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Yuan un-pegging to lift markets before Budget

News at the weekend that China is to ease the yuan’s peg to the US dollar will be a boost to stock markets everywhere this morning, in the expectation that the move would prove a major lift to exporters.

FTSE SET TO OPEN HIGHER
GFT is forecasting the UK’s FTSE 100 to open up 35 points from Friday’s close, at around 5,285. The German DAX is expected to open up 24 points at 6,240 and the French CAC 40 is quoted around 3,717, up 30 points on the day.

CHINESE NEWS OUTWEIGHS WORRIES
The UK index finished just a few points shy of achieving an eight-day winning streak on Friday, and amidst the backdrop uncertainty over the nature and extent of the spending cuts and tax hikes we will discover tomorrow, some might have thought it would be difficult to see any headway being made.

But the news from China will outweigh any of those concerns, and global investors are likely to share President Obama’s view that this will “safeguard the recovery”.

Just how the UK markets will react to the budgetary details tomorrow is a tough call; it has been many years since we had a budget which actually contained anything which would have a direct and immediate impact on investors, but George Osborne’s first budget is potentially very different.

Gone are the days when traders would have to bet on the number of sips of water the Chancellor would take during the speech in order to generate some interest.

INVESTORS FOCUSED ON CGT
Investors will be particularly focused on any increase capital gains tax - with a jump from 18 per cent to 40 per cent or even 50 per cent on the cards, it will come down to the detail of any exemptions to see if any of the criticism the planned move has been subjected to has made an impact - and a speculated increase in Vat to 20 per cent could spark inflationary concerns if it were to be implemented right now with CPI relatively high at 3.4 per cent.

•Martin Slaney is director of global dealing operations at GFT.