Monthly Review : June 2019

Monthly Review : June 2019



United States

US consumer confidence took a big hit in June, falling to its lowest level since September 2017 as uncertainties about the global economy, as well as the labour market, increased. Another sign that US economic momentum might be faltering, the NonFarm Payrolls report revealed 75K jobs were added in May, below the consensus estimate of 175k and following a 224k gain in April. The US threatened Mexico with tariffs but later revised their plans as deal on restricting migrants was reached.


Euro area

Eurozone wages grew at their fastest pace in a decade, indicating that the export led economy might show some resilience. Encouraging developments were counterbalanced by Germany’s central bank which cut its economic forecast for Europe’s leading economy due to its slowing manufacturing sector. The Ifo institute was even more pessimistic, stating the German economy was “heading for the doldrums”.


United Kingdom

Retail sales data for May and June was quite weak as the unseasonably cold weather, and uncertainties regarding the economic outlook, harmed summer clothing sales. Despite a still buoyant service sector, leading indicator PMIs for construction and manufacturing sectors point to a slowing British economy. The trade deficit narrowed as consumers and businesses stockpiled goods ahead of Brexit deadlines, in order to avoid disruptions.



In its Summer forecast, the KOF revised upward its 2019 growth outlook for Switzerland from 0.6% to 1.6%. The institute said “the currently healthy state of the economy is mainly attributed to manufacturing.” SECO was, however, less optimistic in its latest forecast, predicting 1.2% growth for 2019. Both institutions are worried about the trade environment and the outlook for the global economy, which also would impact Switzerland.


Central banks:


Federal Reserve (next meeting: July 31st)

Rates were left unchanged at the end of the FOMC meeting. The decision was not unanimous with nine members voting in favour of keeping the status quo and one for a cut. Fed chief Jerome Powell said many FOMC participants now see that the case for somewhat more accommodative policy has strengthened, therefore clearing the way for a potential rate cut in July. Committee participants remain mindful of some ongoing crosscurrents, including trade developments and concerns about global growth.


European Central Bank (next meeting: July 25th)

While no surprises came out of the ECB meeting and key interest rates where left unchanged, Mario Draghi made it clear he is ready to support the Eurozone economy as the outlook grows darker, stating he was ready to act and use “all the instruments that are in the toolbox”. The ECB Chief reiterated its intention at the Central Banking Forum in Sintra, telling attendees he could cut interest rates further or implement another asset purchase program if inflation did not reach the Bank’s target.


Bank of England (next meeting: August 1st)

The Bank of England voted unanimously to keep interest rates at 0.75%, while it warned over growing risks to the economy from a no deal Brexit.  From a growth perspective, the BoE expect GDP to be flat in Q2, a slowdown from 0.5% growth in Q1. That in part reflects an unwind of the positive contribution to GDP in the first quarter from companies in both the United Kingdom and the European Union building stocks significantly ahead of recent Brexit deadlines.


Swiss National Bank (next meeting: September 19th)

The Swiss National Bank took the decision to maintain its expansionary monetary policy, leaving its interest on sight deposits unchanged at -0.75%. It also stated it will remain active in the foreign exchange markets as necessary. The Bank has also introduced the SNB policy rate, which replace the three-month Libor used previously. The SNB will keep the secured short-term Swiss franc money market rate close to the newly introduced policy rate.


Market issues:


  • After dovish comments throughout the month from ECB President Mario Draghi, Austrian and French10-year government bonds joined the cohort of negatively yielding bonds.
  • Oil rallied this month after several oil tankers were the victim of attacks in the Strait of Hormuz and the United States accused Iran of being the perpetrators. As tensions built, investors feared the situation would deteriorate into a wider conflict.
  • For the first time since 2016, the US Treasury 10-year yield fell below 2% as the consensus grew more pessimistic and many forecast the global economy to slow in the months ahead. Trade tensions between the US and China, as well as geopolitical tensions, contributed to the increased demand.
  • H2O Asset Management, an asset manager controlled by the French bank Natixis, found itself in the middle of a controversy. The Financial Times newspaper revealed the asset manager was holding a sizeable amount of illiquid bonds tied to German entrepreneur Lars Windhorst, whose reputation is questionable.
  • Thousands of protesters blocked the streets of Hong-Kong, protesting against a controversial extradition law that would allow the city’s Beijing backed government to transport its residents and visitors across the border to be put on trial in Mainland China.


Credit Markets:


  • Fitch Ratings downgraded both the Long-Term Foreign and Local Currency Issuer Default Ratings of Pemex, the Mexican state-owned oil company, by two notches to BBB-, one step above the non-investment grade segment. The rating outlook is negative. This is the second downgrade in less than 6 months from the ratings agency.
  • Trafigura Group, a commodities trading company, was targeted by a report issued by Iceberg Research. The short seller, which targeted Noble Group previously, alleges that Trafigura “ignores economic reality to aggressively overvalue hundreds of millions in debt securities issued by an associate”
  • Piraeus Bank, Greece largest lender, sold EUR 400 million of subordinated debt with a 10 years maturity, bearing a 9.75% coupon. This is the first time since the debt crisis in 2008 that a Greek bank has issued a bond. Demand was strong as lead managers recorded more than EUR 800 million of interest.
  • Julius Baer Group issued a CHF 350 million Contingent Convertible bond. The notes bear an investment grade rating, a rare fact for this type of security.
  • CMA-CGM, the French container shipping group, reported results that disappointed the market, despite the positive contribution of recently acquired CEVA Logistics. Many analysts estimated its cost cutting program would not be sufficient to support earning growth and bonds fell as a result.
  • United Technologies Corp agreed to buy Raytheon in an all stock merger of the defense companies, one of the sector’s largest transactions ever. The combined company will create an aerospace and defense giant with approximately USD 74bln of sales.
  • Patrick Drahi, the telecom titan that controls Altice Europe and an avid art collector, bought auction house Sotheby’s for USD 2.7 billion and took the company private. « Sotheby’s is one of the most elegant and aspirational brands in the world” said the entrepreneur in a statement.
  • Austria’s EUR 1.25 bln sale of its 100-year bond was more than four times oversubscribed. At a time when the ECB is preparing to cut deposit rates further and more and more European sovereign debt is trading with a negative yield, the 1.17% yield on offer on the ultra-long bond was clearly an attraction for some investors.
  • Moody’s upgraded Tesco’s debt rating back to investment grade (Baa3), four and a half years after an accounting scandal triggered a cut to junk status. The ratings agency cited improving operating performance and reduced debt as the key drivers for the supermarket’s enhanced credit profile.


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