UK budget will try to balance the books

EU mid-market Update: UK budget will try to balance the books but bond vigilantes could come out of shadows if details fail to impress.

Notes/observations

- European indices modestly higher as all eyes are fixed on UK Autumn Budget statement by Chancellor Reeves at 07:30 ET (12:30 GMT). She is expected to raise nearly £30B in tax-raising measures by avoiding big ticket items like income tax bands and instead utilizing mechanics of fiscal drag with a plethora of smaller tightening moves in the periphery. In typical fashion, majority of announcements have been ‘leaked’ ahead of time, and markets will focus more on the OBR economic forecasts and details of DMO’s gilt remit (OBR expected to revise productivity lower; Think-tank and press chatter points to roughly 0.2-0.3ppts off the productivity path). Pre-announcements have become status quo since Liz Truss surprise mini budget caught markets off guard and collapsed FX and pension markets in Sept 2022.

- The UK Autumn Budget sequence begins with PMQs at 07:00 ET and the Budget statement at 07:30 ET, followed by the opposition response and the simultaneous release of the OBR outlook and a gilt remit update around 08:30 ET. The OBR press conference at 09:30 ET completes the day’s events, with the DMO’s January to March 2026 auction calendar arriving in early December to lock in the final supply picture.

- Russia signaled that talk of a near term Ukraine peace deal is premature, with Kremlin spokesperson Peskov stressing that no agreement is close and aide Ushakov adding that the US plan was not discussed during the Abu Dhabi meeting. Even so, Moscow has received updated versions of the proposed US peace framework, and Russian and Ukrainian officials also held separate contacts in the UAE. US envoy Witkoff said to visit Russia next week.

- Kevin Hassett’s emergence as the leading contender to replace Jerome Powell signals a potential break with recent Fed orthodoxy; A Hassett Fed may fuse fast cuts with a quiet but radical overhaul of the Fed’s operating system, using balance sheet shrinkage, reserve-rate tweaks and ON RRP compression to align monetary plumbing with Trump’s fiscal ambitions without ever changing the mandate. If Hassett is nominated and confirmed, the test will be whether he delivers meaningful cuts and a credible plan to shrink the balance sheet by late 2026, since failure to do so would expose the limits of a politically aligned monetary strategy despite the administration’s pressure.

- Asia closed higher with KOSPI outperforming +2.7%. EU indices +0.2-0.3%. US futures +0.2-0.3%. Gold +0.8%, DXY 0.0%; Commodity: Brent -0.2%, WTI -0.5%; Crypto: BTC -0.5%, ETH +0.6%.

Asia

- New Zealand Central Bank (RBNZ) cut Official Cash Rate (OCR) by 25bps to 2.25% (as expected).

- Australia Oct CPI Y/Y: 3.8% v 3.6%e; CPI Trimmed Mean Y/Y: 3.3% v 2.9%e.

- South Korea Nov Manufacturing Business Survey: 92.7 v 92.4 prior; Non-Manufacturing Business Survey: 91.8 v 89.5 prior.

- Japan Oct PPI Services Y/Y: 2.7% v 2.7%e.

- China MIIT issued plan to further promote consumption.

- Japan PM Takaich stressed that the stimulus package was not reckless spending and strived to lower Japan's debt-to-gdp ratio with close eye on interest rate moves (**Note: Japan said to issue >¥11T additional govt bonds for FY25 extra budget).

- BOJ decision on whether to hike or hold off in Dec said to remain a 'close call'.

Taiwan

- Taiwan Pres Lai stated that China threats to Indo-Pacific were intensifying; Confirmed NT$1.25T (~$40B) supplementary defense budget.

- China Taiwan Affairs Office stated that had a firm will, strong determination and a strong ability to defend our national sovereignty and territorial integrity; would crush all foreign interference.

Global conflict/tensions

- Pres Trump noted that he directed US envoy Witkoff to meet Russia Pres Putin in Moscow and US Army Sec Driscoll to meet with Ukraine officials; looking forwards to meeting with Zelensky/Putin but only when the war was over or in its final stages.

Europe

- Focus on UK budget speech. Chancellor Reeves said to target workers, savers and pensioners in her budget as she tries to balance the books with more than a dozen tax hikes.

Americas

- Kevin Hassett said to be seen as frontrunner for Fed Chair nomination (**Note: Hassett stated that he would say 'Yes' if asked to be Federal Reserve Chair).

Energy

- Weekly API Crude Oil Inventories: -1.9M v +4.4M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.32% at 569.84, FTSE +0.18% at 9,627.25, DAX +0.21% at 23,508.71, CAC-40 +0.29% at 8,049.08, IBEX-35 +0.34% at 16,195.53, FTSE MIB +0.18% at 42,775.00, SMI +0.34% at 12,816.59, S&P 500 Futures +0.21%].

Market focal points/key themes: European indices opened higher across the board and remained upbeat through the early part of the session; rising expectations of monetary policy easing supporting risk appetite; among sectors leading the way higher are technology and consumer discretionary; lagging sectors include telecom communication services; Intertek acquires Professional Testing Laboratory; focus on US durable goods orders coming out later in the day; earnings expected in the upcoming Americas session include Deere.

Equities

- Consumer discretionary: Pets At Home [PETS.UK] +2.5% (earnings).

- Consumer staples: Mobico [MCG.UK] -1.0% (trading update; new auditor).

- Financials: Barclays [BARC.UK] +1.0% (pre-positioning ahead of UK Autumn Budget).

- Healthcare: Novo Nordisk [NOVOB.DK] +1.0% (says OZEMPIC and WEGOVY to face 71% discount from the 2024 list price), Valneva [VLA.FR] +5.5% (trial data).

- Industrials: Rheinmetall [RHM.DE] +1.0% (Witkoff to go to Moscow after Thanksgiving next week).

Speakers

- ECB’s Vujcic (Croatia): Risks to inflation and growth were balanced.

- ECB’s De Guindos (Spain): Trade uncertainty was lower but it remains.

- ECB releases Bi-Annual Financial Stability Review: Risks are elevated; Concerned about 'persistently high valuations'. High public debt in some nations could strain bond markets.

- Norway Central Bank (Norges) Gov Bache: Rate hikes have contributed to bringing down inflation but it is still above target.

- EU Commission Pres Von der Leyen: Russia's playbook has not changed, must keep pressure on them.

- IMF on Germany: Country risked growth undershoot without reforms.

- Russia Govt Aide Ushakov: Peace plan was not discussed in Abu Dhabi - follows meeting between US and Russian officials.

Currencies/fixed income

- USD was consolidating its recent losses following Tues released of backlogged US economic data. Markets pricing in approx. 70% of a Dec Fed rate cut following the data deluge. Dealers noted that prospect of a policy shift gained additional traction as Kevin Hassett, widely viewed as the frontrunner to become the next Fed chair, is seen as aligned with President Trump's support for lower borrowing costs.

- Focus on the UK and the pending budget speech by Chancellor Reeves. GBP/USD at 1.3175 area. Dealers note price action could be volatile if OBR projections appear too optimistic. Reeves likely to deliver fiscal tightening measures that would lower inflation in Wednesday's budget. A much worse scenario for sterling would be a budget that doesn't convince markets that the fiscal path is sustainable.

- USD/JPY at 156.35 as markets note that the BOJ decision on whether to hike or hold off in Dec remained a 'close call'.

Economic data

- (FI) Finland Oct House Price Index M/M: 0.0% v -0.7% prior; Y/Y: -2.4% v -2.5% prior.

- (NO) Norway Q3 Overall GDP Q/Q: 1.1% v 1.2% prior; GDP Mainland Q/Q: 0.1% v 0.2%e.

- (AT) Austria Nov Manufacturing PMI: 50.4 v 48.8 prior (1st expansion in 39 months).

- (CH) Swiss Nov UBS Expectations Survey: +12.2 v -7.7 prior.

- (PL) Poland Oct Unemployment Rate: 5.6% v 5.6%e.

- (PL) Poland Q3 Unemployment Rate: 3.1% v 2.8%e.

Fixed income issuance

- (IN) India sold total INR190B vs. INR190B indicated in 3-month, 6-month and 12-month bills.

- (GR) Greece Debt Agency (PDMA) sold €600M vs. €500M indicated in 6-month Bills; Avg Yield: % v 1.76% prior; bid-to-cover: x v 1.97x prior.

- (IT) Italy Debt Agency (Tesoro) sold €7.5B vs. €7.5B indicated in 6-month bills; Avg Yield: 2.036% v 2.004% prior; Bid-to-cover: 1.43x v 1.76x prior.

- (SE) Sweden sold total SEK17.5B vs. SEK17.5B in 3-month and 6-month bills.

- (NO) Norway sold total NOK in 2029 and 2039 bonds.

Looking ahead

- (CO) Colombia Oct Retail Confidence: No est v 20.4 prior; Industrial Confidence: No est v 9 prior.

- (BR) Brazil Oct Total Federal Debt (BRL): No est v 8.122T prior.

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

- 05:30 (DE) Germany to sell €3.0B in 2.60% Aug 2035 bunds.

- 06:00 (RU) Russia to sell OFZ bonds.

- 06:00 (FI) Finland to sell bonds via ORI auction.

- 06:00 (CZ) Czech Republic to sell combined CZK6.5B in 2034, 2035 and 2044 bonds.

- 06:00 (RO) Romania to sell RON 500M in 12-month bills.

- 06:00 (RO) Romania to sell RON 500M in 7.5% 2033 bonds.

- 06:30 (BR) Brazil Oct Outstanding Loans (BRL): No est v 6.844T prior; M/M: No est v 1.1% prior; Personal Loan Default Rate: No est v 6.7% prior.

- 07:00 (US) Nov MBA Mortgage Applications w/e Nov 21st: No est v -5.2% prior.

- 07:00 (BR) Brazil Nov IBGE Inflation IPCA-15 M/M: 0.2%e v 0.2% prior; Y/Y: 4.5%e v 4.9% prior.

- 07:00 (MX) Mexico Sept Mexico Gold Production: No est v 5.9K kg prior; Silver Production: No est v 334.3K kg prior; Copper Production: No est v 39.5K tons prior.

- 07:30 (UK) Chancellor Reeves presents Autumn Budget- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Initial Jobless Claims: 225Ke v 220K prior; Continuing Claims: 1.96Me v1.974M prior; 4-week Avg: No est v 224.25K prior.

- 08:30 (US) Sept Preliminary Durable Goods Orders: 0.5%e v 2.9% prior; Durables (ex-transportation): 0.2%e v 0.3% prior; Capital Goods Orders (non-defense/ex-aircraft): 0.2%e v 0.4% prior; Capital Goods Shipments (non-defense/ex-aircraft): +0.2%e v -0.4% prior.

- 09:00 (EU) ECB’s Vujcic (Croatia).

- 09:45 (US) Nov Chicago Purchase Managers Index (PMI): 48.3e v 43.8 prior.

- 11:00 (RU) Russia Oct Industrial Production Y/Y: -0.2%e v +0.3% prior.

- 11:30 (US) Treasury to sell 4-week, 8-week and 17-week bills.

- 12:00 (CA) Canada to sell 2-year bonds.

- 13:30 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report (QIR)- 16:45 (NZ) New Zealand Q3 Retail Sales (ex Inflation) Q/Q: 0.6%e v

0.5% prior.

- 18:00 (HU) Hungary Nov Economic Sentiment: No est v -13.5 prior; Business Confidence: No est v -9.3 prior; Consumer Confidence: No est v -25.6 prior.

- 19:00 (NZ) New Zealand Nov ANZ Business Confidence: No est v 58.1 prior; Activity Outlook: No est v 44.6 prior.

- 19:30 (AU) Australia Q3 Private Capital Expenditure: 0.5%e v 0.2% prior.

- 20:30 (CN) China Oct Industrial Profits Y/Y: No est v 21.6% prior; YTD Y/Y: No est v 3.2% prior.

- 21:00 (KR) Bank of Korea (BOK) Interest Rate Decision.