UK ECONOMY LEANS ON CONSUMERS AS BREXIT DRAGS
ON BUSINESSES.
Britain’s economy only grew 1.4 percent in 2018, the weakest increase in
six years. Bank of England’s Governor,
Mark Carney, stated: “When the economy is reliant on consumers, growth becomes very one-dimensional.”
Bank of England has signaled not raising interest rates
allowing cheaper capital to circulate around the economy. The value of business investment lost in Britain’s economy since the June 2016 referendum is roughly 10 billion pounds. Business investment fell every quarter of 2018, the longest decline since the 2008 financial crisis. The
UK 10-year Gilt
increased two-basis points.
FTSE 100 -0.03%,
STOXX Europe 600
+0.14%,
CAC 40 +0.09%,
German DAX +0.18%.
TRADE NEGOTIATIONS between the EU and the United States will not be easy, “but both sides should benefit in the end,
German economy Minister Peter Altamaier
said on Monday." The goal is to reduce tariffs to zero and ultimately fend off a trade conflict. Negotiations will commence later this week and will continue for the upcoming months. Among European high-yield bonds showing a concurrence of top price gains at appreciable volumes traded,
Barclays PLC (USD) 4.375% 9/11/2024 made some analysts' 'Conviction Buy' lists. (See the chart for
Barclays PLC bonds
below).
Niral Mehta (
nmehta@advantagedata.com).
Sovereign-Debt Snapshot
| Country |
Maturity (Y) |
Yield (%) |
Previous (%) |
Spread (bp) |
| Australia |
10 |
1.893 |
1.869 |
-66.5 |
|
| Belgium |
10 |
0.495 |
0.434 |
-206.2 |
|
| France |
10 |
0.402 |
0.334 |
-215.5 |
|
| Germany |
10 |
0.059 |
-0.007 |
-249.9 |
|
| Italy |
10 |
2.395 |
2.372 |
-16.2 |
|
| Japan |
10 |
-0.048 |
-0.059 |
-260.5 |
|
| Netherlands |
10 |
0.134 |
0.073 |
-242.3 |
|
| Portugal |
10 |
1.169 |
1.130 |
-138.8 |
|
| Spain |
10 |
1.053 |
1.009 |
-150.4 |
|
| Sweden |
10 |
0.264 |
0.228 |
-229.3 |
|
| U.K. |
10 |
1.214 |
1.150 |
-134.3 |
|
| U.S. |
10 |
2.557 |
2.498 |
... |
Credit-Default Swap Market
LATEST NEWS:
Top moves, sovereign tighteners (5Y): Belgium 23 bp and Finland 12 bp. Sovereign wideners (5Y): France 27 bp and China 41 bp.
New Issuance
| New Issues |
New Issues [Continued] |
| 1. Basellandsch KTBK (CHF) 0.375% 5/13/2030 (04/15/2019):180MM Senior Unsecured Notes, Price at Issuance 100.865, Yielding .3%. |
|
ADI Indexes
DATA CHECK:
| iShares Core EUR UCITS |
iShares Euro High Yield UCITS |
| NAV as of 04/15/2019, 131.30 |
NAV as of 04/12/2019, 104.39 |
| Daily NAV Change (%) -0.02% |
Daily NAV Change (%) +0.05% |
OVERALL EUROPEAN CREDIT MARKET:
The euro-zone economy shows signs of positive momentum, although conditions are expected to deteriorate hindered by the termination of quantitative easing, weakening credit rating quality, and uncertainty regarding the outcome of Brexit. Closely watched indicators and rates:
- Eurostat's unemployment rate: currently 7.8% (seasonally adjusted, February 2019)
- Eurostat's quarterly GDP: 0.2% (2018 Q3 Final)
- 6-month Euribor: current value -0.232%, as of 04/12/2019
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GERMAN GOVERNMENT EXPECTS THE ECONOMY TO GROW BY 0.5 PERCENT THIS YEAR, LOWER THAN A RECENT ESTIMATE OF 0.8. German Finance Minister mentioned, “
The economy is losing momentum but still growing, with private consumption and state spending expecting to support overall growth this year.”
Unresolved trade disputes, Brexit uncertainty and a sluggish world economy have hit foreign demand and hurt manufacturers.
Stricter pollution standards are challenging the country’s car manufacturers, a critical component of their GDP. If
the slowdown worsens, it will put pressure on the ECB to provide more
stimulus for the Eurozone economy. The
UK 10-year Gilt
increased six-basis points.
FTSE 100 -0.14%,
STOXX Europe 600
+0.11%,
CAC 40 +0.33%,
German DAX +0.54%.
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EU GRANTS BRITAIN SIX MORE MONTHS TO LEAVE THE BLOC
EXTENDING THE DEADLINE INTO OCTOBER, ALTHOUGH, IT COULD HAPPEN QUICKER ACCORDING TO THERESA MAY.
“There is huge frustration from many people that I had to request this extension, but it was the logical thing to do,” stated Theresa May. German Chancellor, Merkel mentioned, “An orderly exit by Britain can be best ensured if we
prolong the duration of a deal.” The ECB will keep its monetary policy as accommodative as possible to ensure positive growth across the economy. The
ECB hinted they will leave interest rates unchanged amid trade tensions and uncertainty around
Brexit. The
UK 10-year Gilt
increased five-basis points.
FTSE 100 -0.09%,
STOXX Europe 600
+0.13%,
CAC 40 +0.83%,
German DAX +0.34%.
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EUROZONE’S GOVERNMENT BOND AND EQUITIES MARKETS RALLIED, WHILE THE EURO DECLINED AFTER THE ECB CHIEF MARIO DRAGHI WARNED THAT THE ECONOMY FACES MANY HEADWINDS. The ECB remains
dovish on the outlook for inflation as it sees further depreciation over the upcoming months.
Germany’s benchmark 10-year bond yield fell to a one-week low of minus 0.038 percent and the
French 10-year bond yields fell 3 bps, resulting in higher bond prices. The ECB and Bank of England have
implemented “swap-lines” in place to offer each other’s currencies in banks in their respective jurisdictions if money markets freeze up. European Union leaders
will
grant Prime Minister Theresa May a “second delay to Brexit at an emergency summit; timeframe and terms have not been disclosed.” The
UK 10-year Gilt
declined one-basis point.
FTSE 100 -0.03%,
STOXX Europe 600
+0.26%,
CAC 40 +0.26%,
German DAX +0.51%.
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“
UK ECONOMY TO LOSE 3.5 PERCENT OF GDP IN NO-DEAL BREXIT,” STATED THE IMF. The increase in trade barriers has a
detrimental
impact on UK foreign domestic demand. The
IMF downgraded
its
forecast for economic growth in Britain this year to 1.2 percent from a forecast of 1.5 percent, the weakest since 2009.
Britain could suffer a
loss of 2-3 years of positive GDP if it departs the EU without a deal. The downward revisions reflect the negative effect of
prolonged uncertainty about the Brexit outcome. BoE stated, “We are ready to take
a cautious, data-dependent approach
to monetary policy.” The
UK 10-year Gilt
declined one basis point.
FTSE 100 -0.35%,
STOXX Europe 600
-0.47%,
CAC 40 -0.65%,
German DAX -0.94%.
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WEAK TRADE DATA CASTING DOUBT ON GERMANY’S ECONOMIC
STRENGTH
. German exports and imports declined more than expected in February dropping by an aggregate of 1.3 percent
in February. German exporters are suffering from a
slowing world economy, trade disputes and Brexit angst.
The trade surplus edged up to
18.7 billion euros
from a
revised 18.6 billion euros the previous month. German industrial orders fell by the biggest margin in more than two years.
Brexit deadline is looming and a “no-deal Brexit makes no sense and is the worst possible solution,”
stated European Agriculture Commissioner, Phil Hogan. The
UK 10-year Gilt
declined one-tenth of a basis point.
FTSE 100 +0.07%,
STOXX Europe 600 -0.19%,
CAC 40 +0.38%,
German DAX -0.39%.
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UK HEADED FOR A DOWNTURN AS BREXIT WORRIES
NEGATIVELY
IMPACT SERVICES SECTOR. The PMI, a barometer of the economy’s health
tumbled to 48.9 in March from 51.3 in February, inducing the sterling to dip to $1.3156.
“A stalling of the economy in the first quarter will create further
stress on the second quarter unless demand revives suddenly, which seems highly improbable with
Brexit looming,” mentioned IHS Markit. “In a no-deal scenario, both the EU and the UK would face a challenge of protecting their single markets,” mentioned
European Commissioner, Pierre Moscovici. The UK 10-year Gilt
increased
seven basis points.
FTSE 100, +0.23%,
STOXX Europe 600 +0.
91%,
CAC 40 +0.76%,
German DAX +1.68%.
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BANK OF ENGLAND TO EXTEND BREXIT LIQUIDITY AUCTIONS
UNTIL END OF JUNE, providing smooth
market conditions given Britain leaves the European Union. “
The bank will continue to monitor growth
and market liquidity on a daily basis, and stands ready to take additional action if necessary.” The EU has placed a series of
contingency measures
to deal with a no-deal Brexit; including a
temporaryrecognition of Britain-based clearing houses which processes multi-trillion euro
derivatives transactions. The
euro fell below $1.12 as U.S. economic data outperforms expectations. The pound fell half a percent after lawmakers rejected four
Brexit proposals. The UK 10-year Gilt declined
four basis points.
FTSE 100, +1.08%,
STOXX Europe 600 +1.
68%,
CAC 40 +0.41%,
German DAX +0.77%.
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DEUTSCHE BANK TURNS BEARISH ON THE STERLING AS BREXIT
CHAOS DEEPENS. The
bank has raised its estimate for the chances of a no-deal
Brexit to 25 percent from 20 percent. Brexit uncertainty has cost the European Union
600 million pounds per week since the 2016 referendum. It has cost the world’s fifth largest economy nearly
2.5 percent of GDP, inducing larger economic output losses compared to other countries. Eurozone inflation
declined, adding to the pressure on the
ECB as it battles economic slowdown. Although—wages
are rising and employment is at a record high, consumer prices have repeatedly disappointed. “It is likely to remain well
below the ECB’s inflation target of close to 2 percent over the rest of the year." The UK 10-year Gilt increased
four basis points.
FTSE 100, +0.54%,
STOXX Europe 600 +1.
23%,
CAC 40 +1.06%,
German DAX +1.37%.
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BRITAIN AGREED WITH THE EU TO DELAY BREXIT FROM THE ORIGINALLY PLANNED MARCH 29 UNTIL APRIL 12. A
further delay is imminent until May 22 “if the withdrawal agreement is approved this week,” House of Commons Leader, Andrea Leadson. The
volatility of the crisis had led investors fatigued over uncertainty, creating an unstable market. Britain’s financial regulators have given
European Union banks,
insurers and asset managers ample time to prepare for a no-deal Brexit.
Trade in a host of countries will take a hit creating import and export barriers if there is no
transition deal in place. The UK 10-year Gilt decreased
one basis point.
FTSE 100, +0.50%,
STOXX Europe 600 +0.48%,
CAC 40 +0.83%,
German DAX +0.75%.
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