Bad news remains good news for the Fed

Brexit back on the news as the pound rallied after Theresa May suggested that she is prepared to look at a delay if her deal is not accepted on the 12th or offer a vote on a no deal. Whichever side of the Brexit fence one sits on, it feels with every turn she makes it weakens her position to negotiate with Europe. Those who sit in the remainers camp within parliament do seem to be gaining the upper hand in the proceedings. Interesting article in Todays Telegraph from Yanis Varoufakis, an ex-Greece finance minister “Britain needs to stop playing the EU’s game and start taking a harder line on Brexit”. We have added the link to the article below. In summary, he believes having a deadline date is a mistake, as was agreeing to all the EU’s demands before they would start to negotiate. Unfortunately, Mrs May’s inability to win over the voters in the General Election has put her in an awkward position ever since trying to deliver Brexit.

Equity markets took a breather on Tuesday as the S&P 500 climbs closer to its all-time previous high, as we have enjoyed encouraging statements from the Fed and Chinese US trade negotiations. The underlying macro picture remains mixed. Looking ahead both those topics are now baked into equity prices, so it may be time for a pause. Jerome Powell headed to Capitol Hill on Tuesday for his two-day testimony. In his opening comments Mr Powell previous comments. Growth picture remains mixed. The US economic outlook is “favourable” while acknowledging growth in China and Europe has slowed. He reiterated his comments on the Fed now prepared to remain patient regarding policy changes. He also reiterated previous comments on balance sheet management. All in all, move along please nothing to see here.

One story, admittedly from a couple of weeks ago as Bank Santander missed the opportunity to call in some of its contingent-convertible bonds. These are bonds issued by banks that can be turned into equity should another 2008 style collapse occur, to reinforce their balance sheet. Some see this move as a suggestion that the market for European debt is riskier than it thought. That bank's balance sheets may not be as strong as the market is led to believe. Co-co’s as they are known to offer higher returns as they are considered riskier than other types of bond issuance and banks are not obliged to pay them back. However, it is seen to be in good faith to the market to do so.

Posted on February 26, 2019 .