This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
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1. UK Backloads A Tax Trap
- The UK’s fiscal hole was even smaller than we thought (£6bn), allowing the government to backload a fiscal tightening that is unsurprisingly focused on tax increases.
- Delaying prudence to an election year is implausible. There will be a substantial deficit in 2029-30, not the current budget surplus in the OBR forecasts based on existing policy.
- Labour is setting up a tax trap for Reform and the Conservatives to say how they’d avoid tax increases, similar to the backloaded spending cuts they myopically ignored in 2024.
2. UK Labour Party: Damned If They Do…
- Whatever Rachel Reeves comes up with in her 26 November budget, she is bound to run into criticism from within her own parliamentary party.
- Bond markets seem set to react badly to this, especially if it seems likely that her overall objectives will be undermined by internal resistance to proposed measures.
- She and the PM will probably survive this, but a market-unsettling change and slide to the left look increasingly likely by mid-2026, followed by defeat at the next election.
3. US Market: WALK TO THE EXIT NOW BEFORE EVERYONE STARTS RUNNING!
- The US market is weakening again as an interday reversal after Nvidia results foreshadows continued selling in the AI theme. Market breadth is weakening and stocks at 52-week lows surging.
- Volatility has reached levels last seen during the tariff tantrum in April. Insider sales of Nvidia have surged since June. Private credit and private equity markets are showing stress.
- US consumption has narrowed and is highly dependent on stock market gains. Household debt levels are at new highs, and consumer sentiment is lower than during the GFC in 2008/09.
4. Overview #42 – What a Difference a Day Makes!
- A review of recent events and data impacting our investment themes and outlook
- US interest rate expectations continue to whip markets around, even as more cracks emerge in the AI trade.
- Japan goes for broke with its latest budget and debt issuance.
5. HEW: Slow Shovels
- UK fiscal policy had an even smaller hole to fill than we expected, with the work to fill it in delayed until the election. There is no dovish pressure on the BoE from this.
- European data releases were relatively resilient again, with household lending and business sentiment broadly increasing. National inflation surprises were offsetting.
- Next week’s Euro area flash HICP is still tracking 2.1% in our forecast. Final PMI releases and the BoE’s decision maker panel survey results are our other release highlights.
6. 241: Europe’s Economic Comeback: What It Will Take for a Broad Resurgence
- Europe is experiencing an air of optimism in 2025 due to more flexible fiscal policy and increased government spending on infrastructure and defense.
- European defense companies and banks have seen significant growth year to date, indicating potential for further investment opportunities.
- Challenges to Europe’s long-term competitiveness include an aging workforce and underdeveloped capital markets, but progress is being made in areas such as harmonizing tax rules and increasing efficiency in capital markets.
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7. The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (November 27)
- Hong Kong market continues to consolidate during the early stage of its Secular Bull Market. Strength and momentum indicators show further weakness ahead.
- Materials and healthcare sectors have lost momentum with other sectors trendless. Analysts target 20% price gains in materials sector over the next year.
- China Taiping Insurance Hldgs (966 HK) shares fell on Thursday on concerns over the insurer’s estimated HK$2.6B exposure to a HK residential project at the center of a deadly fire.
8. How to Trade the AI Panic
- The recent market pullback may have been attributable to a combination of breadth deterioration and a highly bifurcated market.
- In the short term, technical price action and sentiment have become stretched to the downside that a bounce is more or less inevitable.
- We continue to believe stock prices will rally into year-end, but we are watching for signs of a bullish follow-through after the reflex rally for confirmation.
9. Japan Is at a Policy Crossroads, Yen Offers a Guide
- BOJ minutes from the October meeting show 8 of 13 members backing near-term hikes, raising odds of tightening in December–January as wage negotiations strengthen.
- Japan’s JPY 21.3T fiscal package and rising JGB yields highlight a growing policy clash, pushing the yen toward the prior 160 intervention zone.
- Historical patterns of rapid yen reversals indicate that a BOJ hike alongside emerging Fed cut expectations materially increases the probability of a near-term yen appreciation.
10. Japan: CAN TAKAICHI SURVIVE THE COMING TSUNAMI?
- Prime Minister Takaichi started a firestorm with her comments about attacking China over the Taiwan issue. Japan’s missile deployment near Taiwan further inflamed the situation.
- President Xi called President Trump on the matter, and Trump followed up with a call to Takaichi soon after. Takaichi’s miscalculation in provoking China may have led to U.S. concessions.
- PM Takaichi’s fiscally reckless budget is adding fuel to a fire as the yen, JGBs, and stock market are falling simultaneously. Inflation, currently at 3% is rising again.
