• A slew of encouraging UK economic surveys have resulted in many economists predicting that the UK may be able to avoid a recession this year.
• The latest PMI index for the UK services industry rebounded strongly in August as the index rose from 47.4 in July to 52.9 in August suggesting that the country may avoid a recession.
• The latest PMI index for UK manufacturing rebounded to a 10-month high of 53.3 in August after tumbling to a three-year low of 48.3 in July in the immediate aftermath of the Brexit decision.
• The latest PMI index for the UK construction sector recovered in August with construction output increasing from 45.9 in July to 49.2 in August.
• The latest growth indicator survey from the CBI reveals that UK activity rose modestly over the summer and appears to indicate that businesses are so far shrugging off the impact of the Brexit vote.
• U.S. employment growth slowed more than expected in August after two straight months of gains which could effectively rule out an interest rate increase from the Federal Reserve in September.
• There was a slight improvement of 1.6% in the ITRAXX Europe Senior Financials 5-year CDS index to 90bps from 91bps with Deutsche Bank remaining high at 214bps.
• The FTSE 350 Bank rose by 5.6% over the week as financial market traders come towards the end of their summer holiday period.
Last week coincided with the release of a slew of encouraging UK economic surveys that were remarkably consistent in confirming the apparent resilience of the UK economy since the Brexit decision and have resulted in many economists predicting that the UK may be able to avoid a recession this year.
The UK’s services industry rebounded strongly in August according to the latest Markit/CIPS purchasing managers’ index (PMI). The index showed activity in UK services recorded the biggest month-on-month rise in the survey’s history. The index rose from 47.4 in July to 52.9 in August (with a score above 50 indicates growth) and effectively takes services back to pre-Brexit levels. The return to growth for the services industry – which accounts for nearly 80% of the UK economy – is consistent with the signs of recovery that were indicated in both the manufacturing and construction equivalent indices.
The latest Markit/CIPS Purchasing Managers’ Index (PMI) figures for UK manufacturing – a closely watched gauge of factory activity – rebounded to a 10-month high of 53.3 in August after tumbling to a three-year low of 48.3 in July in the immediate aftermath of the Brexit decision. The index surprised the financial markets with UK manufacturing staging one of its sharpest rebounds on record in August, a post-Brexit surprise that analysts believe could prompt the Bank of England (BoE) to rethink the need to cut interest rates again if other surveys confirm the trend. The recovery far outstripped all economist forecasts, delivering the strongest signal yet that the UK economy is performing better than initially feared after the referendum vote to leave the European Union (EU).
The latest Markit/CIPS Purchasing Managers’ Index (PMI) figures for UK construction has provided further evidence that the post-Brexit economic impact may be less severe than first thought. The Index showed that the UK construction sector recovered in August from the seven-year low it hit in the wake of the Brexit decision with construction output increasing from 45.9 in July to 49.2 in August. While this is considerably above analyst forecasts that were in the region of 46.5, the index has remained below the 50 mark which separates expansion from contraction for the third month in row.
The latest growth indicator survey from the Confederation of British Industry (CBI) also confirms this better than expected performance trend. The survey reveals that UK activity rose modestly over the summer and appears to indicate that businesses are so far shrugging off the impact of the Brexit vote. The survey shows that a net 8% of companies reported a rise in activity in the three months to August which was up from 5% in the period to July. Businesses were also marginally more optimistic about growth in the coming quarter. Although growth rates remain below pre-referendum levels, economists say the odds are shortening that the economy will not contract in the coming months.
U.S. employment growth slowed more than expected in August after two straight months of gains which could effectively rule out an interest rate increase from the Federal Reserve in September. Non-farm payrolls rose by 151,000 jobs last month after an upwardly revised 275,000 increase in July, with lower hiring in manufacturing and construction sectors. The unemployment rate was unchanged at 4.9%. The report came hard on the heels of news that the U.S. manufacturing sector contracted in August for the first time in six months. However analysts believe that the jobs gains, could still be sufficient to push the U.S. central bank to tighten interest policy in December. Financial markets have priced in a 21% chance of a rate rise in September and a 54% probability of a rate rise in December.
|5-YEAR CDS SPREADS AND SHARE PRICES|
|Date:||5th September 2016|
|5-Year CDS Spreads (bps)||Equity Share Prices (LCL)|
|ABN Amro Bank N.V.|
|ABN Amro Groep N.V.||n/a||n/a||n/a||18.89||17.76||+6.4%|
|Parent: Aldermore Group plc|
|Aldermore Bank plc||n/a||n/a||n/a||1.68||1.63||+3.1%|
|Allied Irish Banks||57||59||-3.4%||6.00||6.25||-4.0%|
|Parent: Arbuthnot Banking Group plc|
|Arbuthnot Latham & Co.||n/a||n/a||n/a||15.83||16.00||-1.1%|
|Aust and NZ Banking Group Ltd||65||67||-3.0%||26.84||26.67||+0.6%|
|Banco Bilbao Vizcaya Argentaria S.A.||115||119||-3.4%||5.69||5.43||+4.8%|
|Parent: Barclays plc|
|Barclays Bank plc||89||92||-3.3%||1.74||1.66||+4.8%|
|BNP Paribas S.A.||70||73||-4.1%||47.82||44.83||+6.7%|
|Parent: Close Brothers Group plc|
|Close Brothers Limited||n/a||n/a||n/a||14.06||13.73||+2.4%|
|Credit Agricole S.A.||68||71||-4.2%||8.69||8.20||+6.0%|
|Parent: Credit Suisse Group AG|
|Credit Suisse AG||123||126||-2.4%||21.39||21.26||+0.6%|
|Deutsche Bank AG||214||216||-0.9%||13.32||12.60||+5.7%|
|Parent: HSBC Holdings plc|
|HSBC Bank plc||68||70||-2.9%||5.81||5.47||+6.2%|
|Parent: ING Groep N.V.|
|ING Bank N.V.||59||61||-3.3%||11.45||10.88||+5.2%|
|Intesa Sanpaolo S.p.A.||128||133||-3.8%||2.19||2.01||+9.0%|
|Parent: Investec plc|
|Investec Bank plc||n/a||n/a||n/a||4.58||4.66||-1.7%|
|Parent: Lloyds Banking Group plc|
|Lloyds Bank plc||79||83||-4.8%||0.61||0.58||+5.2%|
|Metro Bank plc||n/a||n/a||n/a||24.63||24.01||+2.6%|
|Nationwide Building Society||82||85||-3.5%||n/a||n/a||n/a|
|Nordea Bank AB||64||65||-1.5%||86||79||+8.9%|
|Parent: RBS Group plc|
|Royal Bank of Scotland plc||104||110||-5.5%||2.04||1.97||+3.6%|
|Ult. Parent: Banco Santander S.A.|
|Santander UK plc||80||82||-2.4%||4.10||3.89||+5.4%|
|Shawbrook Group plc||n/a||n/a||n/a||2.33||2.32||+0.4%|
|Parent: Standard Chartered plc|
|Standard Chartered Bank||104||108||-3.7%||6.61||6.23||+6.1%|
|Svenska Handelsbanken AB||61||61||0.0%||115||108||+6.5%|
|FTSE 350 BANK INDEX||n/a||n/a||n/a||3695||3499||+5.6%|
|SNR FIN ITRAX CDS 5-YEARS (ESTIMATED)||90||91||-1.6%||n/a||n/a||n/a|