Budget day and everyone will be wondering how far their pay packet will go next year.

The cuts that have been mooted so far seem small potatoes versus the vast deficit and, with the financial sector becoming the pariah of the nation, the idea that ‘invisible earnings’ will save the day seems wishful thinking indeed. This having been said, the government must start somewhere, but many commentators would just be more impressed if the focus was more on cutting expenditure rather on raising taxes even further. The idea is that it will be 4:1 spending cuts:tax raises, but as we all know a tax is a tax, but a spending cut is an accounting sleight of hand.

As now seems certain, VAT is rising to 20pc and Capital Gains is going up (Capital Gains has brought in the same amount of money every year since the 1970’s, no matter what level it is struck at, it seems to raise a similar sum so Gorgeous George cannot really be expecting much from here). To counter this, it seems that the Tax threshold is being raised to £10K (this is a massive move and is likely to completely wipe out the CGT increase). The Unilateral Banking levy sounds great, until you realise that the banks will presumably find some way to just transfer Money Market activity out of the UK.

All in all, I am quite pleased that it is somebody else’s job to sort out Gordon and Tony’s god-awful mess.

Over recent weeks, the pound has been slowly grinding higher, as the markets react to the potential action from the new administration. We must hope that this is not just a case of ‘buy the rumour, sell the fact’.

This morning sees the FTSE pretty much back at the pre-weekend level, as the glow over the Chinese currency easing evaporates in the cold light of day. The last week has seen the index strangely attracted to around 5250, moving higher or lower, but returning eventually to the price. The Dax also failed to close above 6290/6310 yesterday afternoon, having seemed certain to achieve a break higher early in the session. Markets seem to be at one and the same time too tired to make a move higher, but also unwilling to sell off at current valuations.

As mentioned, Sterling has had a reasonable time of it in recent weeks recovering to 1.20 vs. the Euro and even flirting with the idea of making a pitch at 1.50 vs. the Dollar yesterday morning. Today, dealers seem a tad more cautious, inclined to give the currency the benefit of the doubt, but nervous of being caught out by a poor reception to the budget this afternoon. As we are now into coin-tossing territory, most traders will be flattening positions and awaiting events.

The Euro has made its first attempt at breaking the 1.2350/1.2450 resistance, which has proved unsuccessful so far, but on the other hand, the pull back has not been too aggressive either. With the World Cup still diverting eyes from domestic woes, we may see the current pause for breath continue for another week but, unfortunately, the medicine in the Southern States still has to be swallowed (at the moment, it has merely been ordered from the pharmacist).  With unemployment rising to unprecedented levels in some countries and with state spending cuts still to come, the temperature may well begin to rise through the later half of 2010.  Added to this is the undoubted desire from the ECB for a weaker currency.

Gold was the big mover yesterday, which was not really surprising, as hopes for another reserve currency rather removes one of the major arguments for buying the yellow metal. The price dropped from 1264 all the way to 1230.5, before buyers came back into the frame (from the exact price of the rising short-term trend line in place since May). It is reported that hedge funds are still heavily long of the contract, but this can be something of a double-edged sword. While it would not be wise to bet against them, it would be equally foolish not to acknowledge the fact that they will eventually liquidate their positions. Strong support is at 1233, rising from 1230.5 yesterday; resistance is at 1240 and 1248/52

Oil has also run into something of a wall above 78/79 bucks for the August Nymex contract. Sentiment is Crude bullish just at the moment, but traders are similarly nervous of buying above these levels (as they seem to be in so many asset classes at the moment). Support is at 77.70 and 76.00; resistance at 78.60/75 and 79.45 and 80.00.