Monthly Review : April 2019

Monthly Review : April 2019



United States

US GDP grew at a rate of 3.2% in the first three months of 2019. The figure was well above what the consensus expected, dissipating concerns that a slowdown was on the horizon. The acceleration in real GDP growth in the first quarter reflected an upturn in state and local government spending and accelerations in private inventory investment and in exports the US Department of Commerce said. The personal consumption expenditures price index, an inflation indicator closely watched by the Fed, slowed to 1.3%, well below its 2% target.


Euro area

German Manufacturing PMI remained particularly weak last month, amid a flagging global economy. This is the third successive month the index posted a reading below 50, the level dividing contraction and expansion. The Business Climate Index fell as well, indicating a gloomy mood amongst German managers. The trade truce with the US was put into question after President Trump threatened Europe with new tariffs if it did not end its subsidies to aircraft manufacturer Airbus.


United Kingdom

Britain’s dominant service sector, which represents around four fifths of GDP, shrank in March according to figures released by data firm Markit. The drop in PMI marks the end of a two and a half year expansion and Markit suggested that “corporate clients had opted to delay spending decisions in response to intense political uncertainty”. The housing market continued to be a source of concern as prices grew at their weakest pace since September 2012, and house prices in London fell. On the Brexit front, the European Union granted the UK a six month extension to October 31st.



In its annual report on the Swiss economy, the International Monetary Fund highlighted the low growth – low inflation – low rates conundrum that is sustaining a search for yield and driving risks in the real estate market. Moreover, the institution calls for a stricter supervisory framework, advocating for the FINMA to be able to conduct on-site inspections and warned that the Swiss financial watchdog needed more manpower.


Central banks:


Federal Reserve (next meeting: May 1st)

Minutes for the March FOMC meeting showed participants noted significant uncertainties surrounding their economic and inflation outlooks. While a majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year, several participants noted that their views of the appropriate target range for the federal funds rate could shift in either direction based on incoming data and other developments. Several concerns remained, including Brexit and a potential slowdown in Europe and China.


European Central Bank (next meeting: June 6th)

At its April meeting, the ECB left its interest rate guidance unchanged as Governing Council members acknowledged the sluggish growth outlook and the downside risks still faced by the economy. Mario Draghi communicated no details about a possible tiered rate system, as some speculated he would. A tiered rate system, such as the one adopted in Switzerland and Japan, is seen by some ECB members as a possible measure to mitigate the effects of negative interest rates in the Eurozone.


Bank of England (next meeting: May 2nd)

Chancellor Philip Hammond has launched the recruitment process to find to find a successor to Bank of England Governor Mark Carney, whose mandate ends on January 31st 2020. Potential candidates for the job named in the media include former US Federal Reserve Chair Janet Yellen, Mexican born Bank of International Settlement General Manager Agustín Carstens and Raghuram Rajan, the former governor of the Bank of India, amongst others.


Swiss National Bank (next meeting: June 13th)

The Federal Department of Finance initiated the consultation on an amendment to the Capital Adequacy Ordinance. The Swiss National Bank, the FINMA and the IMF have all expressed concerns about the increasing risks of the Swiss residential real estate market. The aim of the possible new regulation would be to adjust the risk weights for domestic residential investment property with a high loan-to-value ratio.


Market issues:


  • The IMF cut its global growth forecast. In its report, the institutionprojects a slowdown in growth in 2019 for 70 percent of the world economy. Global growth softened to 3.6 percent in 2018 and is projected to decline further to 3.3 percent in 2019.
  • The Trump administration ended sanction exemptions for big oil importers buying Iranian oil. China, and seven other countries, could face sanctions if they do not cease purchases of Persian crude by 2 May. The move is aimed at depriving the Iranian government from its main source of revenue.
  • Volodymyr Zelensky, a 41 year old TV comic, won a landslide victory in Ukraine presidential election. He was credited with more than 70% of the votes whilst his main rival and incumbent president, Petro Poroshenko, trailed behind with just over 20%. The comedian, who has no experience in government or the military, will become commander in chief of a country that has been at war with Russia for over five years.
  • In the Spanish general election, the governing center-left Socialist Worker’s party won the most votes and the far-right Vox party entered the country’s parliament for the first time since dictator General Franco’s rule ended in 1975. The conservative People’s Party suffered a big blow as it won just 66 seats, down from 137.


Credit Markets:


  • Saudi Aramco, the Saudi State backed oil producer, raised USD 12bln in a debut international bond issue which attracted more than USD 100bln in orders. Saudi Aramco had earlier revealed it is the most profitable company in the world, generating more than USD 111bln in net income in 2018.
  • Casino Guichard, a longtime favorite name amongst high yield investors, was downgraded by rating agencies S&P and Moody’s. High leverage and weak cash flow were cited amongst the reasons for downgrade. The company is in the middle of an asset sales program in order to deleverage its balance sheet.
  • Lyft Inc, the ride sharing company, made its debut on the Nasdaq. While initially being valued at more than USD 24bln, the company’s shares fell sharply in the following trading sessions to bring its market cap down to USD 17bln. Larger rival Uber is set to proceed with its own IPO shortly.
  • After its February decision not to call its EUR AT1 instrument, Spanish lender Banco Santander decided to redeem its USD 1.5bln contingent convertible note at the first call date. In February the company said it had an “obligation to assess economics and balance the interest of all investors.”
  • Netflix Inc, sold USD 2 billion of bonds, in an effort to fund its content expansion as competition from rivals such as Walt Disney Co, At& T Inc and Apple Inc is growing.
  • Chevron Corp proposed to acquire Anadarko Petroleum Corp, in a move that would have given the oil major a greater access to US shale oil and African liquefied natural gas. Later in the month, Occidental Petroleum Corp made a counter offer 20% higher than the USD 33bln Chevron bid.
  • After weeks of negotiation talks, German lenders Deutsche Bank AG and Commerzbank AG decided against a merger, as execution risks would have been too large. Restructuring costs as well as additional capital were also cited as reasons for not going ahead with the merger.
  • Argentina’s “century bond”, a US Dollar denominated bond maturing in 3017, fell to as low as 66 percent of face value after opinion polls revealed former president Cristina Fernandez de Kirchner is gaining support ahead of October’s election. Incumbent President Mauricio Macri is struggling to fend of his populist rival at a time the country’s economy is contracting, despite the assistance of a record USD 56 bln IMF bailout, and inflation is running at more than 50 percent.


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