FTSE nudges higher at start of week
The FTSE is slightly higher but the rest of the European markets are mixed this morning with banking and airline news causing the biggest movements.
Banking stocks benefited from an unusual manoeuvre by Deutsche Bank (DE:DBKGn) which is preparing to fence off all of its slightly riskier assets into a separate unit and then sell them off later this year. The assets are mainly related to equity and bond trading business outside of continental Europe and once sold will allow the bank to change focus onto lower risk transaction banking and private wealth management.
Sterling lower again
The pound continues to lose ground after a brief respite over the weekend and is trading at $1.2576. Much of sterling’s slide has to do with the UK leadership race where Boris Johnson now holds a firm lead. And although he seems keen to assure the markets that he is not in favour of a no-deal Brexit, reading his comments more carefully it becomes clear that no-deal is fairly likely. Fundamentally Johnson is committing to leaving the EU on 31 October and avoiding no-deal assumes that a deal would be negotiated before then.
It took Theresa May many months to settle on a deal with the EU before having to endlessly try and fine-tune it to meet the requests of her own party and the opposition. The new PM will not even be in Downing Street before late July and with the summer recess will barely have two months to agree a phenomenally contentious deal.
Fed: will it or won’t it this week?
Bets are on whether the Federal Reserve will opt for a rate cut when it meets later this week, or postpone until its next meeting, with bond yields pricing in a smaller likelihood for a cut this month and a very high likelihood for a cut in July. But the underlying economic numbers don’t justify a cut yet. Granted, employment figures were worse than expected this month but looking at the bigger picture unemployment is still close to historically low levels.
Other data has also not been as good as Wall Street would have liked, but nevertheless shows that the US economy is in fairly good shape. Consequently betting on a rate cut may be a bit premature.
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