Investment - Articles - Budget claims hit pound and markets slip on feared Fed pause

 Emma Wall, Chief Investment Strategist, Hargreaves Lansdown: “The end of the US shutdown euphoria has proved short-lived. While the promise of resolution was welcome for equity and bond markets, the news that we may never get October’s jobs and inflation data has poured doubt on the previously baked-in Fed rate cut in December. Without key data, policy decision makers will find it harder to definitively act next month – and yesterday Federal Reserve Bank of Minneapolis President Neel Kashkari implied he was still on the fence about a cut. The S&P 500 fell 1.66% yesterday and the Nasdaq fell 2.29% because of the fears, with AI companies leading the market slump.

 This side of the Pond, negative momentum has drawn FTSE 100 futures down – and swirling Budget rumours have weighed on the pound. Some news outlets are reporting that Chancellor Rachel Reeves will not be increasing income tax rates in the Budget later this month. This has come as a surprise to markets, who were expecting the hike. As a result, the pound has fallen on concerns that Reeves will now have insufficient fiscal headroom to execute spending plans. It comes one day after disappointing GDP data revealed that the UK had only grown 0.1% in the third quarter, which also pushed sterling value down.

 To complete the macro headwind hat-trick, China has revealed today that economic activity has fallen in October, dragged by a fall in investment year to date. While industrial production grew, the increase was below market expectations and below the year-to-date monthly average. The Shanghai Composite Index and Hang Seng Index have both fallen today.

 It is a disappointing end to a week that started with global markets in rally mode – and shows the fragility of current market valuations when so much macro uncertainty remains.”