|Interest rates and markets:
BOE: As expected, there was no rate increase in November down to political decisions rather than economical ones. However, with 3-month Libor rising to .85% we do expect a rate increase at the next meeting on 20thDecember 2018.
Fed: To little surprise, there was no rate increase on the 7th and 8th November but all focus is now on the 18th and 19th December FOMC meeting.
3-months $ Libor now at 2.62%. Today’s slope: 3-months versus 10-year treasury around 0.90%, 2-year treasury up to 2.928% while the 10-year treasury remains above 3% level to 3.184% and rising. So, with unemployment down, inflation and wages up and a flattening yield curve, the Fed is likely to continue its tightening policy. We expect a .25% rate increase at the December meeting.
ECB: Next ECB monetary policy meeting is on the 13th December. Although ECB is unlikely to change its policy by the end of 2018, we now anticipate a change in 2019. However, we do not expect a rate increase in December 2018.
Equity: As expected, Equity Markets saw a strong correction due to rising interest rates and Volatility up to 17.36% (up 57% YTD). All the major indexes have been affected with the FTSE 100 and the CAC 40, YTD. Now in negative territory and both the Dow Jones and S&P down, albeit still yielding positive returns YTD. As mentioned, Cashdeposits remain a prudent strategy.
- UK & Europe: CAC 40 at 5,106 down 0.5% and 3.9% down YTD. FTSE 100 at 7,105 down 0.5% and 7.6%YTD.
- USA: Dow jones down 0.8% at 25,989 but still 5.1 % up YTD and S&P down 0.9% to 2,781 but still 4% up YTD.
$/£ at 1.31 up 0.9% but down 3.1% YTD. There is a growing demand for £ put (bearish bet) indicating that investors are worried about Brexit’s outcome and are now expecting a deeper drop in Sterling. Any good news on Brexit will help the £.
€/$ at 1.15, which could drop to 1.13, for the first time since June 2017, due to the standoff between Rome and Brussels and an expected widening of the yield spread between Italian and German government bonds. Any concession by the Italian government will reverse this decline.
£/€ at 1.15: up 0.4% and 2.1% YTD. Mostly down to the € and its issues over Italy’s budget. Unlikely for the moment, but Sterling could rise depending on any good news regarding BREXIT.
Gold at 1208: weaker and down 7.5% YTD. Gold is still in a bearish trend and could dip below 1,200.