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Data Sourced from FE Analytics, and Bloomberg Finance LP

A THIN, GLOOMY UK BUDGETPhillip Hammond seems to have got pretty good press from his latest budget, which is remarkable given how little substance it contained. Perhaps the bar is now so low that as long as the plans don’t blow up by mid-afternoon or cause an immediate recession then the country will be happy enough? What this suggests is that the bad news might already be priced in, and any serious progress on a Brexit deal could lead to a rally in UK assets, particularly the more domestically focused stocks.

The Conservative Party seems to have relearnt that tax cuts are popular, and with Corbyn waiting in the wings further fiscal largesse is assured one way or another. Although the Office for Budget Responsibilty told us that public sector borrowing will fall as a percentage of GDP, they expect the deficit won’t be closed until 2031. We take long-term predictions with a pinch of salt, but we’re not sure there’s anything wrong with that anyway: the last thing we need is the government cutting expenditure as private sector confidence wobbles.

UK: LACKLUSTRE GROWTH TO SANDWICH BREXITIn his first budget since the June election, Phillip Hammond announced downward revisions to UK growth forecasts for the next five years. Growth in 2019, the year which will see the UK leave the EU, is projected to be 1.3 percent, 0.4 percentage points

lower than the March forecast. However, growth is expected to rise for the last two years of the forecast to 1.6 percent. The estimate for public borrowing in 2017 has been reduced from two percent of GDP to 1.5 percent. However, it is now expected to be higher in each of the next five years.

Hammond also pledged to increase the number of new homes built annually to 300,000 in the middle of the next decade, an 83,000 increase on last year. Stamp duty has been cut for properties below £500,000 and abolished for properties under £300,000. This is part of the Conservatives’ attempt to fix the UK housing market. Corbyn has criticised Hammond for not pledging as much money for social care and education as Labour would deliver under their June manifesto.

GERMANY: STABILITY THREATENED BY BREAKDOWN IN COALITION TALKSLast Thursday a deadline was missed for Angela Merkel’s conservative bloc, the liberal Free Democratic Party and the Greens to agree to a basic coalition deal following on from inconclusive elections in September. Negotiations between the four

parties continued until Sunday night when Christian Lindner, leader of the FDP, walked out on negotiations following his proclamation that “It is better not to govern than to govern wrongly”. Climate change and refugee policy were among the sticking points.

Merkel can now attempt to form a minority government, renew the “grand coalition” between the conservative bloc and the Social Democratic Party, or, failing those, prepare for a fresh round of elections. The ultimate decision will be left to Germany’s president. Merkel has said that she will run again if new elections are held and does not intend to resign following the breakdown in negotiations which have injected a heavy dose of political uncertainty into the Eurozone. The Euro dropped 0.7 percent in early Asian trading on Monday following the news.

EM: CHINA AIM TO REDUCE FINANCIAL RISK WITH NEW REGULATIONSLast Friday, China outlined new regulations prohibiting asset managers from promising investors a guaranteed rate of return and requiring them to set aside ten percent of management fees for provisioning purposes. The measures will come into

force in June and will affect $15tn of asset-management products. Mr Xi indicated at a party congress speech last month that he is prepared to accept lower rates of growth to reduce financial risks. Nevertheless, the day before the announcement the People’s Bank of China injected $50bn into the financial system to calm investors’ nerves.

On Thursday China’s CSI 300 index closed 2.9 percent lower, its biggest fall since June 2016. In addition to the new regulations, investors have cited rising bond yields as motivation for scaling back their equity exposure. A Chinese government bond rout has been gathering momentum this year due to the government’s determination to curtail debt growth. Investors see this as threatening the country’s growth and commodity demand. Ten-year yields rose above four percent on Thursday, an important milestone in the country’s sovereign debt rout.

THE MARKETS THIS WEEKFTSE 100

+0.27%S&P 500 +1.27%

Nikkei 225+0.89%

Euro Stoxx 50 +1.11%

Hang Seng +2.29%

US 10 Yr0.00%

UK 10 Yr-0.03%

Brent Crude+1.72%

Gold-0.38%

Wheat+0.30%

GBP USD +0.78%

<<SaveName>>WEEKLY MARKET COMMENTARY 24 NOVEMBER 2017