UK budget tomorrow lined up to be pragmatic but uninspiring

EU Mid-Market Update: UK budget tomorrow lined up to be pragmatic but uninspiring with economists worried about missing parts to ignite productivity.

Notes/observations

- Lighter liquidity and higher volatility the global theme as shortened US trading week is syncing up with pressure and rotation in AI sector. After yesterday’s bounce back on Wall Street, European indices and US futures point lower. Sell side awaits comprehensive research from Michael Burry on Nvidia and the chip space, expected today.

- As anticipation builds for UK Chancellor Reeves' Autumn Budget tomorrow, expectations center on a multifaceted fiscal strategy to bridge a £20-40B public finance shortfall amid subdued GDP growth of just 0.3% in Q2 and stubbornly high 30-year bond yields exceeding 5%, with analysts forecasting a mix of revenue-raising measures - including the probable extension of income tax and National Insurance threshold freezes beyond 2028-29, hikes in employer NI contributions, closure of the £135 de minimis VAT loophole for overseas imports potentially netting £8-10B annually, and targeted adjustments to capital gains tax rates toward income tax parity - while safeguarding pro-growth incentives like full expensing and R&D reliefs, all underpinned by an anticipated Office for Budget Responsibility (OBR) downgrade in productivity forecasts that underscores the chancellor's delicate balancing act. Goal is to restore market confidence eroded by prior austerity, Brexit turbulence, and scars of Liz Truss's 2022 mini-budget fiasco.

- Reeves approaches the Budget in almost the same structural bind that defined George Osborne’s 2012 fiasco: a sizable fiscal hole, political bans on touching main tax rates, and a resulting temptation to smuggle consolidation through frozen thresholds and a maze of tiny, obscure measures. The danger is that, like Osborne’s “pasty tax” Budget, a dense package of micro tweaks may raise revenue on paper but quickly unravel under scrutiny, this time with gilt markets as unforgiving as the voters were a decade ago.

- SoftBank’s fresh 10% drop, following an earlier 11% slide, signals that Japan may again be leading the US in repricing a global tech cycle as investors digest what Gemini 3 means for frontier AI economics. The selloff exposes growing fears that competition between AI models and the heavy, circular financing structures behind AI data centres leave firms like SoftBank sitting at the outer edge of a highly leveraged ecosystem. With Oracle’s AI heavy debt offering and December earnings looming, markets are treating Tokyo as the first real stress test of whether the 2025 AI infrastructure boom still has room to run or is slipping into a late cycle “Metaverse moment.”

- Meta’s reported plan to spend billions on Google’s TPUs underscores a fracture in Big Tech loyalties and validates Alphabet’s push toward a vertically integrated AI stack built around Gemini 3. Yet the move does not sever Alphabet’s economic dependence on Nvidia, whose GPUs still dominate both the global wafer supply and Google Cloud’s customer facing offerings, leaving TPUs and GPUs entangled rather than adversarial.

-Asia closed higher with Shanghai outperforming +0.9%. EU indices mixed. US futures -0.2% to -0.4%. Gold 0.0%, DXY -0.2%; Commodity: Brent -0.3%, WTI -0.4%; Crypto: BTC +1.2%, ETH +3.2%.

Asia

- China Pres Xi and US Pres Trump held a call. Xi told Trump return of Taiwan to China is important part of post-WWII international order.

Global Conflict/tensions

- Russia foreign policy aide described EU plan on Ukraine as “unconstructive.

Europe

- ECB’s Nagel (Germany) noted that food inflation remained stubborn. ECB is monitoring high food and services inflation.

Americas

Fed's Waller (voter) noted that most private-sector data says jobs market was soft; I'm advocating for rate cut in Dec due to concern over job market; Jan will be tricky with flood of data.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.01% at 562.82, FTSE -0.05% at 9,530.60, DAX -0.29% at 23,184.58, CAC-40 -0.04% at 7,956.18, IBEX-35 -0.33% at 15,943.00, FTSE MIB -0.36% at 42,145.00, SMI -0.31% at 12,639.53, S&P 500 Futures -0.21%].

Market Focal Points/Key Themes: European indices open modestly higher but later turned to trade mixed; disappointing economic data from Europe weighing on risk appetite; among better performing sectors are communication services and technology; underperforming sectors include industrials and consumer discretionary; oil & gas subsector under pressure amid hope of progress to end the war in Ukraine; ABN Amro to sell its Alfam unit to Rabobank; AXA acquires stake in FiberPass from Vodafone and Telefonica; focus on release of delayed US data later in the day; earnings expected in the upcoming Americas session include Alibaba, Analog Devices, Dell and Abercrombie & Fitch.

Equities

- Consumer discretionary: EasyJet [EZJ.UK] -2.5% (earnings; outlook), Compass Group [CPG.UK] -4.0% (earnings), Marston's [MARS.UK] +10.5% (earnings).

- Energy: Fortum [FORTUM.FI] -6.0% (CMD).

- Financials: Barclays [BARC.UK] +2.0% (pre-positioning ahead of UK Autumn Budget).

- Healthcare:

- Industrials: Kingfisher [KGF.UK] +5.0% (trading update).

- Technology:

- Telecom:

Speakers

- ECB’s Makhlouf (Ireland): In a good place on inflation but risks remain.

- France Socialists Chief Faure (opposition) noted that saw a budget deal as possible.

- Czech Central Bank (CNB) Dep Gov Frait: Current risks are slightly inflationary; Rate setting is adequate for state of economy and outlook.

- Czech Central Bank (CNB) Seidler: Slightly restrictive monetary policy stance is still needed.

- Japan Fin Min Katayama noted that PM Takaichi signed off on extra budget; Saw a much larger than expected tax revenue surplus.

Currencies/fixed income

FX markets remained within tight ranges but the USD was slightly softer. A delufe of US data will be released in the session.

- EUR/USD at 1.1535 by mid-session.

- GBP/USD at 1.3130 with focus on Wed UK budget speeech and OBR forecasts.

- USD/JPY lower at 156.30 as BOJ intervention speculation ramped up a tad.

Economic data

- (EU) Euro Zone Oct EU27 New Car Registrations: 5,8% v 10.0% prior.

- (FI) Finland Oct Unemployment Rate: 9.6% v 9.1% prior.

- (DE) Germany Q3 Final GDP Q/Q: 0.0% v 0.0% prelim; Y/Y:0.3% v 0.3% prelim; GDP NSA (unadj) Y/Y: 0.3% v 0.3% prelim.

- (DE) Germany Q3 Private Consumption Q/Q: -0.3% v +0.2%e; Government Spending Q/Q: 0.8% v 0.7%e; Capital Investment Q/Q: 03% v 0.4%e.

- (SE) Sweden Oct PPI M/M: +0.4% v -0.7% prior; Y/Y: 0.4% v 0.5% prior.

- (ZA) South Africa Sept Leading Indicator: 114.2 v 115.5 prior.

- (FR) France Nov Consumer Confidence: 89 v 90e.

- (TW) Taiwan Oct Industrial Production Y/Y: 14.5% v 16.1%e.

- (ES) Spain Oct PPI M/M: +0.5% v -0.5% prior; Y/Y: 0.7% v 0.2% prior.

- (HK) Hong Kong Oct Trade Balance (HKD): -39.9B v -34.2Be; Exports Y/Y: 17.5% v 10.7%e; Imports Y/Y: 18.3% v 9.5%e.

- (PL) Poland Oct Real Retail Sales M/M: 6.7% v 5.0%e; Y/Y: 5.4% v 3.8%e; Retail Sales (current prices) Y/Y: 5.5% v 3.8%e.

Fixed income issuance

- (NL) Netherlands Debt Agency (DSTA) sold €1.445B vs. €1.0-2.0B indicated range in 3.50% Jan 2056 DSL bonds; Avg Yield: 3.469%.

- (ZA) South Africa sold total ZAR3.0B vs. ZAR3.0B indicated in 2033, 2038 and 2048 bonds.

- (UK) DMO sold £4.5B in 4.125% Mar 2031 Gilts; Avg Yield: 4.088% v 4.004% prior; bid-to-cover: 3.01x v 2.83x prior; Tail: 0.6bps v 0.7bps prior.

- (AT) Austria Debt Agency (AFFA) sold total €2.34B vs. €2.75B indicated in 3-month and 6-month bills.

- (IT) Italy Debt Agency (Tesoro) sold €2.0B vs. €1.5-2.0B indicated range in 2.10% Aug 2027 BTP bonds; Avg Yield: 2.18% v 2.15% prior; bid-to-cover: 1.64x v 1.71x prior.

- (IT) Italy Debt Agency (Tesoro) sold total €2.5B vs. €2.0-2.5B indicated range in inflation-linked 2031 and 2039 BTP bonds (BTPei).

- (CH) Switzerland sold CHF333.25M in 3-month Bills; Avg Yield: -0.059% v -0.119% prior; bid-to-cover: 4.00x v 4.59x prior.

Looking ahead

- (NG) Nigeria Central Bank (CBN) Interest Rate Decision: Expected to cut Interest Rates by 100bps to 26.00%.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €4.0B in 2.20% Oct 2030 BOBL.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month bills.

- 05:30 (EU) ECB allotment in 7-day Main Refinancing Tender (MRO).

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:00 (UK) Nov CBI Retailing Reported Sales: -30e v -27 prior; Total Distributed Reported Sales: No est v -30 prior.

- 06:00 (BR) Brazil Nov FGV Construction Costs M/M: 0.3%e v 0.2% prior.

- 06:00 (EU) ECB allotment in 3-month LTRO tender.

- 06:30 (BR) Brazil Oct Current Account Balance: -$4.6Be v -$9.8B prior; Foreign Direct Investment: $6.0Be v $10.7B prior.

- 07:00 (MX) Mexico Sept Retail Sales M/M: 0.0%e v 0.6% prior; Y/Y: 2.4%e v 2.4% prior.

- 07:00 (RU) Russia announcement on upcoming OFZ bond auction on Wed.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (PL) Poland Oct M3 Money Supply M/M: 1.0%e v 0.6% prior; Y/Y: 10.6%e v 11.1% prior.

- 08:15 (US) ADP Preliminary Employment Change for 4-weeks ending Nov 8th: No est v -2.5K prior.

- 08:30 (US) Nov Philadelphia Fed Non-Manufacturing Activity: No est v -22.2 prior.

- 08:30 (US) Sept Advance Retail Sales M/M: 0.4%e v 0.6% prior; Retail Sales (ex-auto) M/M: 0.3%e v 0.7% prior; Retail Sales (ex-auto/gas): 0.3%e v 0.7% prior; Retail Sales (Control Group): 0.3%e v 0.7% prior.

- 08:30 (US) Sept PPI Final Demand M/M: +0.3%e v -0.1% prior; Y/Y: 2.6%e v 2.6% prior.

- 08:30 (US) Sept PPI (ex-food/energy) M/M: +0.2%e v -0.1% prior; Y/Y: 2.7%e v 2.8% prior.

- 08:30 (US) Sept PPI (ex-food/energy/trade) M/M: No est v 0.3% prior; Y/Y: No est v 2.8% prior.

- 08:30 (US) Nov Philadelphia Fed Non-Manufacturing Activity: No est v -22.2 prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (US) Sept FHFA House Price Index M/M: 0.1%e v 0.4% prior; Q/Q: No est v 0.0% prior.

- 09:00 (US) Sept S&P Cotality House Price Index (20-City) M/M: 0.10%e v 0.19% prior; Y/Y: 1.40%e v 1.58% prior; House Price Index (overall) Y/Y: No est v 1.51% prior.

- 09:00 (IT) ECB’s Cipollone (Italy).

- 10:00 (MX) Mexico Q3 Current Account Balance: No est v $0.2B prior.

- 10:00 (US) Nov Richmond Fed Manufacturing Index: -4e v -4 prior.

- 10:00 (US) Nov Consumer Confidence: 93.4e v 94.6 prior.

- 10:00 (US) Oct Pending Home Sales M/M: 0.1%e v 0.0% prior; Y/Y: No est v 1.5% prior.

- 10:30 (US) Nov Dallas Fed Services Activity: No est v -9.4 prior.

- 11:30 (US) Treasury to sell 6-week and 52-week bills.

- 11:30 (US) Treasury to sell 2-year FRN reopening.

- 13:00 (US) Treasury to sell 5-year notes.

- 14:00 (AR) Argentina Sept Economic Activity Index (Monthly GDP) M/M: No est v 0.3% prior; Y/Y: 1.6%e v 2.4% prior.

- 16:00 (KR) South Korea Nov Manufacturing Business Survey: No est v 92.4 prior; Non-Manufacturing Business Survey: No est v 89.5 prior.

- 16:30 (US) Weekly API Crude Oil Inventories.

- 18:50 (JP) Japan Oct PPI Services Y/Y: 2.7%e v 3.0% prior.

- 19:30 (AU) Australia Oct CPI Y/Y: 3.6%e v 3.5% prior; CPI Trimmed Mean Y/Y: 2.9%e v 2.8% prior.

- 19:30 (AU) Australia Q3 Construction Work Done: 0.3%e v 3.0% prior.

- 20:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to cut Official Cash Rate (OCR) by 25bps to 2.25%.

- 21:00 (SL) Sri Lanka Central Bank Interest Rate Decision.

- 22:00 (TH) Thailand to sell THB 40B in 2029 and 2055 bonds.

- 22:35 (JP) Japan to sell 40-year bonds.