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Hot in the News
Brexit: “If you are going through hell, keep going.” On the outside, we have France President Macron now keen to keep ties across la Manche “as close as possible” and the EU prepared to offer the UK an unprecedented deal. But on the inside, we have the ex-Foreign secretary launching a scathing attack on the PM, and Tory rebels are taking a stand against the PM’s Chequers strategy. Despite all this, the PM keeps going but it is getting tougher by the day and as we said before, this isn’t great for the UK economy.
UK economy:Despite a pick-up in Growth in the second quarter, the Bank of England’s annual target of 1.7% is unlikely to be achieved and will probably end up around 1.3%: Inflation held steady at around 2.3% but is still above the 2% target and will be affected by the weakening of the Sterling: Unemployment dropped to 4.0%, a low not seen since 1975. But Wage growth dropped to 2.4%.
Despite inflation above target and low unemployment, the Brexit uncertainty and Sterling weakness is leaving the BOE unlikely to raise their rate in September 2018, particularly after the last increase.
Money Market fund managers (28/08/2018) Sterling weighted average maturity (WAM) is around 40 days (next BOE meeting - 14/09/2018) so the market does not expect a rate increase.
EU:Inflationisat 2% (2.1% in July) and unemployment at 8.2%, the lowest since 2008. Euro zone PMI came at 54.6%, but growth to 1.5% annualised in Q2
France. Inflation is up 2.6% and the PMI index rose to 53.7% while unemployment came in at 9.1% and second quarter growth is down to 0.2% leading to annual potential growth of around 1.7%
Germanyrecorded a record budget surplus and ratio of public debt to GDP could fall to 60% from 64% last year.
Purchasing manager index (PMI)was up to 55.9%. Growth up to 0.5% for the second quarter from 0.4% in the first quarter. Unemployment is down to 3.4% with Inflation unchanged at 2%.
Italy:The government is on a collision course over its fiscal plans and the Fitch rating agency revised Italy’s debt outlook to negative. Italy still need to raise 63Bn before year end!
Turkey: have seen a 50% depreciation of its currency since last year, impacting other Emerging markets.
On the economic front: Rapid growth at 4.2% in the second quarter and promising July and August reports suggests that consumption remains strong and the economy is on track to achieve a 3% + annual growth. Unemployment at 3.9% is benefiting from this strong economy and Inflation is stable at 2.9%.
Updated on 03/09/2018
Interest rates and markets:
BOE: Following the recent rate increase, the Bank of England is likely to monitor the economic situation, the current stages of Brexit negotiations and coupled with 3-month Libor at .81%. Wedo notexpect a rate increase at the next meeting in September 13th2018.
Fed: Current federal fund rate ranges from 1.75% to 2% NextFOMC meeting 25thand 26thof September.The 3 months $ Libor is at 2.32%. Today’s slope 3 months versus 10 years treasury is down to 0.75 %, 2-year treasury slightly down to 2.629% while the 10-year treasury is down to 2.86%. After no rate increase in August, we still have a strong hawkish Fed and with inflation at 2.9% well above the 2% target and despite a President against rate increases, weexpecta .25% rate increase at the September meeting and still expect two further rate increases before year end.
ECB:Next ECB monetary policy meeting is 13thof September. Slow rising inflationand slower growth are slowly changing the economic situation. Nevertheless, wedo notexpect a rate increase in September 2018.
Equity: Markets are reacting negatively to new actions in the China/ US trade war.
Volatility up to 12.86 %: Could this volatility spike indicate a disappointing September month based on a growing list of global worries?
UK & Europe: CAC 40 at 5,406 down 1.3% but still 1.86% up YTD. FTSE 100 at 7,432 down 1.1% and 3.3% YTD.
USA: Dow jones down 0.1% at 25,964 but 5% up YTD and S&P flat at 2,901 and 8.5% up YTD.
$/£ at 1.30down 3.7%YTD.Sterling is struggling after European Union Brexit negotiator reversed recent goodwill rhetoric.
€/$ at 1.1616but could fall depending on Italy’s budget news and a yield widening between Italian and German bonds.
£/€ at 1.11: down 0.9% YTD mostly reflects Brexit concerns.
Gold at 1200: mostly unchanged but down 8.1% YTD. We could still see a corrective rally in the short run.
About Banks - August/September 2018
Goldman Sachsto tempt UK savers with Marcus account, which will offer high yield saving rates….
Starlingdigital bank is to raise new capital with Bahamas hedge fund investor committed to provide support. The bank reported a £11m loss in its first year of operations.
TSB Chief Executive Paul Pester steps down after the bank still struggles to recover from a big IT system failure.
OneSaving Bankreported a £92M profit for the first half, up 17% year on year.
Big UK banksto go back into wealth management activities after years of restructuring and regulatory issues. First to move was Santander group.
HSBC is launching a digital banking project specifically for SMEs and small businesses, in response to other digital start-up competitors.
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.