30 October 2024: Rachel Reeves will deliver her first Budget later today

On the eve of her first Budget as Chancellor of the Exchequer, Rachel Reeves received the news yesterday that Government borrowing had reached a post-election record.

Although the news will have been disappointing, it will not deter her from her preordained path to balance the country’s finances, by raising taxes, borrowing to fund long-term infrastructure projects and placing the NHS on a secure footing.

She will have angered the House of Commons Speaker further by announcing another of her measures to the public before she informed MPs yesterday. The national minimum wage will increase by six to seven percent next year.

Reeves said the pay boost marked a “significant step” towards achieving Labour’s promise of a “genuine living wage” for workers.

Worker’s groups welcomed the move, but employers have reacted by saying that it is yet another ill-conceived government move that will damage small and medium-sized businesses.

They believe that they have been unfairly targeted by the Government which will significantly increase employers’ National Insurance contributions today, on top of the recent announcement of changes to workers’ rights which are likely to cost them.

The unravelling of Labour’s election pledge not to raise taxes is likely to lead to its post-election lead in opinion polls evaporating completely.

Several special interest groups are fearful of the measures that Reeves has not leaked yet, while observers are still sceptical of her Party’s motives.

The Bank of England’s Monetary Policy Committee’s decision to cut the interest rate next week remains in doubt. Although the Committee will have been encouraged by the news that headline inflation fell to 1.7% in October, they will almost certainly have received advance guidance that it has increased significantly this month.

Two independent members of the MPC have spoken of what they believe to be the consequences of another rate cut.

Catherine Mann has made it clear that she feels that inflation is far from beaten and there is a considerable amount of secondary inflation still within the data which may bubble to the surface in the next two or three quarters. Meanwhile, Swati Dhingra spoke of the need for monetary policy to continue to be loosened to allow the economy to grow.

The news from Parliament later is sure to have a major effect on the Committee’s views.

The pound rallied yesterday as the market saw a possibility that the Federal Reserve may still cut interest rates by another twenty-five basis points at its meeting next week. A lot will depend on the October employment report, which will be published on Friday.

Thrilling rose to a high of 1.3017 and closed at 1.3014.

The first of this week’s data for the jobs market was released yesterday, and it showed that job openings fell marginally during October.

The number of job openings on the last business day of September stood at 7.44 million, the US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday.

This reading followed the 7.86 million (revised from 8.4 million) recorded in August and came in below the market expectation of 7.99 million.

It is often said that data releases during the week leading up to the publication of non-farm payroll numbers are in no way indicative, but they do offer an overall view of how employment is developing, particularly in a time of changes to monetary policy.

American consumers are displaying a notable boost in confidence in the economy in the days leading up to Election Day, according to a business research group.

According to the latest data from the Conference Board, the consumer confidence index surged to 108.7 in October, up from 99.2 in September. This leap represents the most significant monthly increase since March 2021, surpassing analyst expectations, which forecasted a modest 99.3.

The Consumer Confidence Index provides a read on perceptions of current economic conditions and their outlook for the next six months.

Particularly telling is the jump in short-term expectations for income, business conditions and the job market, which reached 89.1. This number is critical, as a reading below 80 may signal an impending recession, according to the Conference Board.

Additionally, the share of consumers predicting a recession within the next year has dipped to its lowest level since mid-2022.

The number of respondents saying they planned to buy a home or car continued to rise.

The latest data for house prices saw a moderate dip last month, falling from 5.9% to 5.2%.

Although last-minute reports about the election will colour market judgements, there are several data releases, besides the employment report, due this week.

Today the final cut of Q3 GDP will be released. It is expected to show no change from the earlier reading of 3% which will make the FOMC’s decision next week that much harder.

Jerome Powell’s favoured measure of inflation is also due to be published later. Headline Personal Consumption Expenditures are expected to have fallen to 2.1% from 2.8% last month, adding yet another dimension to the FOMC’s decision-making.

The dollar fell back from a test of its recent high yesterday. There is a significant level of short-term resistance developing at 104.50. The index fell to a low of 104.21 and closed at 104.27.

The new French Prime Minister, Michel Barnier, is no stranger to intransigent opponents, having been the European Union’s Senior Brexit Negotiator. However, he is facing an even tougher foe in attempting to bring the French budget deficit under control.

He has started at the top, depriving public servants of their generous sick-pay benefits as an example to the rest of the country.

French public servants are to be weaned off their habit of taking frequent sick leave under a government plan that has been denounced as unjust and cruel by their unions.

The new centre-right coalition has calculated that it can save €1.2 billion a year by removing a privilege that enables the public sector, which employs about 23 per cent of the workforce, to receive sick pay after only one day’s absence from work.

With one of the highest levels of absence from work in Europe, the government is also attempting to identify doctors who are too generous with issuing sick notes.

The unions have reacted with anger, accusing the government of seeking to “punish” civil servants and state workers and “destroy” their health by discouraging them from staying at home when they are ill. The extra two days’ wait before pay was a cynical ploy to scrape up funds to help close the country’s huge budget deficit, they claim.

The German Finance Minister, Christian Lindner, has risked a rift with Chancellor Olaf Scholz by organizing a conference to discuss the economy with his coalition partners on the same day as Scholz has agreed to meet business leaders, a meeting which Lindner would be expected to attend in normal circumstances.

Lindner has spoken with company representatives about structural challenges for the German economy and that their proposals would be incorporated into a consultation process, placing the economy at the top of the government’s agenda where it should be. This is a veiled criticism of Scholz, who has repeatedly said that migration is the most pressing item on the Government’s agenda.

ECB Vice President Luis de Guindos responded to criticism from the Italian Government that the ECB is not cutting interest rates fast enough by telling the Banca d’Italia that it is important to be both prudent and cautious as the bank enters an environment where monetary policy is being loosened.

“We have reduced interest rates, and the trajectory of our monetary policy is very clear, but the level of uncertainty is enormous, and we cannot make mistakes”, he said.

De Guindos also called on Italy to drop its refusal to ratify the reform of the European Stability Mechanism (ESM), saying this would be consistent with a possible takeover of Germany’s Commerzbank by Italian banking giant UniCredit.

The Euro is still driven by the rate of divergence of comparative monetary policy between the U.S. and the Eurozone.

As the market believes that there may be room for a rate cut in the U.S. next month, the Euro rallied to a high of 1.0826 and closed at 1.0818.

Have a great day!