The trade balance deficit was higher than expectations and increased the most since 2008. Later in the month, the release of the average hourly earnings numbers, which sent the market tumbling the month before, showed a gain of 2.6%, below market expectations. President Trump announced plans to impose tariffs on up to USD 60bln of Chinese imports and the prospects of a potential trade war between the US and China sent markets tumbling across the world.
Italy went to the polls on March 4 to choose over 900 members of the Chamber of Deputies and the Senate. No clear majority emerged amongst the three main parties and an agreement has now to be found to form a government. Economic numbers in Germany, Europe’s biggest economy, were quite subdued, showing moderating momentum. Economic releases across the rest of Eurozone countries were also mostly soft, suggesting economic growth may be moderating.
The unemployment rate fell to 4.3%, to match the lowest since 1975, and basic wages rose 2.6%, signaling tightness in the labor market. High street retailers continued to suffer this month, with more store closures, facing challenges ranging from rising costs to the shift of consumer habits to online shopping. Chancellor Philip Hammond delivered his spring statement, forecasting growth of 1.5%, revised up from 1.4%, for 2018. He also said that public spending and investment would increase if public finances continued to improve.
The unemployment rate in Switzerland held steady at 3.2%, PMI and GDP numbers came above expectations, confirming Switzerland’s gradual growth path. Inflation was still very soft at 0.6%. Swiss watch exports, an indicator often viewed as a good indicator of the global Swiss economy, rose 12.9% from a year earlier. The quarterly economic forecast by the Federal Government’s Expert Group (SECO), expects GDP growth of 2.4% for 2018, stimulated by the buoyant international economy which is supporting foreign trade, while a favorable investment climate is stimulating domestic demand.
Federal Reserve (next meeting: May 2nd)
The FOMC met on March 21st and raised fed funds rates by 25bp, citing realized and expected labor market conditions and higher inflation. Three rate hikes in 2018 remains the baseline scenario, and the bias for 2019 and 2020 remains hawkish, with Fed Funds expected to end 2019 at 2.9% and 2020 at 3.4%. The Central Bank also raised its GDP growth projections from 2.5% to 2.7% for 2018 and from 2.1% to 2.4% in 2019. Market commentators noted his stance to rely more on actual economic data, rather economic models and theory, as did his predecessor.
European Central Bank (next meeting: April 26th)
The ECB met on March 8th and held interest rates steady. The Governing council noted that “interest rates will remain at their present levels for an extended period of time”. They also restated that the net asset purchases will continue at the pace of EUR 30bln a month until the end of September. Mario Draghi noted the prevailing positive cyclical momentum that could lead to stronger growth in the near term, and on the other hand, downside risks that continue to relate primarily to global factors, including rising protectionism and developments in foreign exchange and other financial markets
Bank of England (next meeting: May 10th)
As expected, the Bank of England’s Monetary Policy Committee voted by a majority of 7-2 to maintain the bank rate at 0.5%. They noted that “United Kingdom’s withdrawal from the European Union remains the most significant influence on, and source of uncertainty about the economic outlook.” They however did not let any hint as of when the next rise will take place, stating that “given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target”
Swiss National Bank (next meeting: June 21st)
On March 15th, the SNB announced it would leave interest rates on sight deposits, as well as its three-month Libor target, unchanged. They still consider the CHF “highly valued” and made mention of their willingness to intervene should need arise. The inflation forecast for 2018 and 2019 was decreased to 0.6% and 0.9% respectively, and left to 1.9% for 2020, but at the condition Libor would remain at -0.75% for the entire period. The solid performance across economies was acknowledged and they warned about a possible price correction of real estate assets in Switzerland over the Medium-term
■ Short interest on High Yield ETFs such as HYG US or JNK US, continued to build up. According to Markit, it surged to a new record of USD 7bln in February
■ The Swiss National Bank reported its 2017 results mentioning it generated a profit of CHF 2.0bln on negative interest charged on sight deposit account balances.
■ Equity and bond markets suffered this month, as protectionist measures from various countries, including The United States and
■ Amidst the current turbulence, the market continues to comfortably absorb new corporate bond issuance, including a blockbuster USD 40 billion deal earlier this month from US pharmacy chain CVS Health to fund its acquisition of health insurer Aetna. The third-largest corporate bond sale in history attracted orders of more than USD 120 billion.
■ A research study by UHY Hacker suggests profits at the UK’s top 100 restaurant groups have fallen by two-thirds over the past year, with 35 operating in the red. The industry is suffering from overcapacity, increased costs and reduced footfall on the UK high street, and some higher profile names, including burger chain Byron, Jamie’s Italian and Prezzo have entered into company voluntary agreements in recent months
■ The UK insurer Aviva threatened to cancel its preference shares, securities with a fix coupon and no set maturities, and redeem them at 100, with the price of the securities collapsing as a result. Those high coupon instruments were widely held by UK pensioners. Similar instruments from other insurers also suffered heavy losses before Aviva eventually backed down following fierce criticism from some influential investors. The UK financial watchdog, the FCA, has launched an enquiry to determine whether the controversial plan broke market abuse rules.
■ US President Trump blocked the Broadcom takeover of Qualcomm, the USD 140bln deal would have been the biggest in the technology sector. He cited “credible evidence” that the transaction “threatens to impair the national security of the US”.
■ Lebara, a European pre-pay telecom company, saw its notes tumbling after it initially announced good results but was later questioned on its accounting practices.
■ Lexmark, a widely held high yield name, notes fell sharply after concerns were expressed that current negotiations regarding the terms of an acquisition loan, which was up until now were pari passu with the notes, would lead to the notes being junior to the loan.
■ Alpiq, the Swiss power producer, still facing difficulties generating profits on its power generating assets, sold its engineering division to the French industrial group Bouygues, for CHF 850 mln.
HNA, the Chinese conglomerate stepped back in its intention to proceed with the Initial Public Offering of Gategroup, an airline caterer, citing valuations concerns.
■ Moody’s downgraded Turkey’s sovereign rating by one notch to Ba2, citing an erosion of institutional strength and more risk of external shocks
■ Facebook faced scrutiny after a whistleblower revealed that Cambridge Analytica, accessed personal data from as much as 50 million Facebook users without their knowledge, which was further used for political purposes.
■ Venezuela’s credit rating hit the lowest possible level. It was cut to C by Moody’s who warned bond investors should prepare themselves for large losses.
■ Noble Group missed principal and coupon payments on its March 2018 bonds, prompting S&P to downgrade the commodity trading company to D.