A slew of encouraging Markit/CIPS services purchasing managers’ index (PMI) survey results, covering the December period, indicate a strong economic growth pattern for the UK economy. Analysts believe that collectively the surveys point to gross domestic product (GDP) growth of 0.5% for the final quarter of 2016 (2.0% annualised).
The latest Markit/CIPS purchasing managers’ index (PMI) figures indicate that the UK services sector has continued to defy fears of a Brexit slowdown, growing at its fastest pace for 17 months in December. The index rose to 56.2 last month, from 55.2 in November – its highest level since July 2015. However economists caution that inflationary pressures continue to build in the sector with prices rising at the fastest rate since April 2011. Services, which include areas such as retailing and banking, make up more than three-quarters of the UK economy.
The Markit/CIPS purchasing managers’ index (PMI) for the UK construction sector also indicated that construction ended 2016 well by expanding at its fastest pace for 9 months in December. The index rose to 54.2 in December, up from 52.8 for the month before. However, the sector continues to experience intense cost pressures with the increase in costs last month being the biggest since April 2011. This came about as suppliers passed on the higher costs of imported raw materials due to the weak pound.
Although at face value these survey results suggest that the next move by the Bank of England is more likely to be a rate hike than a cut, economists believe that the Monetary Policy Committee (MPC) members remain concerned about the extent to which Brexit-related uncertainty could slow growth this year. As a consequence analysts caution that the current resilience of the economy, sitting alongside elevated levels of uncertainty, could mean that the next UK interest rate move could be either up or down.
The UK’s retail sector experienced its fourth poor December in a row with negative like-for-like sales growth on the high street amid volatile consumer sentiment. The latest figures from BDO indicate that comparable sales growth dipped by 0.1% last month after the high street failed to rally at the end of a disappointing year of trading. The downbeat figures and the weaker-than-expected update from Next will raise further fears that the UK’s retailers have had a tough festive period. This week a host of retailers will update the market on their festive period performance and markets are bracing themselves for a mixed bag of results.
Consumers and businesses in the Eurozone appear to have shrugged off political uncertainty to start 2017 with confidence at its highest level in more than five years. The European Commission’s monthly survey of economic sentiment in the 19 countries that share the euro rose in December for the fourth consecutive month to 107.8, boosted by rising optimism in France, Germany and the Netherlands. This was up from 106.6 in November and well above the 106.8 reading expected by economists polled by Reuters, as well as its long-term average of 100. It would appear that the Italian referendum and subsequent concerns about the Italian banking sector has not significantly impacted confidence in the Eurozone and caused a mere stagnation in sentiment in Italy itself. Analysts point to improving order books, strong employment expectations and strengthening assessments of production in recent months that outweigh political volatility for the moment.
The Basel Committee on Banking Supervision (BCBS) has postponed a meeting where senior figures were due to agree the global framework for banks’ risk-weighted capital ratios. Reports suggest that a further 2 months could now elapse while further debate takes place over the new rules which European banks claim would unfairly penalise them and which has sparked a lobbying battle with their U.S. peers. Completion of the Basel III capital adequacy regime has been held up by a dispute between bankers and regulators over how lenders calculate the riskiness of assets and the amount of capital they are required to hold. Many European banks use internal risk models which U.S. regulators argue have allowed them to underestimate capital needs. In response European banks claim that reducing their ability to use their own risk models would force them to raise more capital which would contravene an international commitment that bank capital requirements would not increase significantly.
Barclays Bank plc (Barclays) and the Royal Bank of Scotland plc (RBS) will together pay more than $1.0bn in fines to the U.S. Department of Justice (DoJ) for currency manipulation to finally draw a line under this long-running saga after a U.S. judge rubber-stamped the deal. Barclays will pay $650m and RBS will pay $395m as part of a $2.5bn agreement with the DoJ which includes a $925m contribution from Citigroup and $550m from JP Morgan. The banks had agreed to pay the fines in May 2015 after pleading guilty to rigging foreign exchange markets.
|5-YEAR CDS SPREADS AND SHARE PRICES|
|Movements over the Last Week|
|Date:||9th January 2017|
|5-Year CDS Spreads (bps)||Equity Share Prices|
|ABN Amro Bank N.V.|
|ABN AMRO Groep N.V.||n/a||n/a||n/a||22.23||21.05||+5.6%|
|Parent: Aldermore Group plc|
|Aldermore Bank plc||n/a||n/a||n/a||2.36||2.37||-0.4%|
|Allied Irish Banks||63||65||-3.1%||5.15||5.00||+3.0%|
|Parent: Arbuthnot Banking Group plc|
|Arbuthnot Latham & Co.||n/a||n/a||n/a||14.46||14.15||+2.2%|
|Aust and NZ Banking Group Ltd||67||68||-1.5%||31.38||30.42||+3.2%|
|Banco Bilbao Vizcaya Argentaria S.A.||117||124||-5.6%||6.57||6.41||+2.5%|
|Parent: Barclays plc|
|Barclays Bank plc||77||82||-6.1%||2.35||2.23||+5.4%|
|BNP Paribas S.A.||81||85||-4.7%||62.49||60.55||+3.2%|
|Parent: Close Brothers Group plc|
|Close Brothers Limited||n/a||n/a||n/a||14.59||14.45||+1.0%|
|Credit Agricole S.A.||71||75||-5.3%||12.34||11.78||+4.8%|
|Parent: Credit Suisse Group AG|
|Credit Suisse AG||115||119||-3.4%||15.89||14.31||+11.0%|
|Deutsche Bank AG||159||169||-5.9%||18.32||17.25||+6.2%|
|Parent: HSBC Holdings plc|
|HSBC Bank plc||66||69||-4.3%||6.69||6.57||+1.8%|
|Parent: ING Groep N.V.|
|ING Bank N.V.||62||65||-4.6%||13.90||13.37||+4.0%|
|Intesa Sanpaolo S.p.A.||128||139||-7.9%||2.54||2.43||+4.5%|
|Parent: Investec plc|
|Investec Bank plc||n/a||n/a||n/a||5.40||5.36||+0.7%|
|Parent: Lloyds Banking Group plc|
|Lloyds Bank plc||66||69||-4.3%||0.66||0.63||+5.6%|
|Metro Bank plc||n/a||n/a||n/a||31.16||29.25||+6.5%|
|Nationwide Building Society||83||85||-2.4%||n/a||n/a||n/a|
|Nordea Bank AB||65||68||-4.4%||103||101||+2.0%|
|Parent: RBS Group plc|
|Royal Bank of Scotland plc||111||113||-1.8%||2.32||2.25||+3.1%|
|Ult. Parent: Banco Santander S.A.|
|Santander UK plc||81||81||0.0%||4.42||4.96||-10.9%|
|Shawbrook Group plc||n/a||n/a||n/a||2.71||2.72||-0.4%|
|Parent: Standard Chartered plc|
|Standard Chartered Bank||113||116||-2.6%||6.91||6.64||+4.1%|
|Svenska Handelsbanken AB||56||57||-1.8%||125||127||-1.6%|
|FTSE 350 BANK INDEX||n/a||n/a||n/a||4274||4138||+3.3%|
|SNR FIN ITRAX CDS 5-YEARS (ESTIMATED)||87||95||-8.2%||n/a||n/a||n/a|