Morning Call

At the end of last week the Yuan weakened to the lowest level in 2 years. On Saturday the Peoples Bank of China surprised markets and cut the lending and deposits rates, for the second time in 4 months. The move is an attempt to ease monetary policy to fuel further growth. Following the move, miners got a lift as traders expect Chinas expansion to increase their demand. The Australian dollar also was buoyed, as a major trading partner of China, and a key exporter of commodities.…

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Over the last few decades Chinese growth figures have been the envy of central banks around the globe. The back-to-back years of double digit GDP have now slowed to “only” around 7%. Recent macro data from China has disappointed markets, with the indicators pointing to a further slowdown in economic growth. The expansion has been coupled with inflation, however data released in January reported a 5 year low. On the 4 February the PBOC attempted to stave off a further slowdo…

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Macro Outlook UK General election A major potential risk for Sterling over the short to mid-term is the potential of an inconclusive majority in government with the coalition discussions being drawn out. The recent polls for the election don’t show a conclusive majority for either of the major political parties, with one of the minor parties expected to be the maker of any coalition leadership. Bank of England rate hike The market has priced in a rate hike for Q…

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The FTSE 100 is edging closer to its all-time record high reached on the final day of trading in 1999 at the height of the tech bubble. The components of the index are heavily weighted by financial and commodity companies that have had significant declines over the last 15 years. The index is isn’t a proxy for the growth of the UK economy due to the high percentage of global exposure from earnings for the components. FTSE 100 currently trading 6910, the record intra-day high is 6…

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Greece is currently in final talks with Eurozone finance ministers regarding the countries impending bailout. If no agreement is met, then ultimately Greece would be unable to make its debt repayments and default on its obligations. This would then set a painful set of events, as Greece leaves the single currency, with measures such as currency controls. The Euro wasn’t developed with an exit plan built in, so the move would have disastrous effects for the Mediterranean country.…

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The Bank of England minutes for 4 and 5 February headline announcements were as expected, the MPC voted unanimously (9-0) to leave interest rates and quantitative easing unchanged. The current ultra-loose monetary policy is interest rates at the record low of 0.50% and asset purchases (QE) at £375bn. The ONS released the ILO Unemployment for February with the rate dropping to 5.7% below expectations of 5.8%. The UK claimant count fell to 823,000 in January, lowest since May 2008,…

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The latest inflation data released from the ONS shows is the lowest in 25 years, well below the Bank of England’s target of 2%. During the height of the economic crisis, inflation continually overshot the central bank’s target at a time of austerity and increases in unemployment. Wage stagnation and high inflation led to a squeeze on wage growth and played its part in a slow economic recovery. When inflation overshoots targets the normal practice is to raise interest rates…

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The Greek people elected a new government to power on the 25th January; Syriza are an anti-austerity party led by Alexis Tsipras. They were elected as the people have suffered through the stringent austerity measures dictated under international bailout agreements. Without an end insight and significant economic improvement the Greek people have voted for change. Greece’s financial stability and future EU membership is in question, as Tsipras attempts to negotiate alternatives,…

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The UK property market (especially London) is regularly cited in the press as having overheated, with the disparity between income growth and prices growing exponentially. Following the financial crisis prices have pushed higher with double digit year-on-year growth in certain regions. Inflows of hot money from Russia, China (HK), Ukraine and peripheral European countries have led the growth in prime locations. Buy to let investments provide a relatively stable yield alongside the expectatio…

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The Peoples Bank of China, made an unscheduled announcement to cut the reserve requirement ratio (RRR) by 50bps to 19.5%. The announcement follows a wave of central banks cuts in January, in an attempt to fuel growth. The PBoC cut reduces the amount of cash banks are required to hold in reserve, in an attempt to stimulate the economy, or at least keep the economy stable. Concerns from analysts that the Chinese growth levels fuelled by credit were unsustainable have been noted continuou…

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Andy Haldane, the Bank of England’s Chief Economist and member of the MPC spoke with a regional newspaper on Wednesday while touring North Wales and speaking with business.. He was quoted as saying to theDaily Post“We are in no rush to raise rates, the recovery is taking hold nicely, the last thing we want to do is knock the stuffing out of that.”Comments like this do confuse the market, with the current consensus for a Q1/2 2015. He continued on to say “People…

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The estimate for UK Q4 GDP missed expectations, with a slightly softer reading of 0.5%, versus the median expectation of 0.6%. The economic growth for the UK economy has become sluggish, during the worst period of the economic crisis, GDP contracted by 6.0% (Q1 2008 - Q2 2009). In the last MPC minutes Weale and McCafferty were shown to have changed their stance, and voted to leave interest rates unchanged in a 9-0 consensus. The latest economic data gives the MPC members time to consid…

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On Thursday ECB President Draghi announced his “Big Bazooka” the ECB quantitative easing programme (QE). The central bank announced a slightly larger bond-buying programme of €60 billion per month into 2016. This is a significant amount of “money printing” which is an attempt to stimulate growth within the Eurozone. The announcement had been widely priced in following tactical leaks to the press prior to the event. EURUSD Since March 2014 the Euro aga…

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The European Central Bank (ECB) is expected to announce quantitative easing (QE) at their policy meeting in Frankfurt. The market expectation is for an injection into the economy of €1 trillion into the Eurozone, therefore this belief is priced into the current market prices. The Euro has weakened, and Gold has been bid in recent days, however yesterday on the source (WSJ )that the ECB would buy roughly €50 billion of bonds per month, the Euro rallied and Gold softened. Traders att…

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The Bank of England released the minutes for their meeting held on 7 and 8 January 2015. At recent meetings two members voting for an increase of in interest and a 9 – 0 vote for leaving asset purchases unchanged. Current policy; Interest rates: 0.5% Asset purchases (QE): £375bn Last month’s inflation rate for the UK at 0.5% the joint lowest reading on record seems to have been the leaning factor for McCatherty and Weale to switch their votes. Infla…

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