Take Five: A UK Budget and Trouble in Cryptoland
LONDON, Nov 11 (Reuters) – The long-awaited UK fiscal plan is (almost) here and after the ruckus triggered by September’s mini-budget, markets are watching closely.
Chaos reigns in cryptoland as problems at cryptocurrency exchange FTX reverberate, while the latest US and Chinese data comes just as hopes for a spike in interest rates grow.
Here’s a look at the week ahead in markets from Elizabeth Howcroft, Tom Wilson, Amanda Cooper and Mike Dolan in London, Vidya Ranganathan in Singapore and Ira Iosebashvili in New York.
1/ BUDGET DAY, FINALLY
The moment sterling traders have been waiting for is almost here. On 17 November, Chancellor of the Exchequer Jeremy Hunt will unveil the government’s financial plan.
September’s mini-budget by predecessor Kwasi Kwarteng brought the pound to its knees and forced the Bank of England to intervene to stem a slide in the bond market.
Hunt has since scrapped most of that plan, signaling that around 60 billion pounds ($68.70 billion) in tax increases and spending cuts are coming to plug a gaping hole in the public finances.
UK markets have absorbed most of the maximum losses from the mini-budget, but the outlook is bleak. The economy is facing its longest recession in a century as a cost-of-living crisis takes hold.
The latest inflation and job figures are also on the calendar. Inflation hit a whopping 10.1% in September, and there is little reason to expect much of a respite.
2/ CRYPTOCHAOS
The crypto world has been thrown into another chaos by a meltdown on FTX. As of Thursday, the major exchange was on the verge of collapse and users could not withdraw their money.
A proposed rescue deal by rival exchange Binance fell through on Wednesday, sending top cryptocurrency bitcoin below $16,000 for the first time since late 2020.
Crypto investors are in a state of shock – FTX founder Sam Bankman-Fried was seen by many as the “poster child” of the industry. Investors are now waiting to see if FTX can be saved and the extent of the contagion in crypto markets, which have already taken a beating this year as central banks reverse monetary policy from the pandemic.
3/ THE IT AMOUNT
This year’s slide in Big Tech stocks shows little sign of ending – dogged by depressed consumer real incomes, recession fears and a valuation revision due to skyrocketing interest rates that discount their future earnings to today’s price.
After warnings about online advertising and streaming services littered the third-quarter earnings season, mass layoffs are now emerging. Meta Platforms ( META.O ) just announced it would cut more than 11,000 jobs, or 13% of its workforce.
It is among the biggest this year and follows layoffs at other tech firms, including Elon Musk-owned Twitter, Microsoft, ( MSFT.O ) and Snap . Large banks are also starting to reduce staffing.
Markets are watching closely to see if others follow suit — trying to gauge whether this is just cutbacks from excessive, pandemic-distorted staffing or the thin end of the wedge deepening any coming recession. Central banks will also be watching like hawks.
4/ BIG SPENDERS
Wednesday’s October US retail sales should give markets a sense of how consumers are feeling ahead of the key holiday shopping season.
And remember that the Federal Reserve is set to raise interest rates to keep inflation down, even if it means squeezing consumption in the process.
Data from September showed a measure of underlying retail sales rising thanks to strong wage growth and savings, although the broader figure was flat. Analysts polled by Reuters expect an increase of 0.8% for October.
The good-news-is-bad-news crowd will likely see a strong number as evidence that the Fed has more work to do to cool the economy. These prospects are unlikely to bring joy to the markets affected by expectations of more monetary policy tightening this year.
5/ BUY THE RUMOR
Chinese stocks (.SSEC) are celebrating that Beijing has eased some of its draconian COVID rules, including shortening quarantines by two days for close contact with infected people and for incoming travelers. This comes despite mainland cases at 6-month highs and some major cities under new lockdowns.
Upcoming data will be a stark reminder of the toll the strict COVID policies have taken: retail sales are falling, industrial production has been hurt by strict shutdowns during last month’s 20th Party Congress, and real estate sales are in an extended slump.
The glass half-full sees green shoots in promises the authorities have made about growth and hopes for more political support. One test is whether China’s central bank renews a massive trillion yuan in medium-term loans to banks due on Tuesday.
Graphics by Vincent Flasseur, Kripa Jayaram, Vineet Sachdev, Riddhima Talwani and Sumanta Sen; Compiled by Dhara Ranasinghe; Editing by Alison Williams
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