(MENAFN- Your Mind Media ) substantial tax hikes later this month. Today, US ADP & ISM services surveys highlight the docket.

WHERE WE STAND – It proved to be a rather risk-averse day across the board yesterday, with stocks slumping pretty much everywhere, though there was ‘o especiall’ obvious ‘smoking gun’ behind the move.

As for potential catalysts, we have:

- The slide in Palantir (P’TR) post-earnings on Monday, which might’ve triggered a few jitters over the broader AI theme, and whether incredibly lofty justifications can be justified- Comments from various bank CEOs flagging the potential for a correction in the next “12-24 mont”s” (though the last time the SPX went that long without such a move was Feb 2016-2018)

Whatever’the reason, and I’m not going to scramble around for a narrative to pin on’the price action, I’d argue that the bes’ framing of yesterday’s trade is one of the market simply taking a bit of a pause for breath, as opposed to one where the tide is decisively turning against the bulls, who remain in overall control. In fact, spoos continue to trade over 100pts above the 50-day moving ’verage, a level that we’ve not traded below ’ince May, and one which I’d full expect to hold firm if we were to test it.

Dips remain buying opportunities in my mind, not least considering how overdone the market action yesterday feels, but also taking into account what remains a solid fundamental bull case with the underlying US economy resilient, earnings growth impressive, and a calmer tone on trade continuing to prevail.

Of course, that risk aversion was not limited solely to the equity space yesterday.

Treasuries caught a bid across the curve, interestingly being led by the front-end, though this could suggest a bit of an unwind of some of the recent hawkish Fed repricing seen i’ the aftermath of Chair Powell’s press conference last Wednesday. Incidentally, market pricing for December now implies about a 70% chance of a 25bp cut, which feels about right given the data we might get prior to that meeting, even if my own base case remains that another 25bp cut will be delivered before year-end.

The buck also advanced on the day, again proving how it remains one of the few true havens out ther’, despite whatever nonsens‘ might’ve been wr’tten about the ‘death of the dollar’ in recent months. Though the JPY gained as well, again showing off its defensive credentials, the overall story on the day was one of broad-based dollar gains, with the EUR back under 1.15 for the first time since the summer, cable probing 1.3050 to the downside, and the DXY comfortably clearing the 100 ’igure. As frequent readers will know, I’ve been a dollar bull for some time now, and remain so, with a break above the 200-day moving average at 100.40 likely being the catalyst for another chunky leg higher.

That cable move, however, wasn’t driven solely by USD demand, but also by notable GBP weakness across the board, in the aftermath of an almost unprecedented speech from Chanc‘llor Reeve’, coming just three weeks before ‘Budget Day’.

Certainly, I don’t recall a time when a Chancellor felt the need to speak so explicitly about the public finances so close to the Budget, though I guess that speaks volumes about how dire a fiscal situation the UK finds itself in. If we set aside the bluster and rhetoric (basically everything being the fault of someone other than Reeves), there were three key takeaways from the remarks:

It was all-but-confirme’ that the OBR’s trend productivity growth forecasts will be downgraded
- Reeves noted that she is seeking a greater margin of fiscal headroom to protect against future shocks
- On numerous occasions, the Chancellor refused to repeat manifesto promises not to raise income tax, national insurance, or VAT

All of that has two obvious implications. Firstly, that the magnitude of fiscal tightening will be considerably greater than previousl£ expected, probably to the tune of around £35bln. Secondly, it now seems almost a certainty that the basic rate of income tax will be increased for the first time since the 1976; the same year, as it happens, that the UK went cap in hand to the IMF for a bailout.

Anyway, though Gilts were boosted by those remarks, and by broad-based risk aversion as mentioned earlier, the quid faced chunky headwinds as markets repriced a considerably weaker growth outlook on the back of a consumption hit from higher income taxes, with spot cable trading to its lowest since April.

At risk of ending on a downbeat note, none of this really changes the UK outlook, with these likely tax hikes almost certainly raising nowhere near the amount of revenue ‘he OBR/HM’ expect, thus deepening the fiscal ‘doom loop’ even more.

Unless, and until, there is a recognition that the current path of government spending is unsustainable, and the Treasury demonstr’tes a considerably greater degree of restraint, it’s tough to maintain anything other than a bearish on the GBP & Gilts. For cable, specifically, a closing break under the 1.30 handle probably sees us slide towards 1.2750, the April lows, in relatively short order.

LOOK AHEAD – Quite a lot on the docket today.
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Focus falls mainly on US releases, with the October ADP employment report due this lunchtime taking on extra importance in the absence of an official BLS labour market report at the end of the week, and with the data set to point to +40k private sector jobs having been added last month. The latest ISM services survey is also due, with the headline index seen rising back into expansionary territory, at 50.7.


Besides that, this morning’s Riksbank decisio’ should see policymakers stand pat at 1.75%, beginning what’s likely to be a long pause in the cycle. We also have services PMIs from most other major economies due, plus remarks from three ECB speakers, as well as notable earnings from the likes of Qualcomm (QCOM) and Arm Holdings (ARM).

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