Pound star G10 performer but Burnham budget spending risks weigh

Matthew Ryan, CFA Ebury

The political risk now seems to be grossly underappreciated ahead of the Autumn Budget. We see it as inevitable that the Autumn Budget will bring with it a combination of higher ancillary tax rates and an increase in debt issuance in order to fund Burnham’s spending ambitions. We know that Burnham favours a heavier burden on assets and a lighter one on labour, so we could see changes to stamp duty and council tax, an introduction of a mansion tax and tighter pension and ISA relief.

The risk for markets is twofold: any package that looks likely to dampen growth and squeeze the private sector, while simultaneously requiring more borrowing would be the worst of both worlds for investors.

We warned ahead of the previous two budgets that this could tip into a self-reinforcing spiral - higher borrowing, higher yields, weaker growth, lower revenues. Dare we say it: the UK is now in that cycle.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

USD/JPY eyes August swing low, near 155.20 ahead of US NFP

USD/JPY retests the August monthly swing low during the Asian session on Friday as a more hawkish repricing of BoJ rate-hike bets and a suspected intervention continue to underpin the Japanese Yen. Meanwhile, the US Dollar is seen consolidating the previous day's heavy losses amid soft US bond yields, further weighing on the currency pair as traders keenly await the US NFP report.

AUD/USD consolidates above 0.7200; US NFP awaited

AUD/USD holds steady above 0.7200, near its highest level since mid-May, as bulls await the US NFP report for more cues on the Fed's policy path before placing fresh bets. Meanwhile, the recent decline in US bond yields keeps the US Dollar depressed near its lowest level in over a week and acts as a tailwind for the Aussie amid the RBA's hawkish tilt.

Gold bulls seem hesitant below $4,500 amid modest USD bounce ahead of US NFP

Gold remains on the defensive below the $4,500 mark through the Asian session, snapping a two-day winning streak amid a modest US Dollar uptick. The commodity, however, remains close to the weekly high, which it touched the previous day, as traders keenly await the release of the closely watched US monthly employment details. The popularly known US Nonfarm Payrolls (NFP) report will provide more cues about the Fed's policy path amid receding bets of a September rate hike.

Crypto’s $638 million buyback boom may not be as bullish as it looks

Decentralized Finance (DeFi) protocols reportedly spent $638 million to buy back their native tokens in August, up 17% from a year earlier. On the surface, the buyback trend suggests the cryptocurrency industry is maturing fast, adopting one of Wall Street’s oldest tools to bolster valuations and distribute revenue. The headline becomes less impressive once the number is opened up.

US August Nonfarm Payrolls expected to rebound to 58K after July slump

The United States Bureau of Labor Statistics is set to release the Nonfarm Payrolls data for August on Friday at 12:30 GMT. Investors expect NFP to rise by 58K in August following July’s unexpected print of -23K. The Unemployment Rate is seen holding steady at 4.1%.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.