Monday 24th April 2017
NEWS TICKER, 24st April: HSBC has secured the advisory mandate for Saudi Aramco’s upcoming IPO, which is expected to be the benchmark deal of this deal, both in terms of pricing, demand and size of offering -- InfraCo Africa will contribute $1.65m to the financing of the 50-MWp Abiba Solar project in Nigeria -- Fiat Chrysler Automobiles UK Ltd has announced a major restructuring of its senior management team. The changes come with immediate effect. Alejandro Noriega has been appointed country manager, Fiat and Abarth, and will oversee retail sales and marketing for the two brands. Noriega was previously head of the Fiat Professional brand and his experience and track record in commercial vehicles equips him well to take on Fiat and Abarth. Richard Chamberlain is the new country manager, Fiat Professional, responsible for all business activities of FCA UK's award-winning commercial vehicle division. Richard joined FCA in November 2016 from Renault Trucks, and has experience at both OEM level and dealer retail, having also worked for Inchcape Mercedes as National Corporate Manager. Lee Titchner has been appointed Network Development Director, responsible for FCA dealers across the UK and Ireland. Lee moves from his previous role as head of FCA UK’s Mopar division to oversee the dealer network, where he is already well-regarded. Also, Sebastiano Fedrigo has been named as the new Mopar Service, Parts & Customer Care Director. Sebastiano previously headed up the Fiat and Abarth brands in the UK and Ireland, and will now leverage his considerable passenger car and commercial experience to grow Mopar, its products and its services, in this country. Previous country manager for Jeep/Alfa Romeo, Damien Dally, has moved to a role in FCA HQ, Turin. His replacement will be announced in due course -- MNI PINCH reports market pricing no chance of a 25bp rate hike at the next meeting on May 3rd, however the probability of a hike in June has risento 66% from 41.5% seen last Wednesday and in July, markets are pricing in a 70% chance of a hike, up from 50%. While the next full 25bp rate hike has been brought forward to September 2017 from Dec, according to MNI PINCH calculations - According to US GovInfoSecurity E news, new documents dumped online by the Shadow Brokers group have revealed apparent NSA programs designed to target SWIFT service bureaus in the Middle East, as well as a slew of exploits designed to infect Windows systems, patched last month by Microsoft – The US is gradually upping the stakes in its attempt to change the terms of trade with selected countries. In the latest salvo by the Trump administration, Secretary of Commerce Wilbur Ross has announced the initiation of a new antidumping duty (AD) investigation of imports of carton-closing staples from the People’s Republic of China. “The Department will act swiftly, while assuring a full and fair assessment of the facts, to ensure that everyone trades on a level playing field,” says Secretary Ross. “The Trump administration is committed to the enforcement of America’s vital trade laws that ensure US businesses and workers have a fair chance to compete.” The petitioner, North American Steel & Wire, Inc./ISM Enterprises, filed a petition seeking relief from the effects of dumped merchandise on the US industry on March 31st. More than 30 Chinese producers of carton-closing staples are identified in the petition. The estimated dumping margins range from 13.76% to 263.43%. In 2016, imports of carton-closing staples from China were valued at an estimated $73.2m -- Private equity-owned ING Life Insurance Korea says it has priced its IPO near the lower end of an indicative range to raise a total of $973.54million. It priced the IPO at 33,000 won per share, compared with an indicative range of 31,500 won to 40,000 won per share, ING Life said in a filing.

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Barring a Le Pen victory, can risk assets rally?

Friday, 21 April 2017
Barring a Le Pen victory, can risk assets rally? Mark Dowding, partner and co-head of Investment Grade Debt at BlueBay Asset Management writes that barring a victory by Marine Le Pen in the French presidential elections, risk assets should start to rally within the next five weeks. However, the sheer unpredictability of a four-horse race creates a real sense of uncertainty. http://www.ftseglobalmarkets.com/media/k2/items/cache/4724de989a3c8976824d0efc38b72042_XL.jpg

Mark Dowding, partner and co-head of Investment Grade Debt at BlueBay Asset Management writes that barring a victory by Marine Le Pen in the French presidential elections, risk assets should start to rally within the next five weeks. However, the sheer unpredictability of a four-horse race creates a real sense of uncertainty.

Risk assets should rally in the coming week in five out these six scenarios, with the danger being a Le Pen versus Melenchon outcome. Government bond yields have remained close to their lows during the past week, with worries ahead of the first round of the French election, as well as geopolitical concerns in Korea, keeping markets on a relatively nervous footing. We also had a shock announcement of a snap election in the UK, though with the Conservative Party widely expected to win an enhanced majority, the implications of this were felt more domestically than in global markets.

French polls appear to suggest that any two out of four candidates could conceivably make it to the 2nd round run off on 7 May. This creates six possible permutations, all of which look possible given the margin of error within poll sampling. In assessing these, we believe that risk assets should rally in the coming week in five out these six scenarios, with the danger being a Le Pen versus Melenchon outcome, which could lead to some large risk-off moves on fears that the future of the monetary union could again be called into question. Although this may be a gross simplification, were Le Pen or Melenchon to win office, it appears that France will be on a collision course with other EU states and could create a shock that would be enough to expose the weak links within the Union, making a crisis something of a self-fulfilling prophecy. At the same time, this remains an unlikely outcome in our view, and in a two-horse race, we are likely to see an outcome where Macron or Fillon emerges as a clear front-runner following this weekend.

On the assumption that the French election will provide a market friendly winner, we believe that eurozone assets may be poised to rally strongly in the next few weeks as political risk declines. In this context, our preference has been to adopt a long position in corporate and sovereign spreads in the run-up to the polls, but the sheer unpredictability of a four-horse race creates a real sense of uncertainty. As a result, it may be appropriate to wait until the start of next week before adding to positions, as we believe that the 1st round of voting is difficult to forecast accurately, whereas the second round of voting should be much more straight forward.

Elsewhere in global markets this week, we have been interested in signs suggesting that recent moves may be starting to run out of momentum at some key technical levels, which may become important for model driven investors. US rates have reached levels seen on November 11th just after the US election, as the ‘Trump Bump’ has turned into a ‘Trump Dump’ and interest rate futures have rallied to discount less than one Federal Reserve interest rate hike in the rest of 2017 and only one move the following year. 

This is strongly out of line with what is justified by fundamentals and Federal Reserve commentary continues to be consistent with a policy of rate normalisation, with a series of hikes likely over the quarters ahead, with Federal Open Market Committee speakers highlighting that a broadly neutral stance is deemed appropriate at this point. US expansion looks not to be reliant on Trump fiscal easing. In China, strong data this week confirms that the economy retains strong momentum, even if the period of ‘peak’ stimulus is now behind us.

For sure, there is plenty to discuss in the markets at the current time and the brevity of a weekly email means that it is hard to cover everything going on. Suffice to say, the current backdrop appears rich in opportunity and notwithstanding a difficult couple of weeks, where we have given back a significant portion of the gains recorded at the start of this year, we believe that we are well placed to capitalise on the opportunities we expect to come our way. 

Indeed, although Theresa May is expected to increase her Parliamentary majority from 12 to 100 or more (according to several polling sites), it is worth reflecting that the odds on her being Prime Minister 12 months ago were far more remote than those for Jeremy Corbyn are today. We have learned that strange things can happen in politics, and although it is possible that we could witness an outcome leading to catastrophic losses for the Labour Party, there is a scenario that in two months from now, radical unreformed left wing socialists are running both the UK as well as France.

As one muses on recent developments, it is tempting to start to question the functioning of Western Democracy, however, in Austria, the Netherlands and seemingly Germany there has been a rejection of far-right wing parties this year and voters have shown that they can be trusted. That said, it is becoming harder to lecture those countries which are run as one-party states – and should the Tories effectively decimate the Labour Party on June 8th, one wonders if the UK, under Chairman May, will be joining those ranks.

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