ABX Weekly 04/09/2014

Market Update  

Uncertainty over the US/China trade meetings scheduled this month moved the market to a risk off sentiment.  In the US session, the weaker ISM Manufacturing print took the market to saw new lows in US 10-year yields hitting 1.429%.  The risk off move wasn’t enough to discourage the long list of Corporate issuers to come through to market with roughly $26 Bil in issuance on a single day showing there is large appetite for bonds and a hunt for yield.  This took the market off the highs as we bear steepened into the close. 

A big data point out today with the Australian GDP result expecting to come in softer. With the recent head winds trickle down from global trading partners, economists are expected a reflection in a lower growth rate for Australia. 

European Desk 

At its July meeting, the ECB made it very clear that further easing is coming, in the 12 September meeting has been highly anticipated to see what exactly is in store. Given the weaker developments in the Eurozone the economy requires even more easing still so the market is expecting a 20bps cuts to the deposit rate in both September and December, bringing the deposit rate to -0.80%, alongside the introduction of a tiering structure. There will most likely also an initial announcement of €40bn/month of QE, with that pace likely to be augmented in H1 2020 and reinforced forward guidance. This will leave the ECB with an additional €1trn or so on its balance sheet and means that rate hikes are likely off the table until 2022 at the earliest. President Draghi will be leaving the ECB with a very dovish stance when he hands off to Christine Lagarde later this year. 

Prime Minister Boris Johnson’s move to suspend parliament for up to five weeks ahead of the Oct. 31 Brexit deadline was not overruled by a Scottish judge this morning. Despite the setback, there are confident that they have enough time to block the U.K. leaving the European Union without deal. There was more evidence of the damage the uncertainty over the future is doing to the British economy, with consumer confidence at a six-year trough and the lowest business optimism since 2011.