United States — Shutdown ends, FED still flying blind
Last Monday, eight moderate Senate Democrats joined Republicans to pass a compromise that ended the longest US government shutdown on record. As federal services resume, a new wave of data will bring more clarity on the US economy. Recent communications from the Federal Reserve (FED) have taken a slightly more hawkish turn, and markets are now pricing in a 50% chance of a rate cut at the December meeting. Inflation isn’t spiking, while alternative labour market data point to deterioration, though less severe than a few weeks ago.
United Kingdom — Autumn Budget: Tax U-turn, market bleeds
In the UK all eyes turn to 26th November, when the Chancellor is due to deliver the Autumn Budget. After facing internal party pressure last Friday, news reports indicated that Rachel Reeves has dropped the idea of raising income-tax rates in favour of adjusting thresholds instead. Gilts sold off by about 10 basis points and sterling fell 0.6%, as an income-tax rate hike had been seen as the most credible revenue measure. We expect further volatility in the run-up to the event, with the size of the fiscal gap still unclear and politics walking a razor’s edge.
Algebris Investments’ Global Credit Team
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