Cash News - Market & Rates Update October

Yann Gindre
Posted by Yann Gindre
Posted on October 08, 2018 Leave a comment

Top Interest Rates

Maturity Instant Access 1
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Term  0.50% 0.49%  0.95%  1.20%  1.70%  1.95%  2.05% 2.25%
Notice    0.75% 1.05%          

Rates updated as of 8th Oct 2018

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Hot in the News

UK: 

Brexit: Around 170 days to go before the Brexit deadline and there is a “smell of blood”. The PM is dancing to ABBA tunes but remains focus on her Chequers plan, which divided her Cabinet ministers and party, while also not fully being acceptable to the EU. In the meantime, UK large based corporations are worried about a “no deal” which is not good news for the UK economy.

 UK economy: Annual Growth is now expected to be as low as 1.5%, well below BOE’s annual target of 1.7%: Inflation jumped to 2.7%, well above the 2% target and will impact current interest rate level: Unemployment held steady at 4.0%, a low not seen since 1975 while Wage growth picked up pace to 2.7%.

So, we are in a trade-off situation between lower unemployment and higher inflation (The Philips curve) but low growth combined with Brexit uncertainty and political tensions are all having a direct impact on £ performance.  BOE will be very tempted to raise rates in November but, in my view, will hold the rate at the current level until 20th of December.

Money Market fund managers (10/2018) £ weighted average maturity (WAM) is > 45 days (next BOE meeting 1/11/18) so market does not expect a rate increase.

Europe: 

  • EU: Inflation back up to 2.1% (2 % in August), unemployment down to 8.1%, (lowest since 2008) Euro zone PMI down to 53.2% but annual growth still expected to be around 1.5%.
  • Italy: From red to green and then back to red. Where is the budget going to go? The market is hoping for a quick resolution but in the meantime Italian 10 Year bonds are under pressure.
  • Germany: Inflation up to 2.2%, purchasing manager index (PMI) up to 55.9% and Growth on target to reach 2% in 2018.
  • Emerging markets are affected by the strength of the $ and increase rates combined with rise of oil prices but Brazil is the winner with investors supporting the expected political change. 
  • USA: 2 different stories:
    • Economic: The US economy is firing on 8 cylinders with: Growth to reach > 3% in 2018, (4.2% in the second quarter). Unemployment rate fell to 3.7% and is benefitting from this strong economy but Inflation is rising above the FED 2% target and so is wage growth.
    • Political: This is where we have problems and the US November midterms will be a serious test on the President’s policies and actions.

To watch

Like it or not, Brexit is definitely impacting Europe on its policy, political and economic fronts. US economy is very strong and maybe even overheating, but its President is engaged in a number of political and social crises which could affect all of us. US Interest rates, wages and inflation are rising and government debts are getting more expensive with Emerging markets being the first collateral victims. In this context of rising rates and rising equity indexes something has to give away and I will expect a solid equity correction. 



Topical Issues


BOE Rate LIBOR £ 3m FTSE Yield Gold Volatility
Last Month Today Last Month Today Last Month Today Today Today
 .75% .75%   .80% .80%   4.15% 4.21%  1200   14.82%
Updated on 08/10/2018

Interest rates and markets:

arrow  BOE: On one hand, we have inflation pressure and wage growth, which should translate into another rate increase, but on the other hand, we have a tense political situation and Brexit issues with 3 month Libor at .80%. We do not expect a rate increase at the next meeting in November 1st 2018. 

arrow  Fed: As expected, we had a rate increase at the September meeting. Current federal fund rate ranges from 2.00% to 2.25%. Next FOMC meeting is on the 7th and 8th November but the important one is 18th and 19th December with Economic data.

3 months $ Libor up to 2.408%. Today’s slope 3 months versus 10 years treasury up to 0.97 %, 2-year treasury up to 2.889% while the 10-year treasury after breaking the important 3% level is now up to 3.233% and rising. So, with unemployment down, inflation and wages up, the US economy needs to be controlled further. We expect a .25% rate increase at the December meeting.

arrow  ECB: Next ECB monetary policy meeting is 25th October. Although, rising inflation at 2.1%, above the 2% target and slower growth, we do not expect a rate increase in October 2018.

arrow  Equity: Markets, which are worried about rising interest rates and Volatility up to 14.82%, are suffering losses. It is worth noting that YTD, all of the major indexes, except FTSE 100, are still showing positive returns. As mentioned, we should be cautious and Cash could be a prudent strategy while expected corrections are happening. 

  • UK & Europe: CAC 40 at 5,359 down 1.0 % but still 9% up YTD. FTSE 100 at 7,318 down 1.3% and 4.8% YTD.
  • USA: Dow jones down 0.7% at 26,447 but still 7.0 % up YTD and S&P down .8% to 2,885 and 7.9% up YTD.

arrow  Currency/Commodities

$/£ at 1.30 down 0.2% and 3.9% YTD.  An inverse push with strong $ but Brexit issues. Any good news on Brexit will help the £.

€/$ at 1.15 a combination of a strong $ supported by higher rates and strong economy and a weaker  mostly driven by the Italian budget issue.

£/€ at 1.13: down 0.3% but up 0.2% YTD. Any good news on Brexit and or the Irish issue will see £ trading higher.

Gold at 1200: mostly unchanged but down 8.0% YTD. This could change quickly if we see a financial market down adjustment.

Brent crude oil at $84.16: down .5% but up 32.2% YTD



About Banks: August/September 2018

  • RBS has begun discussions with BOE for share buyback
  • HSBC investment bank strategy under the spot light with performance described as “Appalling”
  • Goldman Sachs has now opened Its UK bank, Marcus, which will offer 1.5% return on £ deposits, one of the highest in the market.
  • Tesco bank was fined £16.4M by FCA over recent cyber attack
  • German digital bank N26 opens to UK customer and will offer current accounts & credit card facilities.
  • Standard chartered faces a $1.5Bn Iran fine
  • Danske bank caught in a Euro 200Bn money laundering scandal
  • UBS is in court in France for tax evasion and could be fined Euro 5Bn


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Yann Gindre

Deputy Chairman

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