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UK government finances were again in the spotlight on Tuesday morning.
UK net borrowing increased to £20.2 billion in September from £15.3 billion in August, the latest setback for Chancellor Rachel Reeves as she prepares for next month’s autumn budget. That was the second largest spending deficit recorded in this calendar year and comes in several billions of pound higher than expected.
After Friday’s torrid trading, financial markets started the week on a much firmer footing. Concerns around US regional banks were soothed by a strong earnings report from that very sector. The S&P 500 closed within a whisker of its record high thanks as well to more positive mood music around both trade and the US government shutdown, now the joint second-longest in history.
Monday was a frustrating start to the week for the many companies and workers reliant on web-based services. A snafu at Amazon led to a chain reaction that knocked vital providers – including Lloyd’s Bank, Ring Doorbell and even HMRC – offline. All told, there were almost seven million reports of outages related to the incident.
Things were muted in currency markets, with any movements between major pairs limited. That could change soon as we progress towards the business end of the week, one that is likely to bring significant uncertainty for sterling.
European leaders rallied around Ukraine’s Volodymyr Zelenskyy after a fraught meeting in the Oval Office. The President reportedly grew frustrated and asked Ukraine’s president to accept the realities of the battlefield and make a peace compromise.
Across the Mediterranean, the fragile cease fire between Israel and Hamas is still holding. Yesterday, Hamas agreed to return the remains of another hostage after Israeli air strikes over the weekend.
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GBP: Bailey calls for care
Ahead of Wednesday’s crunch inflation report, Bank of England governor Andrew Bailey provided the pound with a little boost. Future interest rate cuts would have to be “gradual and careful” in order not to upset the delicate balances within the economy, Bailey said.
GBP/USD: the past year
EUR: French debt downgrade
Any advances the euro might have been able to pull off on Monday were halted by news that S&P had downgraded France’s sovereign bonds. The move from AA- to A+ sends a significant message to investors about the uncertainty of the political picture and could bring more trouble for the euro should that uncertainty spread.
GBP/EUR: the past year
USD: Data at last
The US dollar will finally be influenced by some cold, hard economic data. Despite the government shutdown, the American economy will report inflation figures on Friday. Those figures may have an outsized impact given the scarcity of other reference points.
EUR/USD: the past year
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