Autumn Statement 8211 the market reaction

With Brexit looming on the horizon and so many unknowns making forecasting shaky at best Phillip Hammond used his first Autumn Statement (and last as it will now be a Spring Statement) to outline his infrastructure spending spree, attempting to appease any “dooms-dayers” with the promise to balance the books “as soon as practically possible”.

Heading into the Autumn Statement the FTSE was trading down from an early morning peak of 6880, on finishing the FTSE was trading 11 points lower and once the digestion process of the Statement had been completed the FTSE sunk to a day’s low of 6780.

The gloomy economic forecasts, which should be taken with a pinch of salt given the vast unknowns in the Brexit landscape once Article 50 is triggered, show a revised down estimate for 2017 to 1.4% and then a pick-up in 2018 to 1.7%.

In an attempt to prepare the economy for all the unknowns and the weakening economic growth, Hammond is looking to spend; he  spoke extensively about a lack of productivity in the UK compared to other countries and efforts to fill this productivity gap. Hammond unveiled a £23 billion National Productivity Investment Fund (NPIF). This money will be used towards affordable housing, roads, rails and prioritising science and innovation but all in all the budget will leave a much bigger black hole in public finances than was originally thought.

House builders – There was a flurry of activity in this sector when Hammond talked about a Housing infrastructure fund of £2.3 billion and a promise of 100,000 new homes in high demand areas, plus an additional 40,000 new affordable homes and £1.7 billion for speeding up house building on public sector land. House builders Persimmon, Taylor Wimpey and Barratt Development jumped, yet this was short lived and on further reflection the market felt there was nothing of real substance and the house builders sunk into the red

Estate Agents – Foxtons, the standout loser from the Autumn Statement sinking 15%, in addition to other estate agents such as Countrywide and LSL Property, which dropped 10% and 5% respectively on the news that the government plans to ban letting agents fees to tenants. This is good news for the consumer and will increase transparency in the field, especially aimed at helping Theresa May’s JAMS- however this will also squeeze estate agent margins.

Retailers – news of the National Living Wage increasing from £7.2 to £7.5 as from April 2017 is great news for workers. However, this pledge will mean higher costs for retailers such as Sports Direct, Next and Marks and Spenser which will squeeze their margins if they chose to absorb the costs, otherwise prices will go up and the consumer will foot the bill. As a result, the retail sector had a tough session and closed in the red.

Sterling -All in all Hammond had prepared us well for what to expect and there were few surprises, positive or negative. Sterling experienced some volatility around the main show but nothing to write home about, a gentle gain of 37 points against the dollar, which it then gave back, in an unrelated dollar strength story.