26 Jun 2018

Equities slump as trade tensions heighten

Global equity indices suffered heavy losses yesterday as the ongoing US/Chinese trade spat continued to roil financial markets.

All the major European and US markets closed well in the red yesterday with slippage of anywhere between 1.3% and 2.4% as the US and Chinese trade relations deteriorate further. It appears the trigger for yesterday’s sell off was the combination of the threat of US tariffs on European car imports and another story detailing how the US Treasury was preparing to enact a law that would enable them to put restrictions on certain Chinese investments in US businesses and industries. The White House was quick to wheel out their adviser, Peter Navarro to at least attempt to calm some nerves. Navarro was quick to point out that “there’s no plans to impose investment restrictions on any countries that are interfering in any way with our country”. China was quick to reply to any comments on investment restriction, Chinese V.P, Liu Yandong said that “China and the EU firmly oppose trade unilateralism and protectionism and think these actions may bring recession and turbulence to the global economy”. Asian markets are closing firmer this morning after a volatile session and European equities are all opening in the green.

Merkel to start immigration negotiations

After the failure to make any solid progress at Sunday’s Brussels immigration summit ahead of the EU summit proper on the 28th & 29th, a disappointed and embattled German Chancellor, Angela Merkel returned to Germany where she is due to have talks with her coalition government. If you remember correctly the leader of the CSU part of the tri-party German coalition, Horst Seehofer challenging her on her open door refugee policy, gave Mrs. Merkel a 01 July deadline to get a workable solution on German refugee policy or risk the break-up of the current German government.

ECB’s Coeure reiterates hawkish stance


In an interview published yesterday in French newspaper Le Figaro, ECB Executive Board member Benoît Coeure was questioned on all euro related topics from the upcoming EU summit to the recent developments in Greece. Most notably, Coeure was pressed on the ECB’s latest decision to keep rates on hold to a later date than originally expected. At the June 14 policy meeting, the ECB stated that they expected to begin tapering in September with a view to ending its asset purchase programme by the end of 2018. However, they also unexpectedly announced that they did not expect to raise rates until after the end of summer 2019. Coeure has backed the Central Bank’s guidance on future interest rates; “We expect our policy rates to remain unchanged until at least through the summer of 2019, and we will continue to reinvest the principal payments from maturing securities in our portfolio, or around €15 billion per month in 2019.” Asked about the surprise market reaction following the announcement, Coeure asserted “for the first time, we are communicating about future policy rates with a date, even if its still only indicative. In our jargon, we call this ‘enhanced forward guidance’. Now that we have decided to end the net asset purchases, this enhanced guidance is necessary to anchor expectations”.

SKG: Continues to invest, with lower cost of debt


SKG has detailed new investments that will allow it to ramp up its digital capabilities by installing eight HP Scitex corrugated presses across its European sites. Separately, it announced yesterday the details of a Senior Note Offering of €600m of euro denominated senior notes due 2026 and with a coupon of 2.875%. While both of these announcements are very much business as usual they show how the company is well positioned, being able to invest in new growth drivers while at the same time benefiting from low cost financing. The bond offering above with a coupon of 2.875% compares to the Group’s average interest rate of 4.1% in 2017. The new corrugated presses will facilitate printing detailed graphics suitable for promotional packaging and are capable of being used for short runs to meet fast turnaround times. While not specifically mentioned in the statement, this investment is likely to be part of the Group’s Medium Term Plan.

Building Materials: US New Home Sales up MoM

May New Home Sales increased by +6.7% MoM, coming in ahead of expectations. New Home Sales rose to an annual rate of 689k units last month, well ahead of the revised April figure of 646k (previously 662k). The May figure had been expected to come in at 667k, with actual numbers well ahead of consensus. Sales in the South were up +17.9% after two consecutive months of declines. The Midwest was unchanged whereas sales were down in both the Northeast (-8.7% MoM) and the West (-10.0% MoM).

Irish Banks: Speculation of a rise in the CCyB

The Central Bank is due to make an announcement on Counter Cyclical Capital Buffers (CCyB) in the next 10 days. The counter cyclical capital buffers are currently set at zero. Given the strong growth in house prices there is concern the market may be overheating and these measures may help contain house price inflation. It is however recognised as a relatively blunt instrument as it impacts all lending, not just mortgages.

Economic Releases

09.00 EC ECB’s Hansson speaks

10.30 UK BoE’s McCafferty speaks

15.00 US Consumer Confidence

15.00 US Richmond Manufacturing