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28th November Market Commentary

By Henry Adams on 2019-11-28

Happy Thursday, and for our American friends, Happy Thanksgiving!

On that very theme, 2019 has been a surprisingly good year for stocks. The NASDAQ is up over 30%, with most other major indices across the globe having risen in excess of 20%. Quite the harvest! In particular given the backdrop. Whilst fundamentals and Central Bank rhetoric strike cautious tones, with an overriding theme of "further easing" (7 cuts in October alone) one might think that this is either a very soft landing or something else is at play. One thing is for certain, fighting the wall of money being printed is futile. The issue lies in what measures and weaponry remain when markets do turn, with rates so low and Sovereign balance sheets inflated.

Despite a recent warning from Moody's of a potential downgrade, both GBP and Sovereign debt pricing has held in well. If anything, UK Treasury Bills in shorter dates are increasingly sparse, as well as pricey. Unlike the United States where bills trade at a 20 basis point premium to government repo, in the UK levels are somewhat more compressed.Thus far, the impact of the impending election has not been felt here, if anything the potential of an end in sight on Brexit following the December 12 vote is in part seen as positive as it reduces the level of uncertainty that has dampened moods for over 3 years now.

As we sprint towards December 31 one theme to always grab the attention of those active in USD money markets and financing is calendar year-end The potential for huge volatility showed itself in September when levels (in what can be described as secured USD deposits between high-quality institutions) blew out to a massive 10%. This year is different in a couple of ways. Opinion is more divided on whether or not it will be a calm or chaotic New Years Eve, with Fed policy and purchasing power having calmed markets since they took action. Whilst anyone looking to borrow money might tell you the problem is solved, when looking under the hood additional questions must be raised, such as where the money flows (primary dealers) and whether it will be received with open arms, or, more realistically, turned away and unable to access the very markets it is looking to serve - being the key reporting date upon which balance sheet size and thus regulatory calculations are cut and minimum capital buffers set for the following year, those being scrutinised naturally want to appear as small as possible.

Articles of Interest

UK's credit rating could be downgraded, says Moody's

Repo: How the financial markets' plumbing got blocked

An FTF or Fixed-Term Fund is a regulated fund investment that offers exposure to a single investment-grade obligor for a fixed term, without the need for any client infrastructure. An FTF has many of the same characteristics as a term deposit, but can offer exposures outside of the banking sector. TreasurySpring is originating FTFs with sovereign, financial and corporate obligors.