rate cut. The fact that the November payrolls report has been delayed to after the Dec meeting indicates to me they will wait and see.
There is a tonne of US data coming down the pipe in the next three days in what’s a holiday-shortened trading week due to the Thanksgiving holiday. Tuesday’s retail sales report should show strength as higher income shoppers more than offset the hit to lower income consumers. September’s PPI inflation report should get a lot of attention – tariffs could make this a little hotter after the CPI surprised on the downside.
Crude oil prices were on the back foot with Brent at a one-month low after the US and Ukraine said weekend peace talks in Geneva were "highly productive". The comments and the apparent speed at which we could be careening towards a peace deal has also shocked defence stocks, which are sliding again today. Rheinmetall, the big ammo maker from Germany, slid another 4% to take its decline to 25% since its September peak. Saab, Leonardo and others were also lower in a broad peace-hope-sell-off as declines for BAE Systems, Rolls-Royce and Babcock weighed on gains for the FTSE 100.
US officials are in talks about allowing Nvidia to sell H200 AI chips to China, with no decision and licence approvals still required, and some in the Trump administration viewing it as a compromise concession to Beijing likely to face strong opposition from China hawks.
GS was out with a constructive outlook on UK housebuilders this morning, initiating coverage on Barratt Redrow, Persimmon and Vistry with’Buy’ ratings. While the Budget creates overhang, this could act as a “clearing event” that dispels some doubts and focus comes on deeper Bank of England rate cuts.For the latest Budget update check out our mini series with BlondeMoney's Helen Thomas.
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