Betting on the Budget

IT’S Budget week, the Wimbledon of financial news, so will the Chancellor’s announcements be champagne and strawberries for CFD traders, or “new balls, please”?

Unless the Chancellor of the Exchequer takes leave of his senses, the tax free status of spread betting is not going to be under threat. At the same time, the capital gains tax rate for individuals will almost certainly remain at 18 per cent. As such it would not affect the tax levied on gains made by individual CFD traders.

With George Osborne unlikely to threaten the tax status of CFDs, we should take a look at the other side of the net, to those who will want to profit from the announcements. However, with the majority of potential announcements already leaked, and their potential effects priced in by the markets, where can those looking for volatility in the markets hope to gain?

SHORT VERSUS LONG TERM
In the short term, the decision as to whether to hit motorists with a fuel duty rise could go either way. If implemented, it would likely cause a knee jerk reaction from the market. The Chancellor may, as others have done before him, see fuel duty as being an easy source of cash, however David Buik of BGC warns: “The Chancellor needs to show a little mercy towards the motorist whilst oil remains above $100 a barrel. Here’s hoping he does not implement the fuel duty increase scheduled for April by the last government. Perhaps a moratorium of between three and six months would be sensible.”

Estimates from PricewaterhouseCoopers pin the cost of delaying this rise at around £1bn per penny, but should this measure be held back, keep an eye on listed companies particularly exposed to fluctuating fuel prices.

In the longer term, the Budget offers more scope for those with their eyes on CFD returns. According to David Morrison, CFD market strategist at GFT “The budget presents an opportunity for Osborne to address some of the criticism that he has received about not having a growth plan. Tax relief for businesses would cost money, but an announcement of that sort would boost UK equities.” Although the benefits brought by a business-friendly budget would take a while to trickle down to the UK equities market, they would undoubtedly bring benefits for those taking a long term view.

BETTING ON THE BIG DAY
On a more light hearted note, there are a range of spreads being offered by Extrabet on things Budget related, from the length of the Chancellor’s speech (51-54 minutes) to the sips of water taken (3-3.3). According to Jeremy Scott of Extrabet: “The Chancellor took 5 sips in his June budget, however we attribute that to nerves. This time around he will be more confident and the spread offered reflects that”. With the Budget unlikely to hold many surprises for CFD traders, a flutter on such spreads could liven up the excitement of an hour of political to and fro.