Thursday 22nd June 2017
NEWS TICKER: June 22nd 2017: Accendo Markets reports that following yesterday’s sharp sell-off, crude oil prices have rallied from their lows as API inventory data shows a 2.7m barrel drop in US stockpiles. This slight reprieve has lifted both Brent and US benchmarks from the fresh 7-month lows traded yesterday ($45.50/$43 respectively), however support at former November lows looks tentative as sentiment remains under pressure. This afternoon’s US EIA Inventory data (3pm) will be highly anticipated as a key driver of sentiment through the rest of the week. Gold has also rallied from 5-week lows, despite the US dollar trading a 3-week high, as investors seek safe-havens amid the market sell-off and begin to price in a slower tightening cycle from the US Federal Reserve -- After the hammering oil prices got yesterday, probing 7-month lows and bear market territory (-20% from Jan highs), EFG Eurobank in Athens says Brent crude moved below $46bbl for the first time so far this year, initiating a bull flattening on the UST and the Bund yield curve. In FX markets, GBP remained under pressure as UK political uncertainty remains elevated with several news sources suggesting that Tories and Northern Ireland’s DUP are still yet to reach an agreement for the formation of a minority Conservative government. Focus today is on the Queen’s Speech (state opening of a new parliamentary session) where Queen Elizabeth II will read out the UK government’s new legislative programme -- According to a European Commission draft compliance report leaked to press, ESM loan disbursements up to the end (August 2018) of Greece’s 3rd Economic Adjustment Programme, will reportedly have allowed for the built-up of a cash buffer of around €9bn but, according to the report, this will not be adequate to regain the trust of investors without additional debt relief. The report concludes that “additional debt-mitigating measures” will be needed even under the baseline scenario -- Cyprus’s Public Debt Management Office (PDMO) sold on Tuesday an offered amount of €850mn of 7-year government bonds as part of its €9bn Euro Medium Term Note (EMTN) programme --John Crane Asset Management Solutions says has secured a three-year £3m contract to provide condition based maintenance services with a major operator in the UK North Sea - After three failed attempts, MSCI says it will add Chinese A-shares listed on the Shanghai and Shenzhen exchanges to its emerging-markets indices. Beginning in June 2018, the benchmarks will include data on the performance of 222 Chinese A-share large-cap stocks. Although only a symbolic event – insofar as its influence on near-term capital flows is concerned, symbolism matters for China’s retail-dominant market (via its impact on sentiment) and the Chinese leaders, who will see this as another milestone for financial liberalisation. Together with RMB’s inclusion in the Special Drawing Right (SDR) and future inclusion of China bonds in global fixed income indices, we think today’s MSCI move will help to accelerate China’s financial integration into the rest of the world. For global investors, while the inclusion will not trigger an immediate and wholesale change in their asset allocation, it will put Chinese equities on the map. Ignoring this market will become increasingly difficult, as Chinese assets are making their way into global benchmarks, explains Aidan Yao, senior emerging market Asia economist at AXA Investment Managers. Yao explains that the official inclusion will be carried out in two steps, coinciding with the index provider’s May and August 2018 index reviews. At the start, only 5% of A-shares’ full weight will be included, considering the daily trading capacity of the stock connects. However, if the trading limits are raised or abolished, the full inclusion could proceed more swiftly -- There are three big elephants in the Brexit negotiating room: one is the status of EU citizens in the UK and of UK citizens in Europe; the second has free trade or not tattooed on its side, while the third has the future of London as a global financial centre emblazoned on its forehead. All these issues are bubbling under the radar right now, but all are vitally significant mammals, if Brexit is to be a success. There is a distinct lack of clarity and purpose on the part of the UK government concerning all three and if everyone is waiting on that strong and stable leader Theresa May to come up with viable answers, they will have a long, long wait; and should an answer appear, it will be too late for anyone in the UK to do anything about it. Already, the Bank of England and European Central Bank have issued conflicting comments on where the hub for clearing euro-dominated interest-rate swaps should be after Brexit. BoE Governor Mark Carney warned that moving the business out of London could cause fragmentation and would be expensive for all users. Then again, an ECB statement appears to veto the possibility of clearing activities remaining outside the EU. But there are other existential threats to the City. As well, global banks will vote this week on an alternative to the London Interbank Offered Rate, while EU states are now deciding on which countries will host European regulatory agencies with authority over banking and medicines, now based in London, after Brexit. Meeting in Luxembourg, EU ministers failed to adopt criteria for selecting homes for the European Banking Authority and the European Medicines Agency; but the likelihood is that either France or Germany will end up with one or another; it’s a question of how to sell that to other European states anxious to develop their financial credentials – The European markets regulator ESMA says the deadline for the trading obligation, which will make certain counterparties move over-the-counter derivatives trading on to exchanges, will not be postponed; that might help London, should the City have the nous and can garner political support to have a more flexible OTC derivatives trading regime; let’s see –

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Key Stories from FTSE Global Markets

Latest Association of Investment Companies (AIC) data suggests that net fund raising over the year to date for the sector is a record £3.9bn, a higher total raised than in any whole calendar year in history.  The performance is in large part an effect of higher yielding companies in specialist sectors, as well as from Woodford Patient Capital, which raised £800m at launch and £30m subsequently through issuance activity.

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The National Association of Pension Funds’ (NAPF’s) third Annual General Meeting (AGM) Season Report suggests much more purposeful and effective engagement between companies and investors – but there remain a number of exceptions and this year’s report highlights three areas to note:12 companies within the FTSE 350 where shareholders have for a successive year expressed discontent with particular governance arrangements; the top five  FTSE 100 and top ten FTSE 250 shareholder rebellions on executive pay; and 17 companies in the FTSE 350 where re-election of individual directors drew shareholder dissent of more than 15%.

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Demand for transactional risk insurance continued to grow during the first half of 2015, with an overall increase of 15% year-on-year in terms of limits placed by Marsh. “The demand for transactional risk insurance on mergers and acquisitions (M&A) transactions continues to grow rapidly, as competition among acquirers continues to remain intense,” says Karen Beldy Torborg, global leader for Marsh’s Private Equity and M&A Services practice. “Dealmakers, both from the private equity and corporate space are increasingly using insurance capital to get deals over the line and we don’t see this trend subsiding anytime soon. This is true in the Americas, EMEA, and Asia-Pacific.”

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The long term favourable economic profiles of many emerging market (EM) countries are well documented. Emerging markets have delivered a ten year cumulative annual growth rate (CAGR) of 11.5% nominal GDP growth, compared with a 3.9% CAGR for the United States. What has not really been examined is the sub-segment of emerging market small caps, which remains less efficient than the large cap segment.

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Raiffeisen Bank International AG’s (RBI) Czech subsidiary, Raiffeisenbank has signed an agreement with Citibank Europe plc (Citi) today to purchase Citibank’s retail banking business and card businesses in the Czech Republic. the selling price and transaction details will not be disclosed. The transaction, which is still subject to customary and regulatory approval, is expected to close in the first quarter of 2016 and will have an insignificant effect on RBI’s capital ratio.

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