UK Labour budget spares markets from another 'Liz Truss moment'
Repeats item first published on Wednesday with no changes to text
Labour's new budget brings mild relief to markets
UK gilts yields up modestly, sterling, stocks rise
Repeat of 2022 mini-budget fallout avoided - investors
By Naomi Rovnick and Yoruk Bahceli
LONDON, Oct 30 (Reuters) -UK markets were spared painful blows from the new Labour government's first budget on Wednesday, which announced 40 billion pounds of tax hikes to plug shortfalls but soothed jitters about public spending blowouts and debt market disorder.
As finance minister Rachel Reeves balanced big debt and investment increases with pledges for tough control of day-to-day spending, investors' fears of a potential repeat of then-prime minister Liz Truss' chaotic September 2022 mini-Budget eased.
Government borrowing costs measured by 10-year gilt yields touched their highest since May at around 4.38% GB10YT=RR, but the move was modest in comparison to the surge two years ago. Sterling rose GBP=D3, meanwhile, and the domestically-focused FTSE mid-250 index .FTMC briefly jumped more than 1.5%.
"Investors feared a new Liz Truss moment, but in the end the announcements do not suggest an uncontrolled surge in debt," Edmond de Rothschild Asset Management portfolio manager Nabil Milali said.
PRE-BUDGET NERVES
Investors pre-budget nerves had risen after data showed British public borrowing had reached nearly 100% of GDP and Reeves accused the former Conservative government, which Labour replaced in July's landslide election win, of creating a 22 billion pound fiscal "black hole".
In a sign of the unease, shares in UK retailers and pub operators had slumped for days and gilt yields had risen.
But after Reeves on Wednesday outlined about 100 billion pounds of capital spending over the next five years and directed tax grabs towards businesses instead of workers, the FTSE 250 index .FTMC ended Wednesday higher while UK retail and banking stocks bounced.
"If this had been a more fiscally conservative budget you'd have expected gilts to rally further and equities to sell-off," Artemis fixed income manager Liam O'Donnell said.
The Institute for Fiscal Studies said Britain would borrow an average of 85 billion pounds a year over the next four years, up from 59 billion pounds under pre-election plans.
But whether the benefits from extra public investment would offset the costs was a "gamble", the economic research firm added.
Reeves confirmed that state indebtedness would now be measured against a broader definition of the public sector balance sheet, known as public sector net financial liabilities, which includes extra assets that can be offset against additional borrowing, to boost investment.
Borrowing plans released alongside the budget raised debt issuance this year to 296.9 billion pounds ($385.61 billion) from previous estimates of 277.7 billion pounds.
That was largely in line with Reuters' poll of primary dealers published this week, but gilt yields reversed their earlier fall and briefly shot up, with some investors citing the increase in longer-dated bond sales.
In addition to changing its debt definition, which markets had expected, the government said its rule on getting debt falling would eventually apply in the third year of its budget forecast. This contrasts to the previous government's rule, which was a rolling target for the fifth year, meaning plans to have debt falling were repeatedly pushed back.
"Reeves has done a reasonable job of buying credibility with the gilt market," said Marlborough fixed income manager James Athey, who added he was positive on British government debt and bond markets would appreciate the revenue boost from tax hikes.
Tom Williams, head of solutions trading and structuring at Schroders, said he saw sufficient demand from pension schemes, banks and wealth managers for buying this year's debt sales "in an orderly way".
FTSE BOOST
Analysts also noted that the budget was unlikely to change the outlook for the Bank of England, which is expected to cut rates when it meets next week. Still, markets reduced odds for a November cut slightly and now see less than a 50% chance of a December cut.
Jason Da Silva, global investment strategy director at Arbuthnot Latham, said weak British consumer sentiment may also improve alongside Labour's pledges to raise health and capital spending.
"That should be good for UK-focused stocks, given they are already cheap," he said.
With British equities long depressed by public finance worries and political instability, the broad FTSE All-share index .FTAS is trading at an almost 40% valuation discount to global peers .MIWO00000PUS.
"I have been overweight UK domestic stocks and smaller companies over the last year seeing them as beneficiaries of what was a healthy UK economic recovery," said Hugh Sergeant, head of value and recovery at investment firm River Global.
"These have been weak recently, due to nervousness in the lead-up to the budget. They have rallied today and I would expect them to continue to be strong."
Britain's 30-year gilt yield over Germany https://reut.rs/3Yjs7gQ
UK homebuilders, retailers on backfoot ahead of budget https://reut.rs/3AkBK6T
Reporting by Naomi Rovnick and Yoruk Bahceli; Editing by Dhara Ranasinghe and and Alex Richardson
Mga Kaugnay na Asset
Pinakabagong Balita
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.
