UK equity and gilts driven by positive Budget reaction

UK GROWTH

UK equities could trade in a narrow band over the summer as the problems of sovereign debt and increasing public unrest play against an improving earnings outlook.

With European sovereign CDS spreads collapsing to pre-bailout levels, confidence has evaporated. However, the reaction to the UK Budget has been very positive, which will help sterling and gilts, and should mean the UK avoids the credit downgrades of Southern Europe. We have reached an interesting point in this cycle. With leading indicators such as the ISM rolling over, investors are starting to wonder whether we have seen an end to the rally in cyclical stocks. All eyes will be on the US as we move into the Q2 reporting season to see whether the improving earnings trend of Q1 will c...