Unremarkable European open, as GBP falls post budget

European markets are showing a distinct lack of direction this morning, and traders shouldn’t expect too much given a threadbare economic calendar and US Thanksgiving market closure. Coming hot off the heels of a budget that undoubtedly hit working people despite pre-election promises, there is a feeling that we have finally overcome a hurdle that has been looming large over the UK economy and markets for months. Notably, we have now seen businesses respond, with some more optimistic than others. Fresh gambling taxes will hit Flutter earnings by £240 next year, with betting stocks under pressure today. However, the JP Morgan plans to build a three-million square foot “landmark tower” in Canary Wharf have been shaped as a vote of confidence in the pro-growth budget from Reeves. We are also seeing greater confidence that the Bank of England will respond with a rate cut next month, with measures taken to bring down household costs helping to lower inflation expectations. With that in mind, the weakness seen in the pound this morning should come as no surprise.

The overnight session saw further upside for the Nikkei 225, with Japanese stocks continuing to push higher in anticipation of the $135bn fiscal stimulus package that raises both economic optimism and fiscal concerns. Japanese relations with China have been strained of late, with the Chinese defence ministry warning that Japan will pay a "painful price" if they step out of line. This follows the Japanese plans to deploy missiles on an island roughly 100 km from the Taiwanese coast. Trump has been playing peacemaker once again, requesting that Takaichi ‘dial(s) down the volume’ after the new Japanese PM warned that a Chinese attack on Taiwan could trigger Japanese military action. Nonetheless, Japanese markets have enjoyed a rebound this week, flying the face of any geopolitical or fiscal sustainability concerns.

Looking ahead, the Thanksgiving celebrations should dampen trading activity in Europe alongside the obvious closure of US markets. The implications from a volatility perspective can be debatable, with some speculating that lower volumes bring higher volatility. However, with a lack of major data releases on both the economic and corporate front, we are already seeing a relative malaise in European trade today. Notably, one of the areas of outperformance has been in the crypto space, with BTCUSD on track for the best week since late October. The declines seen over recent months have gone hand in hand with wider market declines, raising concern over the potential implications for equity markets if crypto continues to tumble. With that in mind, the gains seen in bitcoin raise optimism for a similarly positive session for US stocks despite today’s holiday closure.