Stocks move up on Fed hope, sterling and gilts buffeted by budget surprises

Growing US rate cut bets lifted stocks for a fourth straight day on Wednesday, while Europe’s markets saw an extraordinary few hours as Britain’s fiscal watchdog inadvertently published crucial new forecasts ahead of a bruising UK budget.

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When the full UK budget details did come from finance minister Rachel Reeves they contained another round of tax hikes but the early release of the Office for Budget Responsibility’s Economic and Fiscal Outlook had already caused a reaction.

Sterling and gilt yields had both rallied as the OBR's figures painted a better-than-expected picture on the UK's fiscal headroom, and then yo-yoed as Reeves delivered her speech.

“The problem is this budget has backloaded most of the fiscal tightening and for what matters has near term fiscal loosening. Hence the mixed market reaction,” Mizuho strategist Evelyne Gomez-Liechti said.

Before the time Reeves wrapped up UK stocks were up 0.4% while broader European equities were up 0.6%. MSCI’s world stocks index gained 0.4% with Wall Street poised for a higher restart later too.

Traders’ focus on the UK budget reflected the high-wire act for its under-pressure government and finance minister Reeves.

Little more than a year after ordering 40 billion pounds ($52.7 billion) of tax hikes - the biggest since the 1990s and which she promised would be a one-off - economists estimate Reeves is now piling on another 20-30 billion pounds of increases to try and plug the fiscal dam.