Its budget week

The week we have all been waiting for in the UK, Rachel Reeves’ budget on Wednesday. The last attempt was over a year ago and appears to have done more harm than good when it comes to the economy. One can see the nervousness businesses have about what the next budget may bring in the latest PMIs. Friday’s flash PMI recorded that UK business activity growth slowed in November, according to S&P Global, which produces the report, citing uncertainty ahead of the upcoming Budget. At 50.5, down from 52.2 in October, the PMI headline composite output index was the second-lowest seen over the past six months. Again, according to S&P Global, this is broadly consistent with GDP stalling in November and having grown at a 0.1% quarterly pace so far in the fourth quarter.

In contrast, the US and Eurozone PMIs painted a brighter picture. US business activity growth accelerated for a second successive month, accompanied by the largest rise in new business seen so far this year. Confidence in the year ahead had also improved, as the composite index rose from 54.6 in October to 54.8, pointing to annualised 4th-quarter growth of 2.5%. The Eurozone economic recovery continued in November, with the 4th quarter so far seeing the best upturn in business activity in two and a half years.

After a tough week for stocks despite strong earnings from Nvidia and the CEO’s attempt to calm bubble fears, US stocks closed the week on a brighter note, with the S&P 500 gaining around 1% on Friday. Almost 90% of the S&P 500 stocks finished the day in the black. That positive sentiment appears to be feeding through into European stocks this morning, helped also by stronger Asian markets.

Aside from the budget, what other economic data should traders focus on? Thanksgiving at the end of the week means that it is generally a quieter week on Wall Street, but usually a positive one. We will be watching the gilt market’s reaction to Reeves’ budget. If she cannot convince investors that she can raise taxes to tackle the country’s debt problem without damaging either economic growth prospects or its political credibility, the bond market could react negatively. As government departments continue to recover from the shutdown, this week we see the late release of US producer price data alongside business surveys from the Dallas and Richmond Feds, as well as Conference Board consumer sentiment data and S&P/Case-Shiller house price data. Wednesday will be a busy day.