By Henry Adams on 2019-12-17
As the year draws to a close, it is naturally a period for reflection. 2019 has, for a plethora of reasons, been nothing short of stellar. Many global equity indices have broken through ceilings, posting record highs. Investors also appear to be more concerned than ever with ethical asset allocation, hardly a day has gone by this year that one does not hear or see the letters ESG...
Whilst the cynic in me does question whether it is merely a marketing tool, along with broader questions on the theme, the very fact that the world is increasingly aware of the need to reduce pollutants, improve working conditions, and ensure good governance is a good thing. As we go into 2020, greater certainty has calmed markets and offers stronger foundations. US-China trade negotiations have dominated headlines in 2019, creating uncertainty and volatility off the back of every twitter alert! With Phase 1 complete, along with greater political certainty in UK (no matter how one voted) give us all good reason to finally relax over this festive period.
This has also come at a cost though. Both global manufacturing and output have been in decline. Hence, over 50% of central banks globally are now in easing mode, the highest number since the aftermath of the financial crisis, with the pace of cuts accelerating as the calendar days flick ever closer to the year of the Rat (the first in the Chinese Zodiac, a symbol of new beginnings and renewals, fingers crossed!) as well as spreading to emerging economies. To put this into numbers, by the end of the third quarter, 60 central banks have cut 113 times slicing off a total 47% in base rates (versus 43% total hikes for 2018). This only paints part of the picture. We have covered the additional policy measures in the US in particular (given the ramifications for the many holders of USD we assist, as well as and due to implications for the global economy, the old adage of "when the United States sneezes, the rest of the World gets a cold" still carries merit). Globally, when factoring in such additional policy designed to ease, the number of actions rises to 130 (such as restarting asset purchases, new low-cost lending facilities, reductions in reserve requirements etc). One must question how sustainable such action is as we grind ever-closer to zero (or more deeply negative) rates where it is hard to see how credit could be any cheaper, with "high yield" (or junk) returning a negative real yield. Record issuance will come at a cost. This feels rather like the opposite of delayed gratification, which is exactly what the world really needs now in my humble opinion. Safe, responsible lending and placement of cash should be at the forefront of all those with the burden and responsibility for managing said assets.
There may well be some light at the end of the tunnel, and central banks far and wide will have their eyes and notepads fixated on what happens in Sweden on Thursday as the Riksbank looks to hike rates, pushing back towards positive territory.
Sterling markets are performing very well, with the FTSE 250 having reached a record high post the December 12 election, and government debt offering better returns. Expectation of a strong and stable domestic economy with increased foreign interest is rising. UK Treasury Bill markets are also behaving as one might expect and in line with the above, with the 1 month treasury bill drawing a great deal of interest last week with the lowest yield in town of 0.48% ( although our UK T-Bills FTF yielded a generous 0.60% for the term).
Continued support from the Federal Reserve has seen levels hold in at close to and even through the lower rate band (1.50%). The ocean of money being waved in the direction of repo markets has also kept a lid on levels here, although every auction offering financing over year-end has been oversubscribed (often twice or more) meaning the demand for financing is extremely high. For one of the better reviews of where we are right now please see the story below.
All that is left to say is that the team at TreasurySpring wish you and your family a warm, happy and relaxing Christmas vacation and a healthy and prosperous 2020.
Articles of interest
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