The UK economy is likely to stall ahead of the EU referendum vote. A number of economic surveys to be published this week are expected to indicate that the UK economy is slowing down sharply as businesses put investments on hold before the European referendum in June. Purchasing managers’ surveys for manufacturing, construction and services are expected to show that growth rates have slipped again in May. The last set of these surveys for April suggested the economy slowed to a crawl at the start of spring. Analysts expect little improvement until the referendum uncertainty has been dispelled.
The aforementioned surveys are likely to support the view of many economists that growth is slowing further in the second quarter as the referendum magnifies already appreciable domestic and global economic uncertainties. Economists predict that GDP growth quarter-on-quarter will be limited to 0.2% to 0.3% in the second quarter, which would be the weakest performance since the fourth quarter of 2012 and down from 0.4% for the first quarter of 2016 and 0.6% for the fourth quarter of 2015.
Comments from Chair, Janet Yellen, that the Federal Reserve should raise U.S. interest rates gradually in the coming months “if the economy picks up as expected and jobs continue to be generated” has bolstering the case for a Fed interest rate increase in June or July. Although Yellen expressed caution about too steep a rise in U.S. rates, economists noted that she sounded more confident than in the past that the U.S. economy has rebounded from a weak winter and that inflation would edge higher toward the Fed’s 2.0% target.
The European Central Bank (ECB) will hold its policy meeting on Thursday after the publication of inflation and lending data earlier in the week. The Eurozone’s central bank is expected to keep interest rates on hold and reaffirm its focus on implementing the stimulus package announced in March. Despite the bounce in oil prices and a continued (albeit modest) recovery in lending, inflation is expected to have remained negative in May. The majority of economists polled by Reuters do not expect the ECB to ease its monetary policy again this year.
A lawsuit alleging Libor manipulation has been reinstated by a U.S. court which has the potential to bankrupt 16 of the world’s most important banks. These include the four largest UK banks – namely Barclays, HSBC, Lloyds and Royal Bank of Scotland – as well as Bank of America, Bank of Tokyo Mitsubishi, Citigroup, Credit Suisse, Deutsche Bank, JP Morgan, Rabobank, Royal Bank of Canada, Société Generale and UBS. A U.S. appeals court last week reinstated a civil lawsuit accusing 16 major banks of conspiring to manipulate the Libor benchmark interest rate. The ruling, which overturns a 2013 decision, could potentially bankrupt the institutions with the judges themselves warning of dire consequences should the case be proven against the banks. If the court were to rule in favour of the plaintiffs, they would be eligible to receive triple damages and attorneys’ fees for any violations.
In litigation that began in 2011, investors accused big banks of suppressing Libor during the financial crisis in order to boost earnings or make their finances appear healthier. However in 2013, Manhattan federal district court dismissed the claims ruling that the banks did not violate anti-trust laws when they colluded to manipulate the Libor benchmark interest rate and that the plaintiffs failed to prove harm from such collusion. At the time Barclays, UBS and Royal Bank of Scotland had already settled cases with more than $2.5bn in penalties. Since then penalties in Libor-rigging probes have climbed to around $9bn, including a penalty of $2.5bn against Deutsche Bank.
|5-YEAR CDS SPREADS AND SHARE PRICES|
|Date:||30th May 2016|
|5-Year CDS Spreads (bps)||Equity Share Prices (LCL)|
|Parent: Aldermore Group plc|
|Aldermore Bank plc||n/a||n/a||n/a||2.20||1.97||+11.7%|
|Allied Irish Banks||64||66||-3.0%||6.90||6.80||+1.5%|
|Parent: Arbuthnot Banking Group plc|
|Arbuthnot Latham & Co.||n/a||n/a||n/a||15.42||14.60||+5.6%|
|Aust and NZ Banking Group Ltd||96||100||-4.0%||25.85||25.09||+3.0%|
|Banco Bilbao Vizcaya Argentaria S.A.||119||137||-13.1%||6.06||5.63||+7.6%|
|Parent: Barclays plc|
|Barclays Bank plc||101||114||-11.4%||1.86||1.76||+5.7%|
|BNP Paribas S.A.||78||86||-9.3%||49.77||45.71||+8.9%|
|Parent: Close Brothers Group plc|
|Close Brothers Limited||n/a||n/a||n/a||13.58||12.81||+6.0%|
|Credit Agricole S.A.||75||84||-10.7%||9.09||8.84||+2.8%|
|Parent: Credit Suisse Group AG|
|Credit Suisse AG||125||136||-8.1%||20.13||20.90||-3.7%|
|Deutsche Bank AG||162||181||-10.5%||16.29||15.14||+7.6%|
|Parent: HSBC Holdings plc|
|HSBC Bank plc||86||97||-11.3%||4.48||4.29||+4.4%|
|Parent: ING Groep N.V.|
|ING Bank N.V.||67||72||-6.9%||11.38||10.49||+8.5%|
|Intesa Sanpaolo S.p.A.||115||133||-13.5%||2.36||2.31||+2.2%|
|Parent: Investec plc|
|Investec Bank plc||n/a||n/a||n/a||4.87||4.81||+1.2%|
|Parent: Lloyds Banking Group plc|
|Lloyds Bank plc||84||95||-11.6%||0.72||0.70||+2.9%|
|Metro Bank plc||n/a||n/a||n/a||22.19||22.12||+0.3%|
|Nationwide Building Society||76||76||0.0%||n/a||n/a||n/a|
|Nordea Bank AB||58||65||-10.8%||82||78||+5.1%|
|Parent: RBS Group plc|
|Royal Bank of Scotland plc||109||126||-13.5%||2.51||2.31||+8.7%|
|Ult. Parent: Banco Santander S.A.|
|Santander UK plc||75||76||-1.3%||4.40||4.15||+6.0%|
|Shawbrook Group plc||n/a||n/a||n/a||2.95||2.80||+5.4%|
|Parent: Standard Chartered plc|
|Standard Chartered Bank||141||154||-8.4%||5.42||5.26||+3.0%|
|Svenska Handelsbanken AB||58||65||-10.8%||108||104||+3.8%|
|FTSE 350 BANK INDEX||n/a||n/a||n/a||3380||3236||+4.4%|
|SNR FIN ITRAX CDS 5-YEARS||90||100||-10.0%||n/a||n/a||n/a|