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Growth is slowing down in Europe, China and event the USA where we saw for the first time since 2007, an inverted yield curve. The 10 year treasury is now lower than 3 months. What a change!
Nothing to add to this amazing confusion. Now we have to wait and see what happens and what is decided over the coming weeks. The continuous change in direction is not good for the market and only benefits punters that plays the volatility. Overall, it is a difficult situation for the UK, SMEs, exporters and the economy.
Relating to the UK economy from November for 3 months until January 2019,growth was up by only 0.2% but 2019 forecasts are currently down to 1.2% (was 1.7%). February Inflation (CPI) was back up to 1.9% and unemployment decreased to 3.9%, which is its lowest level since 1974/75. Meanwhile, annual wage growth remained stable at 3.4%and that explains the slight rise in inflation.
To summarise, UK growth is more or less in the middle of the G7 countries pack, but everything is impacted by the Brexit negotiations and economic predictions are almost impossible, until the market has a better vision. Financial markets including GBP will remain volatile.
Money Market fund managers (25/03/2019) GBP weighted average maturity (WAM) is about 47 days (next BoE meeting is on the 2/05/2019) so, the market is not really favouring a rate increase...yet.
Regarding the EU Zone (19), inflationwasup 1.6% in January and unemployment unchanged to 7.8% (the same as December's revised level) but the Euro Zone'sPMIhas decreased to 47.6% in March, which is the lowest in nearly 6 years. However, growth projections for 2019 revised, is substantially down to 1.1% (It was 1.7% in December and in the fourth quarter of 2018 it was confirmed at only 0.2%).
In Germany, the economy is losing momentum with expected growth for 2019 down to 0.8% from 1.5%. Inflation is also down to 1.5%in February leaving the Purchasing Manager Index (PMI) to plunge by 44.7%, the steepest pace of contraction since 2012.
The 2019 Economic data for the US, still indicates a reasonably robust economy but the signs are not good particularly with the inverted yield curve indicating a strong slowdown in economy, and/or even a potential recession. Annual growth after 3% in 2018 is now expected to be as low as 2.1% in 2019, and around 1.8% in 2020. Unemployment fell to 3.8% in February and wage growth rose by 4% in January, while Inflation was up 0.2% by month over month in February after a flat reading in January; t increased to 2.1% year over year in February slightly below market expectations of 2.2%.
Updated on 25/03/2019
Interest rates and markets:
Equity: Despite remaining in positive territory YTD, it was another dark day for equities across the board, as the losses from the US (S&P & NASDAQ) spread to Europe (FTSE, DAX 30 and CAC 40) and Asia (NIKKEI down 3% over the weekend) due to the fear of a potential recession. So, equity markets remain volatile and therefore cash is still a good strategy.
ECB: As expected there was no rate increase at the last ECB monetary policy meeting on 7th March 2019 and we do not anticipate a change of economic policy before the end of 2019. Moreover, the German 10-year bund is now in negative territory at -0.03% for first time since 2016 amid fears of a strong slowdown of the economy and/or even a risk of recession. However, we do not expect a rate increase on the 10th April 2019 meeting.
Fed: As expected, we had no rate increase on the 19th / 20th of March FOMC meeting. The 3 months Dollar Libor at 2.60% is down from 2.70%. Today’s slope 3 months versus 10 years treasury is now inverted at minus 0.02%. The 2 year treasury is down to 2.28% while the 10 year treasury is also down to 2.43% from 2.69%. An inverted yield curve, plus slowdown in growth are further signs of potential recession. We do not expect a rate increase at the 30th /1st May meeting despite a slight increase in inflation.
BoE: As expected there was no rate increase at the 21st march BoE meeting. Libor is down to 0.84% and inflation is back up to 1.9%, with stable wage growth. Brexit will continue to drive any economic decisions and we do not expect a rate increase at the next meeting in 2nd May. Furthermore, the 10 years gilt fell below 1% to a 30 months low.
UK & Europe: CAC 40 at 5,260, 11% up YTD. FTSE 100 at 7,177 up 7% YTD.
USA: Both Dow Jones and S&P are up YTD with the former, up 9% YTD at 25,502 and the latter up 11% YTD to 2,780.
With the US Dollar and the GBP at 1.318 YTD is up 3.6% . It reached 1.324 but fell back due to Brexit uncertainty. Any good news on Brexit will strengthen the GBP.
With the Euro and the US Dollar at 1.1340, the Euro has a stronger performance due to the better than expected German data and the US Dollar remains under pressure.
With the GBP and the Euro at 1.16, YTD is up 5% . The GBP lost ground to the Euro which was boosted by German data. Any good news on Brexit will strengthen the GBP.
With Gold at 1322, YTD is up 3% , and is really benefiting from its safe haven status due to global growth concerns.
About Banks - March 2019
Metro Bank is to improve governance and is the second most shorted company on the UK market.
OakNorth has more than tripled its profit in 2018 and was valued last month at $2.8bn.
Deutsche Bank and Commerzbank are currently in discussions about merging.
Standard Chartered is facing an investor rebellion about its chief executive's pay.
RBS is under pressure from small investors about governance.
JP Morgan to push 300 to leave the UK if there is a no-deal Brexit.
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.