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No bother for sterling with the end of austerity.

By Hamish Muress

So it’s the end of austerity. Or maybe the beginning of the end, or perhaps the end is in sight. Only Chancellor Phillip Hammond knows. Hammond announced this yesterday in a rescheduled timetable that also signaled an increase to the personal allowance and importantly a freeze on beer tax and even more importantly an increase in funding for the National Health Service.

Interestingly, as well Hammond announced that we could expect a double Brexit ‘deal dividend’ in the form of extra funds released by the Treasury as well as investment from businesses that may be currently held back. Sterling was rather muted in its reaction yesterday to all of this announcement, the pound of course is still currently trading on any Brexit details. However, the budget yesterday does mark an interesting shift in policy from the Tory party. By doing this May and Hammond have narrowed the gap between themselves and Jeremy Corbyn on the topic of welfare spending, something that could prove crucial in an election (next year) as this is an area of significant strength for Corbyn.

‘I expect a great deal’ with China. These are the words of President Donald Trump yesterday during an interview on his favourite news station Fox. This saw a mini rally in US equities whilst the USD starts Tuesday very much on the front foot against the pound. There is a G20 Summit at the end of next month (the first such summit to be held in South America) and President Xi is expected to meet Trump after the meeting. All eyes will be watching the summit and news for any trade updates.

So comes to the end the era of one of Europe’s most recent stalwarts. German Chancellor Angela Merkel announced that she will step down as the head of her party, the CDU in December, however whilst still remaining as Chancellor until 2021. This comes of the back of the CDU’s miserly performance at the regional election in Hasse over the weekend and is a change in policy (that is the theme in today’s report) from Merkel. Merkel has long maintained that the head of the party and Chancellorship should be intertwined and held by the same person, unsurprising as this is a job she has had for 18 years. Either way this announcement will have marked the start of a succession race in Germany and whilst there may not be any immediate reaction in the Euro there will be a changing of the guard at Germany, significant due to the influence that the country now holds.

Australian New Home Sales figures were released yesterday and showed an increase in the month of September of 1.1%, stopping the slide that had been in place for the last two months. In fact the Aussie dollar was one of the strongest performers overnight and similar to its US counterpart it starts Tuesday on the front foot against the pound.

It’s been a quiet start to the week for the Canadian dollar but it livens up from here on out. The Bank of Canada Governor Stephen Poloz speaks later, before GDP figures tomorrow and employment numbers at the end of the week. USD/CAD opens today above 1.31 but if we see a string of strong data releases 1.30 could be tested.

The New Zealand dollar also had a very strong overnight session, trading up against the G7 currencies. Business consumer confidence rolls around before the end of the week but in the meantime, the New Zealand dollar will be dependent on news coming out of the US-China trade war.