Synopsis of the week
- The ECB has confirmed that it will finish the current Quantitative Easing programme by the end of 2018.In the same statement, they also saw interest rates remaining unchanged until the summer of 2019.
- As expected, the US FOMC increased interest rates to 2% and accompanied this move with a statement suggesting we still could see another two increases in the second half of the year.
- Equity markets around the globe had a lacklustre week as most finished slightly lower.
- The aftermath of the G7 meeting in Canada continued to rumble on through the week as US President Trump continued to alienate himself from what should be a group of America’s closest allies.
On Wednesday 6th June, Alastair McCaig, our Head of Investment Management, joined Martina Fuchs on CNN Money Switzerland, where he chatted about Swiss pension system, current market conditions and the outlook for interest rate decisions.
On Wednesday evening, Alastair McCaig, our Head of Investment Management joined Bloomberg anchor Jonathan Ferro and Head of FX & Rates strategist Richard Jones to preview the Federal Reserves rate decision, UK Inflation and the ECB. Along with these Macro issues, Alastair also discussed why he would be supporting Belgium in the Football World Cup.
This week, the bank of England is expected to announce no change to UK interest rates just as the ECB has already done. In fact, with current Brexit negotiations looking even less constructive, it is difficult to see when the Bank of England will be able to raise rates again. The statement from the ECB last week clearly said that the current QE programme would need to end first and subsequently rates might rise in the summer of 2019. This is in direct contrast to last week’s interest rate rise by the US FOMC. The press conference included even more Hawkish tones when talking about interest rate rises suggesting they might be as high as 2.5% by years end.
In interviews with CNN Money Switzerland, the SNB chairman Thomas Jordan stated that it was much too early to think about raising interest rates in Switzerland. He also stated that the situation with the exchange rate remained fragile. In previous weekly notes, we have advised that the recent strength in the Swiss Franc was an opportunity for our clients to rebalance their Swiss Franc exposure and this remains the case. The SNB also announced “That was the reason we continued our monetary policy, negative interest rates, but also the willingness and readiness to intervene on foreign exchange markets if necessary”. As major Swiss manufacturers like Nestle continue to relocate operations out of Switzerland due to the strength of the Franc, it is no surprise that the Swiss National Bank has stated it stands ready to take direct action to weaken the Franc.
OPEC will once again be meeting in Vienna to discuss oil output. The US has been pushing for OPEC to raise its output and ease prices at the pumps. As Saudi Arabia continues to push through the Aramco IPO, it is unlikely they will flood the markets with supply, as higher oil prices would help generate a larger return.
This time last summer, the US Bank stress test results helped move markets higher, we do not think this week’s results will have the same positive effect. Although US interest rates have pushed higher over the last 12 months, the flattening yield curve on bonds has seen profit margins remain thin. If President Trump takes a fresh look at cutting red tape in the US financial sector, we could see a bounce but he presently looks preoccupied with external trade issues.
|Corporate Data Releases||
|Ashtead, FedEx||Micron Technology||Saga, Dixons, Red Hat||CarMax|
|Economic Data Releases||Mario Draghi speaking at ECB forum||Swiss Economic Forecast, EU Current Account, US Building permits||US Current Account, US Crude Oil Inventories||Swiss National Bank Financial Stability, Eurogroup meeting, Bank of England Rate Decision, US Bank Stress Tests||
EU & US Manufacturing & Service PMI, OPEC meeting