UK cosies up to China
April 20, 2016
Further to the slurry of corporate defaults in China, default risk for European junk borrowers has increased hugely says Moody’s. The number of companies in Europe, the Middle East and Africa that were rated at least seven levels below investment grade at the end of March increased by over fifty percent compared to the same time last year. Liquidity is and will continue to dry up in the high-yield market, with greater differentiation between likely defaulters, definite defaulters and sub junk.
The BoE’s Carney has continues to warn voters over the risks of the British Exit, adding that he was confident that the interest rate could be cut closer to zero if needed and it wasn’t indicated that he had any great aversion to negative rates. Though unlike the great many central bankers salivating over the next dose of medicine he cautioned against the risks of helicopter money. Although his thoughts on the referendum are clear, unlike the mud slingers of Westminster is making some effort to present fact rather than whip up hysteria and prophecy.
However the UK has been dealt an ace, as China considers London for a £320bn bond sale. The Chinese government is considering the sale of gov bonds in what would be the first sale of government debt priced in yuan outside of Hong Kong. With the UK government desperate to forge tighter ties with China and its leaders in Beijing, this is a real boon for the UK Gov. The launch of the sale would help confirm London as the global centre of yuan trading outside of Asia.
Donald Trump and Hilary Clinton have won in New York as both move closer to nomination. Trump could even win all of the delegates if his total vote is above 50 percent state-wide and in each of the state’s congressional districts. “we don’t have much of a race anymore based on what I’m seeing,” Trump told cheering supporters at yet another rally, this time in his ivory tower, adding “we are really, really rocking.” Couldn't agree more, go America.
In Japan, the BoJ’s Kuroda has said that the G20 communique will not constrain monetary policy, he told group of 20 finance leaders gathering in Washington last week that the central bank won’t hesitate to ease monetary policy further if needed to hit its 2 percent inflation target. The G20 agreed that these moves, inclusive of negative rates would not be in breach of the competitive currency devaluation tools, who is watching the watchers though.
In China the PBoC is to inject another tranche, the most in two months using open market operations in an effort to avoid seasonal cash squeezes. The PBoC will auction $38.7bn of seven day reverse repos, the method used to fund short term cash requirements, so cash points are still spitting out bills. Slightly more interestingly, China is one step closer to cornering the world gold market and global gold-price domination. China the world’s largest gold producer, on Tuesday the Shanghai Gold exchange, dubbed the largest physical gold exchange in the world, launched the Shanghai gold fix. A twice daily price fixing for the metal per gram. The Shanghai Gold exchange listed 18 institutions as market makers for the fix, including the Bank of China and China Construction Bank.
Today we see a lot of mid-tier data from the UK jobs data, earnings followed by home sales in the US.
Have a great day.