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Interest rates and markets:
- Interest rates: Libor is down to 0.80%, inflation is up to 2.1% with wage growth down to 3.1%. Despite higher inflation above the BoE's target (2%) & low unemployment, Brexit and a new election for a PM will force the BoE to keep the monetary policy steady and we do not expect a rate increase at the next meeting 20th June.
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Fed: For 3 months the USD Libor has been at 2.48, which is a decrease from 2.58%. Today’s slope for 3 months versus the 10 years treasury is inverted at minus 0.21%. The 2-year treasury is down to 1.875% from 2.31% & the 10-year treasury is down to 2.12% from 2.55%, this is more to do with a flattening of the curve and a reflection of the slowing economy due to US-China trade tensions. Although, an inverted yield curve is a sign of a potential recession, with only 13 days of inversion, it needs to be monitored over time to truly assess the situation. Although, we definitely do not expect a rate increase at the 18th -19th June meeting, the Fed might surprise all of us with a rate cut due to the rising economic risk posed by global trade tensions.
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ECB: With a soft PMI and eroding inflation, we still do not anticipate a change of economic policy before the end of 2019. For more information, the German 10-year bund is back in negative territory to minus 0.21%, this is a real flight to quality. We do not expect a rate increase on the 6th June 2019 monetary policy meeting.
- Equity: Although the first 4 months of 2019 shows strong equity performances, we are now witnessing stocks declining for 4 straight weeks. A combination of global trade tensions, the tense relationship between Eurosceptics and the EU and investors moving to lessen risks. Overall, the indexes remained in positive territory YTD but the US indexes are showing strong reductions. Volatility rose to 18.86%, only down 25% YTD (was down 37%).
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UK & Europe: CAC 40 at 5,241, 11% up YTD. FTSE 100 at 7,184 up 6.8% YTD.
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USA: Both Dow jones and S&P up YTD with the former up 6.4% YTD at 24,819 and the latter up 9.5% YTD to 2,744.
Currency:
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USD/GBP at 1.26 is down 0.9% YTD. The USD's weakness opposed to the UK's political situation and the recent strengthening of GBP has stopped until further developments. Any good news on Brexit or the political front will strengthen the GBP.
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Euro/USD at 1.1252 is down 1.87% YTD. However, the market is focusing on the US interest rates as it remains the key F/X driver
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GBP/Euro at 1.13 is up 1.6% YTD. A weaker USD is due to a potential risk of rate cuts in the US.
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Gold at 1320 is now up 1.8% YTD. It is benefiting from the global trade tensions and the fall in interest rate yield. Still a safe haven investment status.
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- Metro bank lost 16% in one day on the 2nd May as profit halves and customers start to worry, but it bounces back (5th June) as investors approved 92% the £375m capital raised.
- Lloyds Bank maintains stable results despite ongoing Brexit insecurity, which is claimed by other banks on their lower results.
- UBS investors revolt against the bank's performance after the €4.5bn fine for tax fraud.
- UK financial regulator clamps down on peer-to-peer investment
Contact our expert team for further market insights
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