Lots of hype surrounding the Chancellor’s Autumn statement today but in reality he cannot do much without going back on his plans to reduce the deficit.

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 Unfortunately for him the lack of growth in the past year and downgrades expected for the years ahead are going to mean that we’ll not see the coalition’s targets of deficit reduction met until after the next general election.  The fact that the bond markets have continued to give the Chancellor the benefit of the doubt and even reduced his borrowing costs is an encouraging sign that financial markets believe he is taking the right course.

Even though the cuts to government spending are in reality a drop in the ocean considering the size of the public sector, those who continue to oppose the coalition’s plans remain oblivious to the reality of the tricky situation we find ourselves in.

One of the options open to the Chancellor today is to wave his magic borrowing wand and go for what the opposition call a “plan B” i.e. borrow more in order to boost growth via government investment.  Now this sounds like a good idea at a time when the economy is struggling, however by borrowing more you are simply brushing the problem under the carpet as opposed to having a proper go at eradicating it.  The bonds markets would not be happy about the UK suddenly borrowing more and they would push our yields higher digging us into an even bigger whole.  Another option is to ramp up taxes, but this would be desperately unpopular and definitely cause us to dip back into recession due to the negative impact on production and demand.  The only final option is to stay the course and do a bit of tinkering here and there, getting the private sector more involved and try to boost lending to business.  Unfortunately, this is not the bazooka that the UK economy so desperately needs, but there’s little other option.

The FTSE is just taking a breather this morning following two days of decent gains.  The big push higher yesterday was complimented by US markets which sustained their big rally higher so earlier we were calling the FTSE to open higher but we are just in the red at the time of writing at 5300.

Yesterday morning saw FX traders regain some appetite for risk and buy into the euro, after the IMF indicated their 600bn euro Italian bailout package over the weekend.  However, as we stated the euro should be treated cautiously as it was a bear market squeeze and by mid afternoon the single currency gave back most of the gains it made against the dollar.  This morning EUR/USD is trading marginally higher at 1.3335 and sees support at 1.3320 and resistance at 1.3410.

Not wanting to blow ones trumpet, but the potential technical rally mentioned in yesterday’s report materialised and investors witnessed the biggest intraday rally for gold seen since early November.  The pressure that gold has been under due to cautious traders shying away from the non-interest bearing assets was certainly eased in yesterday’s session and helped by firm equity and commodity markets, the yellow brick closed up 31 bucks at 1711.5.  Market participants will now be looking for the next technical level of 1725.0, which a failure to break could result in a drop back to last week’s lows.  Currently, the precious metal is at 1707.2.

Like the other markets, commodities weren’t going to miss out on a boost and with the help of the strengthening single currency and bullish bourse’s, black gold added just short of 2 dollars to its price.  The other factor was optimistic figures from the US relating to ‘Black Friday’, which helped accentuate the demand for crude.  Only one thing dampened the session, and that was the narrowing differential arb between Brent/WTI, which shrunk to 9 dollars after considerable buying.  At time of writing, Brent crude is trading at 109.2.