Major News Stories:
New figures from the Office for National Statistics (ONS) this week are expected to confirm that the UK economy has slowed while economists warn of a further slide in the run-up to the referendum on EU membership. Analysts predict that growth will fall to 0.4% in the first quarter, down from 0.6% in the final quarter of last year. The latest sign of a flagging economy comes as central banks line up increasingly extreme measures to combat the global slowdown.
The latest budget deficit figures released last week by the ONS indicate that the deficit has overshot Chancellor George Osborne’s target, adding to signs of a slowing economy. Underscoring the challenge Osborne faces as he tries to turn a still large budget shortfall into a surplus by the end of the decade, public borrowing (excluding banks) came in at £74.0 billion in the 2015/16 tax year. The deficit was slightly above the £72.2 billion forecast although economists believe that the figure may eventually be revised lower. The shortfall was equivalent to 3.9% of national economic output, down from 5.0% in the 2014/15 year.
The ONS also published the March UK retail sales figures which indicated that monthly volumes had dropped by 1.3% which was a bigger fall than most economists had predicted. The fall matched the biggest monthly reduction since January 2014. Retail sales rose 0.8% in the first three months of 2016 which is the weakest calendar quarter in a year. The Bank of England (BoE) believes that the UK economy is suffering from uncertainty about the outcome of the EU referendum on whether the UK should leave the European Union, as well as headwinds from the weakness in many emerging market countries.
Economists expect the U.S. Federal Reserve (Fed) to keep interest rates steady at its policy meeting next week but economists still believe that there will be an interest rate hike in June and then another by the end of the year. At its last policy meeting in March, the Fed cited global risks to the U.S economy as justification for a pause and suggested that there may be two more rate hikes this year which is only half of what they originally anticipated in December 2015.
Japanese banks could soon be paid to borrow money under an unprecedented stimulus plan being considered by the country’s monetary authorities. The move represents a twist on the negative rates policy used by governments desperate to stimulate growth and is likely to put more pressure on the Fed and the BoE to keep interest rates low for a longer period, or even consider interest rate cuts of their own. Both central banks are likely to watch developments carefully, wary of too big a gap arising between their interest rates and those of Japan and the European Central Bank (ECB) that could result in the unwelcome strengthening of their currencies.
Barclays has come under attack from top investors over its plummeting share price and confusing turnaround plans. Britain’s second-biggest bank (by assets) is braced for harsh criticism at this week’s annual meeting, with shareholders set to vent their frustration over its dire performance. Investors have been angered by an apparent about turn by Chairman John who gave an “emphatic” pledge in September to increase the dividend. Instead, last month, Barclays announced the payout would be slashed from 6.5p to 3.0p a share for this year and next. Justifying the dividend cut, Barclays said it needed to preserve cash to pay for a clean-up of its balance sheet, which will see it shed £55bn of unwanted assets. The troubled lender has previously outlined plans to sell its African business and shrink the investment banking division.
|5-YEAR CDS SPREADS AND SHARE PRICES|
|Date:||25th April 2016|
|5-Year CDS Spreads (bps)||Equity Share Prices (LCL)|
|Parent: Aldermore Group plc|
|Aldermore Bank plc||n/a||n/a||n/a||1.80||1.95||-7.7%|
|Allied Irish Banks||65||64||+1.6%||9.00||9.01||-0.1%|
|Parent: Arbuthnot Banking Group plc|
|Arbuthnot Latham & Co.||n/a||n/a||n/a||15.00||14.59||+2.8%|
|Aust and NZ Banking Group Ltd||106||118||-10.2%||24.35||23.85||+2.1%|
|Banco Bilbao Vizcaya Argentaria S.A.||108||121||-10.7%||6.55||5.93||+10.5%|
|Parent: Barclays plc|
|Barclays Bank plc||107||125||-14.4%||1.72||1.67||+2.7%|
|BNP Paribas S.A.||70||78||-10.3%||47.79||45.16||+5.8%|
|Parent: Close Brothers Group plc|
|Close Brothers Limited||n/a||n/a||n/a||12.64||12.50||+1.1%|
|Credit Agricole S.A.||70||78||-10.3%||10.09||9.71||+3.9%|
|Parent: Credit Suisse Group AG|
|Credit Suisse AG||127||138||-8.0%||19.30||17.19||+12.3%|
|Deutsche Bank AG||157||176||-10.8%||16.80||15.35||+9.4%|
|Parent: HSBC Holdings plc|
|HSBC Bank plc||87||98||-11.2%||4.67||4.51||+3.4%|
|Parent: ING Groep N.V.|
|ING Bank N.V.||60||64||-6.3%||11.47||11.07||+3.6%|
|Intesa Sanpaolo S.p.A.||110||119||-7.6%||2.46||2.45||+0.4%|
|Parent: Investec plc|
|Investec Bank plc||n/a||n/a||n/a||5.40||5.19||+4.0%|
|Parent: Lloyds Banking Group plc|
|Lloyds Bank plc||88||102||-13.7%||0.68||0.68||0.0%|
|Metro Bank plc||n/a||n/a||n/a||20.32||20.48||-0.8%|
|Nationwide Building Society||81||81||0.0%||n/a||n/a||n/a|
|Nordea Bank AB||69||75||-8.0%||80||78||+2.6%|
|Parent: RBS Group plc|
|Royal Bank of Scotland plc||107||124||-13.7%||2.52||2.35||+7.2%|
|Ult. Parent: Banco Santander S.A.|
|Santander UK plc||79||79||0.0%||4.47||4.06||+10.1%|
|Shawbrook Group plc||n/a||n/a||n/a||2.71||2.80||-3.2%|
|Parent: Standard Chartered plc|
|Standard Chartered Bank||126||141||-10.6%||5.56||5.21||+6.7%|
|Svenska Handelsbanken AB||56||61||-8.2%||108||103||+4.9%|
|FTSE 350 BANK INDEX||n/a||n/a||n/a||3345||3231||+3.5%|
|SNR FIN ITRAX CDS 5-YEARS||82||89||-7.9%||n/a||n/a||n/a|
Flagstone has not independently verified the information or data used in the Update which is based solely on publicly-available information. Neither Flagstone nor any of its advisors, representatives, officers or agents makes, or is authorised to make, any express or implied representation, warranty or undertaking as to the accuracy or completeness of the Update.