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ISEQ higher-Portugals new austerity

Tuesday, October 16 08:54:10

The ISEQ is higher this morning at 3,255, up 11 points as markets liked yesterday's economic news from the US and Asian markets rose overnight. Portugal announced its budget details and there is an emphasis on new taxes as public expenditure reductions amount to just E1b. Davy Stockbrokers summarises how they see the overall picture today:

Stock indices closed up yesterday. The Euro Stoxx 50 Pr gained 0.7pc while the S and P 500 rose 0.8pc. Sentiment was buoyed by a 1.1pc rise in US retail sales in September, following an upwardly revised 1.2pc in August. Better-than-expected sales figures for the final month of Q3 suggest that aggregate US consumer spending may have expanded in excess of a 2pc annualised rate in the third quarter. If so, US consumer spending growth will have accelerated from the 1.5pc recorded in Q2.

Yesterday, Portugal unveiled a new budget to hit deficit targets. The government will cut spending by E1bn and raise E4.3bn in taxes. These measures include a new levy on income of 4pc, and an increase in the retirement age from 63 to 65. Following the IMF's analysis, the consolidation measures have had a larger-than-expected impact on growth; the pace at which Portugal must attain a 3pc deficit has been extended for one year.

Today, UK CPI inflation is released for September. With the August 2011 utility price hikes now falling out of the annual 12- month comparison, CPI inflation is set to fall sharply from its current rate of 2.5pc. The market expects a fall to 2.2pc although with some commentators even suggesting that a fall to rates below the Bank of England's inflation target of 2pc may be likely. However, SSE, British Gas and Npower have announced energy price rises for October, so inflation is unlikely to fall further next month. That said, today's fall in CPI inflation will underline the fact that pressure from inflation on UK consumers' real incomes is now beginning to dissipate according to Davy Stockbrokers.