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11th February Market Commentary

By Henry Adams on 2020-02-11

Since our last commentary rather a lot has changed, our concerns from then have all but blown away (for now!). A lot can happen in just two weeks.

Casting your minds back briefly, the Bank of England remained on hold at the end of January, and since then we have continued to see strong enough data to push expectations of a cut further out, only being fully priced in at the end of the year. Brexit has begun, and as yet everything seems rather sameish. Plenty of work left to do there though…

The virus which was first believed to blow over not only has everybody on the street talking, but has already affected the global supply chain, could be more dramatic than originally thought, with the shuttering of factories in China. Whilst some “reopened” yesterday (10% of the Foxconn staff returning, a major supplier to the smartphone market), only time will tell whether this was a wise move. The head of the World Health Organisation, Director-General Tedros Adhanom Ghebreyesus is not sitting on the fence, “we may only be seeing the tip of the iceberg”. For those of you running risk, this is no bad time to tread with caution, be conservative and avoid super-spreaders.

Appetite in short-dated UK Government T-Bills and the respective lack of supply remains strong. Whilst cuts are no longer priced in across this curve, levels have not yet returned to pre-speculation levels. The DMO has in part kept supply limited thus dampening any potential for cheapening. However, the savvier traders who have been taking stock of total issued vs required have spotted that deeper supply is coming soon…good news for those looking to move into government-backed issuance. This morning also saw net positive data for UK Plc despite covering what has in part been an uncertain time (snapshot taken from Bloomberg below).

The FOMC has also met since our last narration. Base rates in the United States remained unchanged and in line with expectations. Where a level was tinkered with is the IOER (Interest On Excess Reserves). Despite the three cuts last year, a US Treasury Bill buying program and all the repo operations to get short-term markets under control, the decision was made to increase this level (granted currently only by 5 basis points). This has had the effect of rates going up again in repo markets, whilst the amount of central bank cash going into these markets is also being reduced adding to this pressure. Quiet before the next storm?

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Bank of England gold: Rare look inside the vaults

UK data from this morning:

Bloomberg data

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.

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