Our UK 10s30s flattener hit take-profit levels earlier this month, which was initiated in the trade note Trading Burnham’s Britain from mid-August. At that time, we noted the October Budget and commented “our base case is a Budget that attempts to be politically ambitious but fiscally conservative in construction”.
Chancellor Healey, speaking at the Labour Party conference in Liverpool this morning, pledged that “fiscal discipline underwrites every government promise” and that the budget’s core will be fiscal discipline.
However, we are becoming increasingly sceptical of the outlook ahead of the Budget, which is due out on the 28th, given events over the past couple of weeks.
DTCC data out today further shifts our mood, with Bloomberg’s Vassilis Karamanis noting “options calling for sterling to drop against the dollar in the week after the October 28 budget now account for two-thirds of market volumes this month in industry data. Against the euro, it’s three-quarters.”