Monthly Review: July 2018

Monthly Review: July 2018



United States


President Trump’s trade war escalated, as the White House considered additional tariffs of 10% on USD 200bln worth of Chinese exports. Previous tariffs were targeted at raw materials and industrial goods, but the latest round is targeting consumer goods, threatening to hurt consumer spending. On the bright side, America’s economy expanded 4.1% in the last 3 month. Even if below some analyst expectations, it is the highest growth since 2014.

Euro area


Economic data released in July was expected to confirm whether the Euro zone was experiencing a soft patch or a more severe downturn.The data wasn’t very encouraging, with the composite PMI falling back to 54.3 after a brief rebound in June. On the country by country level, the feel-good factor after the French victory at the World Cup was short lived; French GDP expanded 0.2% for the second quarter in a row, well below the 0.7% average in 2017.

United Kingdom


The manufacturing and service sectors both unexpectedly jumped in May, confirming the BOE view that the sluggish growth in the first quarter could be attributed to adverse weather conditions. However, the increasing likelihood of the UK leaving the European Union without a deal, as well as political turmoil over the Brexit terms,put the pound under pressure. Once again, retail sales were weak last month, as the World Cup and the hot weather kept consumers away from shops. Wage growth fell to its lowest level in 6 month despite record low unemployment.



The KOF Economic Institute published an interesting paper on the accuracy of the unemployment rate published by the SECO, which claims to be at its lowest since 2008. They argue the SECO calculation method underestimates the number of unemployed people. As part of the restructuring of the unemployment insurance reform in 2011, some restrictions were applied to various population groups in order for them to be entitled to benefits. As a result those disqualified from the unemployed population disappear from the SECO statistics. According to the KOF calculations, the true number is likely to be half a percentage point higher than the published figures.


Central banks:


Federal Reserve (next meeting: August 1st)
President Trump said he was “not thrilled” about the Federal Reserve raising interest rates, suggesting they are strengthening the USD and undermining his efforts to strengthen the economy and reduce trade deficits. The Fed Chairman, Jerôme Powell, made his semi-annual appearance before the congress committee on banking. He was confident on the strength of the economy and with appropriate monetary policy, believes the job market will remain strong and inflation will stay near 2 percent over the next several years.

European Central Bank (next meeting: September 13th)

Minutes for the June meeting, released in July, showed a high level of optimism concerning the economic development in the Eurozone, fully justifying the decision to halt their QE program at the end of December, in the eyes of the policy makers. The ECB unsurprisingly left its rates on hold and while not much was anticipated from the July meeting, the market was expecting more guidance on its bond reinvestments policy, but Mario Draghi said the matter wasn’t discussed at the policy meeting.

Bank of England (next meeting: August 2nd)

The strong data emerging from the service sector, the dominant part of the UK economy, increase the likelihood of a rate hike in August, with investors pricing a 90% probability of rate rise. On the other hand, Mike Carney has warned that an emergency rate cut might be necessary in order to support jobs and the economy should the country head towards a “no-deal” Brexit, stressing that such a situation would have big economic consequences.

Swiss National Bank (next meeting: September 20th)

Foreign Currency reserves at the Swiss National Bank grew by CHF 7.8bln to CHF 748.52bln between May and June. While some read this as an indication the Swiss National Bank is intervening in the foreign exchange markets, it could also be attributed to natural variations in exchange rates against the CHF. In its annual report on the banking sector in Switzerland, the SNB observed the diminution in the number of banks with the loss of 8 banks between 2016 and 2017. The number of staff shrank by 10’427 to 110’413.



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A detailed Financial Analysis in Switzerland revealed statistics in terms of market issues and credit markets for the Eurozone.  The facts are presented as below –


Market issues:


■    In Mexico, left wing Andres Manuel Obrador, was elected president. The former mayor of Mexico City campaigned on expanded social programs that are likely to push the country into more debt as well as a reviewing oil auction to private and foreign companies.

■    The Chinese yuan fell to a 12 month low against the USD, slumping along with other Asian currencies. It is speculated that amid a trade war between the US and China, the Asian nation allowed the currency to fall as the weaker yuan makes Chinese exports more competitive.

■    The prospects of a full blown trade between the European Union and the United States diminished as the two parties came to an agreement, where the EU would import more liquefied natural gas and soybeans from the US, which would in turn avoid imposing tariffs on European cars.

■    The spread between the 10 year US Treasury yield and the 2 year continued to shrink. Increasing the probability of a yield curve inversion.

■    Turkey’s central bank refrained from raising rates this month – a move that surprised analysts. This first policy decision since Erdogan was re-elected sent Turkish stocks, bonds and currency lower.


Credit Markets:


Credit Market

Median D_Swap


■    Glencore revealed in a statement it received a subpoena dated 2 July, 2018 from the US Department of Justice to produce documents and other records with respect to compliance with the Foreign Corrupt Practices Act and United States money laundering statutes.  The requested documents relate to the Glencore Group’s business in Nigeria, the Democratic Republic of Congo and Venezuela from 2007 to present. The news provoked a selloff in Glencore shares and bonds.

■    Google received a record EUR 4.3bln antitrust fine from the European Union. The EU says the company abused its dominant position with its smartphone operating system Android, forcing phone makers such as South Korea’s Samsung or China’s Huawei, to push Google service in front of users.

■    The auto sector was under pressure, as the three Detroit giants, General Motors, Ford and Fiat Chrysler reported weak earnings as well as cut their outlook for the year. GM blamed the steel and aluminum tariffs, Fiat Chrysler weak sales in China and Ford an aging catalog.

■    Deutsche Bank reported a second quarter profit down 14% year on year, but in line with what the bank previously announced. Deutsche Bank shares have fallen 35% this year.

■    Netflix, a name cherished by High Yield investors, posted disappointing subscriber growth figures. This raised concern whether the streaming company was facing a temporary problem or if it was at the beginning of a period of slower growth, as completion in the sector heightens.

■    Wind Tre bonds rose as much as 15 cents on the euro after Hong Kong conglomerate CK Hutchison agreed to pay EUR 2.45 billion for the 50 per cent stake in the Italian telecommunications group that is doesn’t own.  Wind, which raised EUR 7.3 billion in the largest euro junk debt sale on record in October 2017, had become a favourite target for short sellers, due to cut throat competition and political concerns in Italy, leaving many nursing heavy losses as they scrambled to unwind a crowded trade.

■    A third of Europe’s high yield bonds that are trading at stressed levels were issued in the past twelve months and nine out of the 22 bonds are issued by UK companies.  Amidst a more uncertain outlook for many economies, tighter monetary policy and geopolitical tensions, deteriorating investor sentiment saw a record number of European high yield deals postponed in the first half of this year.


USD Market


USD Market

USD Graphs

EUR Market


EUR Market

EUR Graphs

GBP Market


GBP Market

GBP Graphs

CHF Market


CHF Market

GBP Graphs CHF Graphs

Fixed Income Markets Profitability


Fixed Income Markets

Fixed Income Markets 2

Other Markets Profitability


Other Markets Profitability

Other Markets Profitability



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