Business Friendly Budget Boosts FTSE

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Relief that Athens had submitted its latest proposal to creditors helped European stock markets move higher on Wednesday, but gains were limited by concerns the country won’t meet its tight end-of-week deadline to reach an agreement. Another daily collapse in Chinese markets played its part in keeping caution front and centre in minds of investors.

Chinese regulators have upped the ante again, but seemingly to no avail as stocks in China continued to fall on Wednesday, though they did close off the lows. Large investors and company insiders will be literally banned from selling shares for the next six months while state-sponsored institutions and brokerages directly intervene by buying up shares.

There probably will a be a big dead-cat bounce in the China’s benchmark stock indices in the next few days when the latest set of anti-bear market government manoeuvres set in. In the long run though, any investor worth his salt will run for the hills rather than take part in the kind of “free” market that could at any time see them banned from selling their own shares.

In the UK, the first conservative budget in almost two decades was broadly seen as business friendly, helping the FTSE 100 move higher on Wednesday.

The living wage going up to £9 an hour by 2020 will add to business wage costs but a cut in corporation tax to 18% by 2020 as well as a cut to national insurance for small companies was seen as a net positive.

The phasing out of the bank levy and replacement with a profit surcharge placated investors in banking shares which had a mixed reaction with Barclays (LONDON:BARC) higher, helped by the news of the sacking of its CEO Anthony Jenkins while Lloyds (LONDON:LLOY) was down but RBS (LONDON:RBS) and HSBC (LONDON:HSBA)were flat.

House builders and estate agents including Barratt Developments (LONDON:BDEV), Taylor Wimpey (LONDON:TW) and Foxtons (LONDON:FOXT) dropped after the Chancellor announced tighter tax rules on “non doms” and cut some of the tax benefits to receiving rental income, potentially knocking the buy-to-let market.

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US markets saw a lower open on Wednesday as concerns over the possible implications of the rout in Chinese stocks to the broader economy and the resulting impact on global growth took hold ahead of the latest set of FOMC minutes.

Microsoft (NASDAQ:MSFT)appears to be throwing in the towel on its attempt to break into the phone handset industry. The tech powerhouse has announced 7,800 job losses and a $7.6bn write-down of its Nokia (HEL:NOK1V) business.

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The US Dollar was mixed on Wednesday ahead of the release of minutes from the last Federal Reserve meeting with euros higher after Greece put forward its latest proposal for reforms while the Japanese yen saw safe haven flows out of Asian equities.

The dollar fell to its lowest level against the yen since late May with USD/JPY touching 121, having been close to 123 on Tuesday.

The new budget didn’t have too much bearing on the British pound which came in for selling versus the euro, yen and in US dollar with GBP/USD below 1.54 for the first time in a month.

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There was a recovery in some areas of the commodity space after yesterday’s rout. Copper rebounded 1.5% while gold and silver were higher. However, iron ore saw its biggest daily drop ever of over, down over -10% as concerns of souring Chinese demand continued.

Crude oil dropped after weekly US inventories data saw another slight build of 0.4M when a small drop of -0.6M was expected, adding to concerns of a supply glut in the face of the possibility of reduced Chinese demand.

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Written By: CMC Markets