Market Report.
🇬🇧 The star theme of today is the presentation of fiscal reform of the British government that we have mentioned so much in the last reports, today is the great day to get out of doubt and here you have all the details to expect. The presentation of government plans will take place at 12.30 London time.
💷 The UK government faces a formidable fiscal challenge, with Chancellor Rachel Reeves needing to fill an estimated £20 billion hole while also aiming to build around £15 billion in fiscal headroom.
📉 This follows a budget last year that deployed £40 billion in tax hikes and £70 billion in new spending, a strategy widely viewed as unsuccessful for failing to meaningfully strengthen the economic foundation. Economists now anticipate between £20-30 billion in new tax increases, though even this may be insufficient to resolve the UK’s public finance issues, exacerbated by slow growth.
🏠 Specific tax measures under consideration are aimed at generating revenue, but past attempts have proven counterproductive. Potential rises include freezing income tax thresholds to create fiscal drag, implementing a “mansion tax” on high-value properties, and increasing levies on gambling and electric vehicles. Changes to tax-efficient pension schemes are also on the table.
🎁 To mitigate political fallout, the government is preparing voter “giveaways,” such as scrapping the two-child benefit cap—a move that would add £3 billion in annual spending—and cutting VAT on energy bills.
⚠️ This fiscal maneuvering occurs in a perilous economic context. The UK’s borrowing costs are already the highest in the G7, with 10-year government bond yields at 4.53%. The credibility of government forecasts is under scrutiny, and traders may demand a higher risk premium, recalling the market chaos triggered by the 2022 “mini-budget.”
🔍 Further complicating the Chancellor’s task, the independent Office for Budget Responsibility is expected to downgrade the UK’s growth forecasts for the next five years, intensifying the pressure to deliver a credible and sustainable budget.
📈 The second issue we must discuss today was the spectacular rebound yesterday, with Nasdaq futures—which had been heavily hit last week—jumping more than 2% from their intraday lows. Paradoxically, the rally was driven by weak U.S. economic data, which traders interpreted as increasing the likelihood of a Federal Reserve rate cut in December. Once again, market sentiment is swinging almost entirely around expectations of what the Fed will decide.
🛍️ U.S. retail sales increased less than expected in September, suggesting consumer fatigue amid higher prices due to tariffs. The retail sales slowdown marked a weak handoff to the fourth quarter, decline in consumer confidence and spending plans could be caused by rising prices for everyday goods and labor market concerns according to Reuters, but it is also true that inflation has remained close to the 3% range over the last 2 years without significant changes, and that the latest NFP employment data from September, published a few days ago, showed a labour market which is cooling down but resists.
📉 In January 2024 the inflation in the US was 3.1%, a year later, in January 2025, it was 3% and the last reading of October shows an inflation of 3%. No, it is not true that prices are rising, or at least not in a different way from the last 2 years.
😟 Consumer confidence sagged to a seven-month low in November, with fewer households planning to buy big-ticket items like vehicles and homes.
👷 U.S. labor market and the Federal Reserve: Private companies have lost an average of 13,500 jobs per week over the past four weeks, according to payrolls processing firm ADP. This represents an acceleration in layoffs compared to the previous week. With government data releases delayed due to the shutdown, alternative data sources like ADP’s are providing insight into the weakening labor market.
💼 Goldman Sachs’ chief economist expects “alternative indicators” to show renewed job losses in October, even though the government’s September jobs report was better than expected. Goldman forecasts the Fed will cut rates by 0.25 percentage points in December, followed by two more 0.25 percentage point cuts in 2026.
🏦 Potential appointment of Kevin Hassett as the next Federal Reserve chair: Hassett, the director of the president’s National Economic Council, is the current favorite to be nominated as the next Fed chair, according to prediction market odds. Hassett is seen as the most loyal candidate to the Trump administration, which views the Fed chair nomination as an important decision after considering Jerome Powell’s appointment a “mistake.”
📘 Ben Bernanke in 2005, also came from the National Economic Council and went on to guide the Fed through the financial crisis. If nominated, Hassett may need to demonstrate independence once in office to win market confidence, though he has so far passed his first market test.
💱 Fed is grappling with the challenges of stablecoin regulation, including ensuring liquidity, preventing monetary sovereignty issues, and aligning global standards.
💊 The U.S. government is expected to announce negotiated prices this week for 15 of the highest-cost prescription drugs under its Medicare health plan: The new prices will take effect in 2027 and are expected to be lower than Medicare’s current net prices after accounting for rebates and discounts.
💵 The Medicare agency previously announced maximum new prices for the first 10 high-cost medicines, which resulted in an average 22% discount compared to Medicare’s prior net prices. The Inflation Reduction Act requires Medicare to consider factors like manufacturer data and availability of alternatives when setting prices, but does not mandate a review of international prices, that is on Trump’s administration, and it seems to be working well.
🇯🇵 The Bank of Japan (BOJ) is preparing markets for a possible interest rate hike as soon as next month. The BOJ has shifted its messaging in the past week, focusing more on the inflationary risks of a weak yen rather than earlier concerns about the U.S. economy.
🤝 This shift in tone comes after a meeting between the new Prime Minister Sanae Takaichi and BOJ Governor Kazuo Ueda, which appears to have removed immediate political opposition to rate hikes. Several BOJ board members have made hawkish comments recently, with Junko Koeda and Kazuyuki Masu saying the conditions are ripe for a rate hike.
📈 The BOJ now sees the weak yen as having a more lasting impact on underlying inflation, a key factor in its policy decisions. Inflation in Japan has returned to a bullish path, unfortunately. In August it managed to reach 2.7%, after successive declines, but has now returned to 3% after the last two months.
🚗 GWM, one of the largest automotive companies in China, is targeting annual production of 300,000 vehicles in Europe by 2029, as it scouts locations for its first car manufacturing plant in the region. The company is considering sites in Spain and Hungary, among other countries, as it weighs factors like labor and logistics costs, as well as the EU’s industrial policies.
🌍 GWM needs to gain market share in Europe, where it competes with entrenched incumbents as well as aggressive Chinese rivals like BYD. With a target of 1 million annual overseas sales by 2030, GWM is accelerating its European strategy, as it sees great potential for Chinese brands across all powertrain types in the region.
🏭 The planned European factory will build vehicles ranging from conventional engines to fully electric models, as the company aims to speed up its expansion in this key market.
Geopolitics.
🕊️ Ukrainian officials have agreed to move forward with a U.S.-backed framework for a peace deal to end the war with Russia, though some details still need to be resolved. This plan has now been revised to 19 points with input from both sides. Ukrainian President Volodymyr Zelenskyy has said Kyiv is ready to advance the revised peace framework, though it’s unclear if Russia will assent to the new terms.
🤝 Former U.S. President Donald Trump has been involved in the negotiations, saying the two sides are getting close to a deal and that he hopes to meet with Zelenskyy and Putin soon.
😠 The EU leadership, including Ursula von der Leyen and Antonio Costa, are upset that they were not kept informed or included in the negotiations, feeling their “centrality” is being ignored. The EU fears being left out of any potential business deals and reconstruction opportunities that could arise from a Russia-U.S. peace agreement, rather than being genuinely concerned about Ukraine’s interests.
⚔️ European officials are making demands and issuing threats, acting as if they are at war with Russia themselves. There are concerns the EU is banking on a prolonged “war economy” and does not actually want a peaceful resolution that could deprive them of lucrative defense contracts and reconstruction funds.
🇮🇳 India aims to double its military production to 3 trillion rupees (about $33 billion) by 2029 and increase defense exports to 500 billion rupees by the same year. India is the 5th largest military spender globally, with a defense budget of $86.1 billion in 2024. Private sector companies held a 64% share of India’s defense exports in fiscal 2025, with India supplying equipment to over 80 countries.
🏗️ Macquarie Research has identified two top picks in the Indian defense sector – Larsen & Toubro (L&T) and state-owned Bharat Electronics. L&T earns 3% of its revenue from defense but is a trusted private enterprise for executing defense projects. It has partnerships with the Indian Defense Ministry. Bharat Electronics is India’s largest defense electronics manufacturer, with a strong order backlog and growing export presence.
🚨 Recent India-Pakistan tensions have highlighted the credibility of India’s domestically-made weapons, with the government emphasizing the need for “Made in India” defense equipment.
Market view.
📈 A spectacular rebound hit Wall Street following weak US macroeconomic data. Mini S&P 500 futures climbed again, successfully breaking above 6,800 points, while Nasdaq 100 futures also rallied, now trading above 25,200 points.
💱 The DXY dollar index finally lost its key 100 support level, falling toward 99.60 before rebounding slightly to 99.77. This brought renewed strength to pairs such as EUR/USD, which moved back toward 1.16, now trading at 1.1575.
🇪🇺 In Europe, DAX 40 futures moved above 23,800 at Wednesday’s open but have since pulled back to 23,640. EuroStoxx 50 futures are showing a bit more optimism, currently trading at 5,623.
🛢️ Crude oil prices continue their gentle downward trend, with Brent spot trading at $61.77.
🪙 Gold futures continue to advance, breaking above $4,200 per ounce in recent hours before easing slightly to $4,195.
💻 Bitcoin is slowly attempting to recover, approaching $88,000 after hitting lows near $80,000 just a few days ago.
