European markets declined for the second day in succession yesterday, buffeted by the announcement of a global travel alert by the US state department, followed by the shooting down of a Russian fighter jet by a Turkish military F-16.
While this escalation of geopolitical tensions has served to help put a short term floor under oil prices it has put an already fragile market even more on edge as investors gear up for the prospect of a Federal Reserve rate rise next month.
With US markets having to contend with a shortened week due to the Thanksgiving holiday, the rebound in energy prices did prevent US stocks following their European counterparts lower, as we await a data deluge of US data later this afternoon, including the latest durable goods numbers for October as well as the latest inflation data.
Before that we have the small matter of the Autumn Statement and comprehensive spending review from UK Chancellor George Osborne.
While today’s Autumn Statement is likely to be more important for political reasons than economic ones, particularly the politically difficult changes to tax credits, this month’s horrific events in Paris have shifted the focus somewhat towards a rethinking of the planned reductions in the Defence and Home Office budgets, which could well be significant for companies who have procurement contracts with the UK government, which has been reflected in the recent rebounds in defence related stocks like BAE Systems and Cobham. We could well see some more detail in the context of digital investment, in terms of cyber-crime.
Another focus for markets will probably be around whether the government chooses to make any changes to the controversial additional tax surcharge on bank profits of 8% on top of the usual corporation tax rate, which is due to apply from January. The main criticism is that it is likely to discourage competition in the sector given the low level the tax kicks in which is at £25m, disproportionally affecting smaller banks like Metro Bank, who have a smaller presence and whose margins are tighter.