Saturday 20th January 2018
January 19th 2018: The Deferred Action for Childhood Arrivals (DACA) programme looks to be a continuing stumbling block for Democrats who were expected to ink the US government spending bill, with an attendant effect on the US dollar. According to Miles Eakers, chief market analyst at Centtrip the dollar continues to show weakness ahead of possible US government shutdown. “Late last night the House of Representatives passed concessions on a major increase in defence spending and a hardline immigration bill. But Senate Democrats said they would likely block the measure unless President Donald Trump and Republicans include protection for young immigrants. An impasse could result in Trump celebrating his first anniversary in office with the first shutdown in four years, despite his party holding a majority in both houses. After reports of the vote, [the market] saw continued, but muted, dollar weakness, pushing the GBP/USD pair back above $1.39 and EUR/USD nearer the $1.23 resistance level.” The question is now whether a short=term patch will be agreed today, or whether the Republicans and the White House will be compelled to get serious about a longer-term solution. The last time a short-term bill was passed was December last year, which passed by a grand majority of 66 votes to 32. This time round it looks more difficult - Mike van Dulken, Head of Research at Accendo Markets commented to clients this afternoon: “Equities are positive to close out the week, rebounding from a negative US close and ahead of a key Senate vote to stave off a government shutdown tonight. Weaker than expected UK Retail Sales have seen the UK’s blue-chip index take a leg higher, benefiting from Sterling's retreat from fresh post-referendum highs earlier this morning. Interestingly, Germany’s DAX is the rank outperformer, this in spite of additional Euro strength after hawkish ECB comments, whilst US equities point towards a positive open this afternoon. The FTSE has climbed higher thanks to GBP weakness benefiting names such as ULVR, BATS, SHP, RELX, CCL and GSK, while Miners are embracing the weaker USD's fillip for metals. This is easily offsetting weakness for BP (Oil lower on IEA report), HSBC (US forex fine), BT (pension scheme deal) and KGF (Carpetright profits warning). Germany’s DAX outperforms with just Linde in the red, as Thyssenkrupp, Adidas, BASF and Fresenius lead the way higher. The FTSE 100 has broken back above 7715. The DAX 30 has broken above 13350 to flirt with a 13420 breakout. Dow Jones Futures have rebounded to re-test 26055. Gold has broken back above $1332.” --

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Debt

Growing appetite for exotic emerging market debt, in the hunt for better yields, has helped make emerging markets’ debt issues, particularly sovereign issues, popular this year. Although emerging markets bonds have lost some of their lustre in recent weeks, primary market offerings from Indonesia, Panama’s Multibank, the Bahamas and a long dated (30 year) bond from Nigeria have been popular with investors, even as yields have fallen somewhat. Can the trend be continued into 2018?

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British workers union GMB is looking to secure talks with AA management, following the sale by AA of its Home Emergency services business announced on November 29th, Paul Grafton, GMB Regional Organiser, said " GMB members working for the AA are seriously worried about the scale of debts and the cost of financing them and how this is impacting on their day to day lives.

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MEPs have again debated the state of play on the second review of the economic adjustment programme for Greece, for the second time this year. Eurogroup president Jeroen Dijsselbloem was invited to Parliament to take part in the debate. He replied with an official letter explaining the reasons why he could not attend.

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Australia’s sovereign debt agency has announced the launch of a new November 2028 Treasury bond, via syndication. The bond carries a coupon of 2.75% and the debut issue is expected to be a benchmark size.

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China’s mounting debt has become a concern for investors writes Salman Ahmed, chief investment strategist at Lombard Odier IM.  

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Standard Life Investments says it has added to its team of five emerging market debt specialists with the appointment of Imran Ahmad as investment director – Emerging Market Debt (EMD). Ahmad joins the company from JP Morgan Asset Management where, since January 2013, he held the role of currency portfolio manager.

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The UK’s public sector net borrowing (excluding public sector banks) decreased by £4.9bn to £33.8bn in the current financial year-to-date (April to August 2016), compared with the same period in 2015, says the Office for National Statistics (ONS) Public sector net borrowing (excluding public sector banks) decreased by £0.9bn to £10.5bn in August 2016, compared with August 2015. Public sector net debt (excluding public sector banks) at the end of August 2016 was £1,621.5bn, equivalent to 83.6% of gross domestic product (GDP); an increase of £52bn compared with August 2015. Central government net cash requirement decreased by £7.1bn to £19.4bn in the current financial year-to-date (April to August 2016), compared with the same period in 2015.

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The International Organisation of Securities Commissions (IOSCO) is now looking for public comment on its consultation report entitled Examination of Liquidity of the Secondary Corporate Bond Marketspublished today.  The study was undertaken to address what it says concerns by market participants about the level of liquidity in the secondary bond market. Although railing against the lack of comprehensive data in the segment, it also avers that there is no evidence that liquidity in secondary corporate bond markets has deteriorated markedly from historic norms for non-crisis periods. IOSCO also notes there is no reliable evidence that regulatory reforms have caused a substantial decline in market liquidity, although regulators continue to monitor closely the impact of regulatory reforms. 

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