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 – 27 Nov - Gilts calm for now, sterling posts month-high post-Budget and Wall St rallies ahead of today's holiday
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Don't forget to sign up to our post-Budget webinar where we'll be running through all the important changes, and what it means for your money and investments.
Post-Budget, gilt markets seem reasonably quiet though we have seen a slight tick-up in yields this morning after declining yesterday. Sterling trades at its best in a month against the dollar, though has come back off the overnight highs this morning to $1.3223. EURGBP has seen less of a move as it ran up against the 50-day SMA support, a three-week high for the pound. The FTSE 250 has risen but the FTSE 100 dipped early on Thursday following two days of solid progress.
The Budget was frontloaded with spending and backloaded with paying for it. Borrowing will rise, according to the OBR and issuance next year is sharply higher, according to the DMO. So why are gilt yields down and the pound at a month high? It’s probably down to a reduction in the political risk associated with the Starmer/Reeves leadership, which has been key to holding the bond market on a relatively tight leash.
That doesn’t mean political risk has gone away with this patchwork of tax hikes and giveaways – start pulling at the threads and the whole thing might unravel. There are assumptions about growth that are too optimistic and about welfare policy that probably won’t stand up to reality or scrutiny, moreover there is myriad of complications with implementation of say, the ISA changes, or salary sacrifice reform. Take the Send budget – the OBR warns of a “significant fiscal risk” as the government has not set out how it plans to pay for extra spending. There is a black hole looming at the Department for Education. The govt seems content to worry about that in 2028.
I still believe the entire assumption around spend now and pay for it later won’t survive deeper scrutiny from the markets. The Budget does nothing to fundamentally improve the UK’s fiscal position, boost growth, or improve the twin deficits – but it seems it has bought the Chancellor some grace and lower bond yields will buy her some extra headroom. That is maybe the best she could have hoped for after a Budget that does a) nothing to boost growth, b) nothing to cut spending, and actually raises, c) raises taxation on the most productive parts of the economy, d) implies reform of welfare that the government has signally failed to deliver so far, and e) offers broad assumptions that do not seem credible at all given the election cycle.
The market for now is rewarding more fiscal headroom with lower yields, but I would note that the move in the US 10yr yesterday, which spiked and then settled below 4%, was pretty close to that of the 10yr gilt. Today is Thanksgiving so there should be little from the US until Monday. Gilts will have to manage on their own for a day or two.
Bookmaker stocks are down as they have come out with warnings about the impact of tax hikes on the sector. The Chancellor announced yesterday that Remote Gaming Duty is set to increase from 21% to 40% from April 2026, and a new online sports betting duty of 25% will be applicable to sports excluding horse racing from April 2027, replacing the existing 15% General Betting Duty. Flutter reports impact before mitigation to be approximately $320m in fiscal 2026 and $540m in fiscal 2027. Evoke, which tumbled yesterday on the news, estimates a hit of approximately £125-135mn on an annualised basis once fully implemented from April 2027 and pulled its medium-term guidance. Entain put the damage at £200mn next year and £100mn this year. Rank, which owns Gala bingo, fell 10% after saying the measures will hurt operating profit by £40mn.
The FTSE 100 was flat just shy of 9,700 in early trade on Thursday before turning lower after two solid days of gains. Bank shares continued to gain after popping yesterday as they were spared from a tax raid. JPMorgan, with impeccable timing, says it will open a giant new skyscraper in Canary Wharf. Clearly the banks bought the three-line whip on supporting the Budget. Maybe they’re also buying gilts?
US markets are back on track – the S&P 500, Dow Jones and Nasdaq each posting a fourth straight day of gains on Wednesday. Nvidia picked up some bid to rise 1.4%, while Oracle arrested its decline to rally 4% as Deutsche Bank said the pullback in shares “presents an attractive entry point for investors when looking at Oracle’s business in totality”.
The Budget was frontloaded with spending and backloaded with paying for it. Borrowing will rise, according to the OBR and issuance next year is sharply higher, according to the DMO. So why are gilt yields down and the pound at a month high? It’s probably down to a reduction in the political risk associated with the Starmer/Reeves leadership, which has been key to holding the bond market on a relatively tight leash.
That doesn’t mean political risk has gone away with this patchwork of tax hikes and giveaways – start pulling at the threads and the whole thing might unravel. There are assumptions about growth that are too optimistic and about welfare policy that probably won’t stand up to reality or scrutiny, moreover there is myriad of complications with implementation of say, the ISA changes, or salary sacrifice reform. Take the Send budget – the OBR warns of a “significant fiscal risk” as the government has not set out how it plans to pay for extra spending. There is a black hole looming at the Department for Education. The govt seems content to worry about that in 2028.
I still believe the entire assumption around spend now and pay for it later won’t survive deeper scrutiny from the markets. The Budget does nothing to fundamentally improve the UK’s fiscal position, boost growth, or improve the twin deficits – but it seems it has bought the Chancellor some grace and lower bond yields will buy her some extra headroom. That is maybe the best she could have hoped for after a Budget that does a) nothing to boost growth, b) nothing to cut spending, and actually raises, c) raises taxation on the most productive parts of the economy, d) implies reform of welfare that the government has signally failed to deliver so far, and e) offers broad assumptions that do not seem credible at all given the election cycle.
The market for now is rewarding more fiscal headroom with lower yields, but I would note that the move in the US 10yr yesterday, which spiked and then settled below 4%, was pretty close to that of the 10yr gilt. Today is Thanksgiving so there should be little from the US until Monday. Gilts will have to manage on their own for a day or two.
Bookmaker stocks are down as they have come out with warnings about the impact of tax hikes on the sector. The Chancellor announced yesterday that Remote Gaming Duty is set to increase from 21% to 40% from April 2026, and a new online sports betting duty of 25% will be applicable to sports excluding horse racing from April 2027, replacing the existing 15% General Betting Duty. Flutter reports impact before mitigation to be approximately $320m in fiscal 2026 and $540m in fiscal 2027. Evoke, which tumbled yesterday on the news, estimates a hit of approximately £125-135mn on an annualised basis once fully implemented from April 2027 and pulled its medium-term guidance. Entain put the damage at £200mn next year and £100mn this year. Rank, which owns Gala bingo, fell 10% after saying the measures will hurt operating profit by £40mn.
The FTSE 100 was flat just shy of 9,700 in early trade on Thursday before turning lower after two solid days of gains. Bank shares continued to gain after popping yesterday as they were spared from a tax raid. JPMorgan, with impeccable timing, says it will open a giant new skyscraper in Canary Wharf. Clearly the banks bought the three-line whip on supporting the Budget. Maybe they’re also buying gilts?
US markets are back on track – the S&P 500, Dow Jones and Nasdaq each posting a fourth straight day of gains on Wednesday. Nvidia picked up some bid to rise 1.4%, while Oracle arrested its decline to rally 4% as Deutsche Bank said the pullback in shares “presents an attractive entry point for investors when looking at Oracle’s business in totality”.
Don't forget to sign up to our post-Budget webinar where we'll be running through all the important changes, and what it means for your money and investments.
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