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Global growth is slowing down and Italy is in a technical recession, with America not far behind.
Net fund sales (9AUM) plummeted £41.3bn in 2018.
Brexit: With less than 45 days to go before the Brexit deadline and with the next Brexit vote possibly happening in February or March, the relationship with the EU is somewhat tense, with both parties claiming to have constructive conversations! At this stage, nobody really knows where we shall end up but Brexit's impact on the UK economy is becoming more evident.
UK economy: Growth in 2018 unfortunately ended up at 1.4%, the slowest for 6 years and is expected to fall to 1.2% in 2019 and well below the BoE’s annual target of 1.7%. In December, Inflation (CPI) was down to 2%, meanwhile unemployment maintained stable at 4%. Currently annual wage growth is at 3.4% to December.
To summarise,Brexit negotiations have had a direct impact on the UK economy and with such an unstable environment, economic predictions are almost impossible. However, financial markets including the GBP remain very volatile and we do not believe that the BoE will raise rates on the 21st of March.
Money Market fund managers(01/2019) £ weighted average maturity (WAM) is > than 45 days (next BoE meeting 21/03/2019) so the market is not favouring a rate increase.
EU zone (19): With inflation at 1.6%, it is expected to decrease to 1.4% in January 2019. Additionally, unemployment remains unchanged at 7.9% (lowest since 2008) but the Euro zone's PMI has further decreased to 50.5% in January, which is the lowest for 32 months. Furthermore, growth is down from 1.6% to 1.2% by the 4th quarter of 2018.
Italyis in technical recession with 2 consecutive quarters of negative growth.2019's growth is expected to be around 0.2% (EU forecast) which is down from recent expectations of +1.2%. As a result, Italy's 10 year government bond rose again back to 2.954%
France: Annual growth was 1.5% lower than expectations (1.6%) and expects its deficit to rise above the 3% limit at 3.2% in 2019, due to the on-going anti-government protests.PMI dropped further to 48.7% in December and Inflation at 1.85% year to year.
Germany:Annual inflation is down at1.72% but purchasing manager index (PMI) is also down further to 49.7%. With growth at 1.5% in 2018 this was the lowest since 2013.
So, the outlook for Euro zone has deteriorated. We still believe that the ECB will change its rate policy but late 2019 or early 2020.
USA:Economic data looked positive for 2018but a potential second shut down and outcome of potential trade agreement with China will impact negatively its economy. Annual growth was at 3% in 2018 but expected to slow down to 2.3% in 2019 and even 1.7% in 2020. Unemployment rose to 4% but with wage growth at 3.2% year-on-year and Inflation down to 1.9%.
Updated on 12/02/2019
Interest rates and markets:
Equity:Equity Markets remain in positive territory due to stable interest rates and with volatility at 15.97% down 37% YTD. Nevertheless, markets remain cautious and volatile and cash is still a good strategy.
ECB: As expected there was no rate increase at the last ECB monetary policy meeting on the 24th January 2019. As ECB is officially stopping its quantitative easing programme (QE) and might need other actions to stimulate growth, we do not anticipate a change of Economic policy before the end of 2019. We do not expect a rate increase on the 20th of February 2019 meeting.
Fed: As expected, we had no rate increase on the 29th and 30th January FOMC meeting. For 3 months USD Libor is at 2.688, which is down from 2.77%. Today’s slope 3 months versus 10 years treasury, is further down to 0.20% from 0.33%. The 2-year treasury is down to 2.512% while the 10-year treasury is also down to 2.688% from 2.75%. With a further flattening of the yield curve from last month and a further sign of a slight economic slowdown and drop in inflation, we do not expect a rate increase at the 19th/20th March meeting.
BoE: Libor is down to 0.88% and inflation is down to 2%, despite strong wage growth. Nevertheless, the Brexit outcome will continue to drive any economic decisions and we do not expect a rate increase at the next meeting on the 21stMarch.
UK & Europe:The CAC 40 at 5,014, 6% up YTD. FTSE 100 at 7,129 up 6% YTD.
USA: Both Dow Jones and S&P are up YTD with the former up at 7.4% YTD at 25,053 and the latter up 8.1% YTD to 2,709.
The USD and the GBP at 1.29areup 1.6% YTD.The USD will get stronger if Washington avoids a shut down; while investors remain worried about Brexit discussions and UK growth, but any good news on Brexit will strengthen the Sterling.
The Euro and the USD are at 1.1340 and down from 1.14 as the UK economy grew at its slowest rate since 2012.
With the GBP and the Euro at 1.14 it is up 2.7% YTD. However, the Sterling was affected by the growth data. The market will wait for the Prime Minister's speech today for further directions.
With Gold at 1307 itis up 2% YTD but may have reached its peak with the strength of the USD and any easing of trade tension between the US and China.
About Banks - February 2019
Goldman Sachsinvests in digital start-up Nutmeg.
Investors launch action againstDanskeover a €200M money laundering scandal.
Barclays: To cut 300 call centre jobs at their Leeds office. They will also move some IB staff to Paris and move £166bn to Dublin amid Brexit fears.
Metro bank:This challenger bank suffered almost a 40% drop (23/01/2019) in share price following the wrong classification of Risk weighted assets thus probably requiring additional capital. This might put some pressures on challenger banks’ ability to manage their balance sheet.
Santander UKwill close 140 branches due to customers opting for online banking.
Nationwideprofit falls 21% on digital spent.
Oaknorthcloses a $400M round with Softbank as lead investor with $100M.Oaknorthwould have now raised over $1BN.
Contact our expert team for further market insights.
Akoni has not independently verified the information or data used in our rate review, which is based solely on public available information. Neither Akoni nor its advisors or officers are authorised to make any express or implied representation, warranty or undertaking as to the accuracy or completeness of this update. Furthermore the writer expresses his/her own opinion and not an investment advice.