Stop all the clocks, cut off the telephone, prevent the dog from barking with a juicy bone… Britain has been stripped of its treasured AAA credit rating.
When the Coalition came to power in 2010, George Osborne said the preservation of the top tier rating was among his main priorities, yet on his watch Moodys has humiliated him with a one-notch downgrade to AA1.
Economists I know tell me it will be no surprise if the other major agencies – Standard & Poors and Fitch – now follow suit. France and the US have already been downgraded and traders tell me investors had been expecting it to come, which is why there was no huge adverse market reaction following the announcement.
Although the FTSE continues to rise and 10-year bond yields remain steady it will be hard for the Chancellor to brush this off having made such an issue of it in the past.
In other news, Sir Mervyn King was outvoted by his colleagues on the Monetary Policy Committee by favouring a further £25bn of quantitative easing. However, I am told by well-placed sources that what Sir Mervyn wants, he usually gets, and his fellow committee members are likely to come round to his way of thinking in the coming weeks.
Meanwhile, Sir Mervyn’s deputy Paul Tucker wreaked havoc last week by floating the idea of negative interest rates, in a bid to boost lending to small businesses where other schemes have failed. My chums close to the Bank reassure me that the barriers to such an approach are so high that it is unlikely to become reality, despite all the noise.
Elsewhere, the eurozone came back to life after Italy failed to choose a clear winner in its general election. Fears are growing that the political stalemate will fan the flames of the crisis. The major concern is that a coalition government will resist reform and austerity programmes and slow progress on the banking union and other areas which are designed to bind the eurozone closer together. All this uncertainty is likely to put pressure once again on Italian government borrowing costs and some of my contacts (who have followed the crisis every step of the way) say Italy might even be pushed towards a bailout. Watch this space.
In terms of commodities, gold is on its worse monthly streak for 16 years.
Analysts were falling over themselves at the end of last year to say gold was going to hit $2,000 an ounce. With the price at around $1,600 have the City scribes got it wrong?
Gold is a safe haven asset and we have had some helpful economic data from China and the US and the corporate reporting season has been strong. Personally I am not sure we’re are out of the woods yet and stock markets appear to be defying gravity. The Italian situation could be the start of people banking gains.
One of my friends, a strategist at a major investment bank, reckons markets are set for a fall sooner rather than later. However, he also believes that will be a buying opportunity – as do I. Im just sitting waiting for it to happen. When it does, it will be good for gold.
But yet again, for traders, it’s all about agriculturals. They seem to be most excited about cotton futures, which are already up 10pc this year. However, net long positions form hedge funds don’t appear to be a falling. There could be more upside left there.
That”s all for now, I’m off to help some bankers pack their suitcases to Hong Kong. I fear this EU decision to cap bonuses is going to hit the City hard – I’m already hearing talk of a mass exodus.
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.
by City Insider
Forget Gold and Equities – it’s time to cotton on to a Great Investment
Mar 4, 2013 at 12:28 pm in Market Commentary by City Insider
Stop all the clocks, cut off the telephone, prevent the dog from barking with a juicy bone… Britain has been stripped of its treasured AAA credit rating.
When the Coalition came to power in 2010, George Osborne said the preservation of the top tier rating was among his main priorities, yet on his watch Moodys has humiliated him with a one-notch downgrade to AA1.
Economists I know tell me it will be no surprise if the other major agencies – Standard & Poors and Fitch – now follow suit. France and the US have already been downgraded and traders tell me investors had been expecting it to come, which is why there was no huge adverse market reaction following the announcement.
Although the FTSE continues to rise and 10-year bond yields remain steady it will be hard for the Chancellor to brush this off having made such an issue of it in the past.
In other news, Sir Mervyn King was outvoted by his colleagues on the Monetary Policy Committee by favouring a further £25bn of quantitative easing. However, I am told by well-placed sources that what Sir Mervyn wants, he usually gets, and his fellow committee members are likely to come round to his way of thinking in the coming weeks.
Meanwhile, Sir Mervyn’s deputy Paul Tucker wreaked havoc last week by floating the idea of negative interest rates, in a bid to boost lending to small businesses where other schemes have failed. My chums close to the Bank reassure me that the barriers to such an approach are so high that it is unlikely to become reality, despite all the noise.
Elsewhere, the eurozone came back to life after Italy failed to choose a clear winner in its general election. Fears are growing that the political stalemate will fan the flames of the crisis. The major concern is that a coalition government will resist reform and austerity programmes and slow progress on the banking union and other areas which are designed to bind the eurozone closer together. All this uncertainty is likely to put pressure once again on Italian government borrowing costs and some of my contacts (who have followed the crisis every step of the way) say Italy might even be pushed towards a bailout. Watch this space.
In terms of commodities, gold is on its worse monthly streak for 16 years.
Analysts were falling over themselves at the end of last year to say gold was going to hit $2,000 an ounce. With the price at around $1,600 have the City scribes got it wrong?
Gold is a safe haven asset and we have had some helpful economic data from China and the US and the corporate reporting season has been strong. Personally I am not sure we’re are out of the woods yet and stock markets appear to be defying gravity. The Italian situation could be the start of people banking gains.
One of my friends, a strategist at a major investment bank, reckons markets are set for a fall sooner rather than later. However, he also believes that will be a buying opportunity – as do I. Im just sitting waiting for it to happen. When it does, it will be good for gold.
But yet again, for traders, it’s all about agriculturals. They seem to be most excited about cotton futures, which are already up 10pc this year. However, net long positions form hedge funds don’t appear to be a falling. There could be more upside left there.
That”s all for now, I’m off to help some bankers pack their suitcases to Hong Kong. I fear this EU decision to cap bonuses is going to hit the City hard – I’m already hearing talk of a mass exodus.
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.