Monthly Review : March 2019

Monthly Review : March 2019



United States

Non-Farm payrolls strongly disappointed this month as the actual job growth of 20’000 came short of analyst expectations of 120’000. On the international trade front, a trade deal between the US and China was still hoped to be found, while paradoxically figures showed the US trade gap widened to a 10 year high of USD 621bln. US consumer confidence declined unexpectedly for the fourth time in five months, as optimism faded.


Euro area

European PMI data released in March was disastrous, and most ended up well below expectations, confirming the region was heading toward a slowdown. Germany, an economy with a large industrial component, was particularly hit with its manufacturing PMI falling to 44.7, well below the 50 mark which divides contraction and expansion. Despite these unencouraging numbers, wage growth was resilient, increasing 2.3% Q4 2018 on an annual basis.


United Kingdom

Britain’s trade balance widened more than expected, indicating global growth might be stalling and Britons might be stockpiling vital necessities should a disorderly Brexit disrupt the supply chain. House prices continued to be a source of concern, as data showed house values increased just 1.7% in the year to January 2019, the slowest rate since 2013. Unlike in the Eurozone, UK PMIs slightly rebounded in March, but remained close to the 50 mark, which characterises expansion or contraction of an economy.



The gloomier outlook for the Euro region, which constitutes Switzerland’s main trading partners, naturally has repercussions for the Swiss economy’s growth forecast. The KOF, the State Secretariat for Economic Affairs, the Swiss National bank as well as major Swiss banks all revised their growth and inflation forecasts down. Brexit uncertainties also had an impact on Swiss exports to the United Kingdom, its 8th largest exporting destination, which plummeted by 23% last year.


Central Banks:


Federal Reserve (next meeting: May 1st)

At its March meeting, the Federal Open Market Committee left interest rates unchanged in the range of 2.25% – 2.5%, the level they have been since December. The decision was communicated alongside the Feds economic projections, including the closely watched “dot plots”, which indicated the median forecast was for no hike for 2019. The FOMC also brought down its GDP growth forecast from 2.3% to 2.1% for the current year. The outlook is a significant downward revision from the December’s meeting where the Committee had a much more upbeat tone.


European Central Bank (next meeting: April 10th)

The outcome of the ECB meeting was extremely dovish with the governing council, which had long stated the window for the next hike would open at the autumn of 2019, pushing it back to 2020. The decision was also taken to launch a new series of targeted long term refinancing operations, starting in September 2019. The outlook for GDP growth has been revised down substantially for 2019 to 1.1%, and slightly for 2020 to 1.6%, and as a result inflation forecasts were also revised down.


Bank of England (next meeting: May 2nd)

The uncertainties over the Brexit outcome is making it difficult for the BOE monetary policy committee to forecast a clear picture of the UK economy, and members unanimously voted to leave the bank rate unchanged at 0.75%. The committee noted that Brexit uncertainties also continue to weigh on confidence and short-term economic activity, notably business investment. The BOE is still facing the dilemma of elevated inflation, due to a weaker GBP, and mixed domestic economic data.


Swiss National Bank (next meeting: June 13th)

At its monetary policy assessment of March 21st, the Swiss National Bank announced that it left its expansionary policy unchanged. The central bank’s main concern remains the valuation of the Swiss Franc, which is still being described as “highly valued”. The Bank also reduced its inflation forecast for both the current year as well as next year. Given the weaker global activity, the SNB made a downward revision to its growth outlook in developed economies.


Market issues:


  • The USD government yield curve inverted, with the spread between the 10 year Treasury and 3 month US Treasury Bill becoming negative. This was a particular source of concern for investors, as an inverted yield curve has been a reliable predictor of recessions in the past.
  • With disappointing economic numbers, a weak growth outlook and falling inflation, European Government rates were driven sharply lower this month, as investors looked for safe havens in the form of government bonds. As a result Germany’s 10 year Bund yield traded in negative territory, a level not seen since 2016.
  • In a research paper published by the Bank of International Settlement (BIS), the institution highlighted the risk posed by the large and growing stock of BBB rated bonds, which now represent 45% of European and US mutual funds holdings. Should a downturn happen, it is likely many of these issuers would be downgraded by one notch or more, becoming non-investment grade investments. Many holders would be forced to sell, as they are only allowed to hold IG paper, and this could trigger a market crash.
  • Political uncertainties and trade tensions pushed the OECD to cut its outlook for the global economy. The organization projects that the global economy will grow by 3.3%in 2019 and 3.4% in 2020. The outlook and projections cover all G20 economies. Downward revisions from the previous Economic Outlook in November 2018 are particularly significant for the euro area, notably Germany and Italy, as well as for the United Kingdom, Canada and Turkey.
  • Turkey’s sovereign bonds, stock markets and the Lira tumbled before the country’s local elections. In an effort to curb bearish speculation on the currency, the nation orchestrated an artificial currency crunch, by raising the cost of borrowing Turkish Lira overnight to more than 1000%.



Credit Markets:


  • Boeing Co credit spreads widened significantly after an Ethiopian Airlines 737 Max 8 plane crashed shortly after take-off in circumstances similar to the crash of a same plane model belonging to Indonesia Lion Air four months ago. As a result most plane operators took the decision to ground the plane or were forced to do so by aviation authorities. Boeing now faces cancelations of orders for the plane.
  • Loss making German lenders Commerzbank and Deutsche Bank officially started merger talks last month. The merger is controversial as the German government still own about 15%of Commerzbank, and would therefore be a shareholder of the new entity, enabling it to bypass bail-in rules and inject taxpayer money should things go wrong.
  • Sergio Ermotti, the chief executive of UBS Group AG, Switzerland’s biggest bank, said the investment banking business of the bank faced the worst quarter in recent history, as corporate activity outside the United States stalled. Revenues at the wealth management unit, the bank’s core business fell but net new money targets were on track.
  • McDonald’s Corp, the world’s biggest restaurant chain, spent more than USD 300mln on tech company Dynamic Yield Ltd, its largest acquisition in 20 years. The technology will enable it to provide an even more personalized customer experience by varying outdoor digital Drive Thru menu displays to show food based on time of day, weather, current restaurant traffic and trending menu items.
  • Standard & Poor’s revised its outlook for state owned oil company Petroleos Mexicanos, the world’s most indebted oil major, from stable to negative. The ratings agency argues that the capital injection from Mexico’s government will fall short of restoring credit fundamentals and meeting its capital investment requirements to stabilize and turnaround falling production.
  • Booking Holdings, the provider of online travel services and owner of brands including, KAYAK, and, was upgraded by Moody’s. Its senior unsecured rating was raised to A3 from Baa1 on expectations that high barriers to entry, strong cash flows and revenue growth will strengthen its leading position in the growing online travel accommodations market.


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