Saturday 29th November 2014
NEWS TICKER: FRIDAY NOVEMBER 27TH 2014: BofA Merrill Lynch Global Research’s latest report shows that investment flows this week starkly highlight the impact of negative interest rates in Europe. Money is moving up the value chain in search of substitute asset classes with suitable yield. Investment grade credit looks to be the greatest beneficiary of this at present, with inflows reaching $2-$3bn a week over the last month, a historic high. With around €450bn European govies trading at negative yields, investors have started shifting their attention to high-grade bond funds. The bank’s research team expects the recent strong trend of inflows to continue next year, with inflows to increase to $100bn into the asset class. So far this year high-grade credit has seen $63bn of inflows, while government bond funds have seen only $17bn. The low or negative yielding asset classes are all seeing outflows, reports Bank of America Merrill Lynch in the report. Government bond funds saw their fifth week of outflows, while money market funds saw their largest outflow ($19.5bn) since May this year. Flows into equities managed to bounce back to the positive territory, after three weeks of outflows - According to SwissQuote, in Switzerland, traders will be watching Swiss Kof leading indicator, which is expected to rise from 99.8 to 100.0 in November. However, the real focus will be referenda results this Sunday. The outcome should be released around 4pm CET on Sunday. The latest polls suggest that the “no” votes have the majority indicating that spillover into EURCHF and Gold should be limited. Elsewhere, Euro area flash HICP inflation is expected to drop from 0.4% y/y in October to 0.3% y/y in November. Swedish GDP growth is anticipated to weaken from 0.7% q/q in Q2 to 0.2% q/q in Q3. While OPEC decision not to cut will clearly be disappointing to Canadian policy makers, today GDP is expected to ease from 3.6% y/y to 2.1% y/y in Q3 - New research conducted by independent financial researcher Defaqto on behalf of NOW:Pensions reveals that advisers are gearing themselves up for the business opportunity that auto enrolment presents. Nine out of ten (88%) advisers who are currently advising small and medium sized companies on auto enrolment plan to continue doing so in 2015 when micro businesses will begin staging. Over half of the advisers surveyed (51%) think that auto enrolment represents a good opportunity for them to grow their business over the long term, with three quarters (76%) seeing it as a chance to both advise existing clients as well as grow a new client base. Over two in three (68%) advisers expect to be providing employers with advice on selecting a pension provider, while 72% expect to be advising them for the staging date, and 78% expect their services to be required on an ongoing basis after the staging date has passed. Seven out of ten (73%) believe they will need to advise on other corporate issues such as business protection insurance. Neil Liversidge, managing director, West Riding Personal Finance Solutions explains: "The need for help and advice around auto enrolment naturally brings together business owners, their employees, and advisers. As such it probably represents the single greatest opportunity most firms will have to generate new clients this decade." Not all advisers are in agreement, as nearly one in five (17%) of the 244 advisers questioned, do not intend to advise small and micro businesses on auto enrolment next year. Of these advisers, over half (55%) say they don’t think it will offer profitable business, while 28% believe there is too much admin involved, and 25% are deterred by how much time it will take. One in ten (10%) don’t believe they have the right knowledge to advise on it. Additionally, two in three (66%) advisers say that from their experience so far, employers are either not that engaged or not engaged at all with auto enrolment, while the same can be said for 83% of employees - Germany’s KfW IPEX-Bank and Africa Finance Corporation (AFC) have signed a Framework Financing Agreement (Basic Agreement) amounting to $300m. The facility will be accessible to infrastructure projects in Africa, developed by AFC, by providing long-term financing of European equipment and services imported for such projects. The basic agreement helps to address Africa’s infrastructure development needs while also supporting German and European exporters. Projects that will be financed under the agreement will be covered by guarantees from European Export Credit Agencies (ECAs) - A new active ETF issued by PIMCO Fixed Income Source ETFS plc has begun trading in the XTF segment on Xetra today. The ETF is the PIMCO Low Duration Euro Corporate Bond Source UCITS ETF Asset class, an active bond index ETF (ISIN: IE00BP9F2J32), with a total expense ratio of 0.3%. According to PIMCO, at least 90% of the investment portfolio underlying the active ETF consists of investment grade corporate bonds issued in euro. Up to 20% of the fund assets can be invested in the emerging markets region. The currency risk may amount to up to 10% due to corporate bonds not denominated in euro. The average duration ranges from zero to four years - Legal & General (L&G) has announced a restructure across its L&G Assurance Society (LGAS) division following the announcement of the impending departure of chief executive John Pollock next year. L&G’s savings business will be split into two businesses; mature and digital. Jackie Noakes, chief operating officer for LGAS and group IT director will become the managing director of the mature savings division (including insured savings and with-profit businesses). Mike Bury, managing director of retail savings at L&G will manage the digital savings arm, Cofunds, IPS, Suffolk Life and L&G’s upcoming direct-to-consumer platform –Orangefield Group has purchased Guernsey-based Legis Fund Services, expanding its fund services division and increasing its total assets under administration to more than $50bn. Legis will change its name to Orangefield Fund Services but will continue to be led by managing director Patricia White. The acquisition is part of a trend in mergers and acquisitions in the offshore fund administration sector, and was advised by Carey Olson. Carey Olson also recently advised Anson Group on the sale of its fund administration business to JTC Group and First Names Group on its acquisition of fund management business Mercator - The Straits Times Index (STI) ended +9.54 points higher or +0.29% to 3350.50, taking the year-to-date performance to +5.86%. The FTSE ST Mid Cap Index gained +0.14% while the FTSE ST Small Cap Index declined -0.52%. The top active stocks were Keppel Corp (-2.17%), DBS (+0.66%), OCBC Bank (-0.10%), UOB (+0.71%) and SingTel (unchanged). Outperforming sectors today were represented by the FTSE ST Technology Index (+1.03%). The two biggest stocks of the FTSE ST Technology Index are Silverlake Axis (+1.97%) and STATS ChipPAC (unchanged). The underperforming sector was the FTSE ST Oil & Gas Index, which declined -2.84% with Keppel Corp’s share price declining -2.17% and Sembcorp Industries’ share price declining-1.08%. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (+0.38%), SPDR Gold Shares (-0.70%), STI ETF (unchanged). The three most active Real Estate Investment Trusts (REITs) by value were CapitaCom Trust (+0.30%), Suntec REIT (+1.29%), Ascendas REIT (+1.30%). The most active index warrants by value today were HSI24400MBeCW141230 (-6.67%), HSI23800MBeCW141230 (-5.13%), HSI23600MBePW141230 (+2.50%). The most active stock warrants by value today were DBS MB eCW150602 (+2.42%), KepCorp MBePW150330 (+13.85%), UOB MB eCW150415 (+1.24%).

The push and pull of willpower & politics

Friday, 25 May 2012
The push and pull of willpower & politics June will be a battle between political will and economics. While European leaders continue to insist that they want Greece to remain in the eurozone, they are continually being reminded of the economic reality that a break-up of the single currency is almost certain. What is becoming more apparent day by day is that the markets will simply not allow the likes of Greece to have their cake and eat it without paying for it too. Whether Europe’s politicians will listen to those market siren calls for change has yet to be determined. http://www.ftseglobalmarkets.com/

June will be a battle between political will and economics. While European leaders continue to insist that they want Greece to remain in the eurozone, they are continually being reminded of the economic reality that a break-up of the single currency is almost certain. What is becoming more apparent day by day is that the markets will simply not allow the likes of Greece to have their cake and eat it without paying for it too. Whether Europe’s politicians will listen to those market siren calls for change has yet to be determined.

If the Germans and French remain reluctant to put their money in the pockets by either using the ECB’s potential firepower or create a special eurobond then they could themselves become the very nemesis of the single currency that they tell us they are so desperate to keep. Even so, risk aversion continues to whittle down the markets; at the time of writing the index is at 5380, down some 25 points. Traders are watching term support trends at 5335, 5300 and 5275; hopeful bulls out there will be looking for resistance at 5490, 5615/45. This near term downward trend sees the index capped by a downward trend line that also puts some resistance at 5450. Over the longer term now that the index has broken below its 200 day moving average and its upward trend line a close below 5400 could been seen as very negative and we’re now in the ­territory of people not wanting to catch a falling knife.

While immediate market focus will remain on Europe and its affect on the macro picture, there are a couple of important pieces of data that UK investors should note. First, following a surprising improvement in April, unemployment numbers are likely to show a weakening labour market.  There’s little in the way of encouraging data from the UK at the moment, but last month’s data was the first ­indication that unemployment is ­starting to peak. Job creation has come largely from part time rather than ­permanent work and the tick downwards to 8.3% in the rate of unemployment is expected to rise back to 8.4%. Second, it will be interesting to see whether the upcoming Bank of England’s inflation report will encourage the central bank to stick to their hawkish guns or whether the ­confirmation of the double dip recession and a further downgrading of growth projections will result in a more dove-ish tone.



Other European indicators are not great either: Italian ten year yields have crossed back above 6% and for Spain back above 6.5%, meanwhile risk adverse investors piled into German bunds driving their cost of borrowing even lower. This is classic fear gripping the markets once again as the vicissitudes of 2012 look to be playing out in a very similar fashion to 2011. Financial markets detest uncertainty and at the moment they are riddled with them since Greece has been unable to form a government and has had to call for a new round of  elections on 17th June. Up until that point we can expect volatility to remain high and continued pressure to the downside.

The euro made a low of $1.2720 as the situation in Greece continues to deteriorate. Bears sold the single ­currency heavily after socialist leader Evangelos Venizelos announced that talks to form a coalition government had failed and that the public would have to go back to the polls next month. Gold continued to fall as traders dumped risky assets and piled into the safety of the US dollar. Spot gold traded as low as $1541 an ounce.  With little technical support seen until $1531 and no turn around in Greece on the horizon, the down trend looks set to stay firmly in place.

On top of all the European woes there’s also the growing concern that China is slowing down quicker than was previously thought. Add any downturn to the euro crisis and it has negative connotations for global growth.

As ever, ladies and gentlemen, place your bets...

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