Tag Archives: market outlook

Last week, the US GDP growth figure for Q3 came in lower than expected, while prices moved higher than anticipated and the US Employment Cost Index update rose at its fastest pace in 31 years. The headline increase was driven by the biggest surge in wages since 1982, up 1.5% in the third quarter. Substantial productivity gains would be required now to offset this rise in wages. Without gains in productivity and/or a fall in labour costs, there could be a risk to...

China’s high-yield bond crisis continued last week, with yields on the ICE BofA index of Chinese high-yield US dollar bonds moving above 18% at one stage last week, the highest level in a decade. Further nervousness was caused by one real-estate issuer’s decision not to reimburse USD200 mn of offshore bonds–despite having USD4 bn in cash on its balance sheet. This suggests the company in question favours domestic investors and its own cash needs over its offshore...

As expected, last week the European Central Bank hinted at a “moderate” reduction of the bond buying it undertakes as part of its Pandemic Emergency Purchase Programme (PEPP). But ECB president Christine Lagarde refrained from providing a precise timeline and she was adamant that a reduction in PEPP purchases did not mean the ECB would tighten financing conditions. Indeed, the ECB could well compensate smaller PEPP purchases by beefing up its regular asset...

The CIO's view of the week ahead.Mario Draghi has now done (nearly) all that it takes to support the euro area economy. With only weeks left in his term as ECB president, Draghi deployed almost all that remains in the central bank’s toolkit. Following last Thursday’s meeting, he confirmed not only the expected interest rate cut, but also the relaunch of the quantitative easing (QE) bond-buying programme. He fell short of lifting issuer limits, which markets took negatively. Christine...

The CIO's view of the week ahead.Last week’s ousting of Matteo Salvini’s Lega from the Italian government and its replacement by the centre-left Democratic party holds out the prospect of much less-heated budgetary discussions between Rome and Brussels this autumn and lessens the risk that Italy’s sovereign rating will be cut by Moody’s this week. Helped also by the prospect of a substantial stimulus package from the European Central Bank, Italian bond yields and yield spreads sank last week...

The CIO's view of the week ahead.Last week’s ousting of Matteo Salvini’s Lega from the Italian government and its replacement by the centre-left Democratic party holds out the prospect of much less-heated budgetary discussions between Rome and Brussels this autumn and lessens the risk that Italy’s sovereign rating will be cut by Moody’s this week. Helped also by the prospect of a substantial stimulus package from the European Central Bank, Italian bond yields and yield spreads sank last week...

The CIO's view of the week ahead.Last week was so full of market-moving news that ordinarily major events took the backseat. Critically, trade tensions escalated rapidly from Friday, with China announcing tariff retaliations of the order of between 5% and 10% on USD 75bn of US imports from September. Trump took to Twitter in turn, raising both current and planned tariffs to 30% on USD 250bn and 15% on USD 300bn worth of Chinese imports. This puts an already fragile global economy in greater...

The CIO Office's view of the week ahead.The knock-on effects of Trump’s tweets have jumped from the equity and bond markets to the economy to central banks and now currency markets. Indeed, the trade war turned tech war now increasingly resembles a currency war and a race to the bottom. The Chinese currency depreciated below CNY 7/USD after the Chinese authorities seemingly let the currency weaken on the back of Trump’s latest tariffs announcement, earning them the ‘currency manipulator’...

The CIO Office's view of the week ahead.After a brief lull, Trump renewed escalating trade tensions with China by threatening new tariffs on USD 300bn of Chinese imports to the US. A global sell-off ensued and the Chinese authorities now appear less inclined to resist renminbi weakness relative to the dollar, having allowed the renminbi to break the CNY7/USD “psychological threshold”. Unsurprisingly, exporter-heavy indices were hit particularly hard in equities, as investors fled to safety,...

The CIO Office's view of the week ahead.The headline event at last week’s G20 summit in Osaka was the bilateral meeting between the Chinese and US presidents to discuss trade. After their last meeting ended in a stalemate, the world waited to see who would be first to blink. The rather anticlimactic outcome was that both sides have agreed not to add any new tariffs for now. The only real positive news is that Trump agreed to a partial lift on the Huawei ban, although without any clarity on...