FTSE 100 Slides as UK Budget Changes Gaming and Insurance Legislation

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FTSE 100 Slides as UK Budget Changes Gaming and Insurance Legislation

FTSE 100 Slides as UK Budget Changes Gaming and Insurance Legislation


Judging by the opinion polls published over the weekend, George Osborne struck a chord with voters when he outlined his fifth budget last week; the penultimate one before we head to the ballot box in 2015.

The Tories are now almost neck and neck with Labour, with just over a year to go until the election.

One can almost forgive the Chancellor for appearing a little smug when he took to the despatch box last Wednesday. Well, I did say almost.

Short-term growth forecasts were revised upwards in the Budget and there was a lot of noise about measures to boost manufacturing and exports.

Proposals to boost savers and pensioners also went down well and certainly left Labour with a few headaches to contend with.

Insurers and Gaming Stocks Slump

The Budget was unusual in that it had a major impact on the stock markets, something that doesn't usually happen because the FTSE 100 is essentially an international index, with more than 80% of earnings coming from abroad.

Insurers tumbled after Osborne revealed that pensioners will no longer be forced to buy annuities, while gaming companies were hit by a tax on fixed-odds betting terminals.

Bingo was a big winner, boosting Rank Group which owns Mecca Bingo.

One thing that hasn't changed is the widely held belief that interest rates are unlikely to rise before next spring.

Economists I know believe it could be even longer, with recent data showing that the pace of job creation is slowing.

That, coupled with Governor Mark Carney's recent warning about the risks that remain, suggests rates will be on hold at 0.5% until after the election.

Away from the Budget, the most important risk factor remains Crimea.

Traders Need Caution as Russian Stocks Slide

Gold bugs got a little overexcited by the tense situation in Ukraine, leading Commerzbank to predict that the price could hit $1,400 by the end of the year, although analysts I speak to remain sceptical.

The economic backdrop is improving and the Russia situation will be managed.

It is in no-ones interest for the situation to escalate, with Russia's economy already hit hard by capital flight.

If sanctions are increased, it could lead to further falls in Russian equities and investors may be tempted to pile in.

However, Russian equities could be a value trap because they appear cheap, but they are cheap for a good reason.

On the broader commodity front, wheat prices have also risen because Ukraine is one of the world's top grain exporters.

Be careful though, because this is being driven by emotion and not weather-related factors like we've seen with other commodities such as cocoa and coffee.

Some investors have heavy long positions because of the tensions.

Should they ease and prices snap back, this could get very painful.

Until next time...




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