Your weekly economic update from the team at FXD Capital
In an environment of low rates and gloomy predictions of indefinite quantitative easing, one would expect that banks would be running away from any kind of advances into the deposit market. This week’s intriguing news came from JPMorgan’s announcement of bringing its Chase brand to the UK retail market. Why would a global bank, awash with liquidity and ample funding options, want to launch a retail bank at this time?
The answer is that retail and corporate banking brings optionality. Aside from sticky and reliable deposits, the offering opens a relationship window with new customers. Down the line, these expand into longer-term transactions, be it mortgages with customers, or working capital financing for corporates. While the cost might be suboptimal in the short-term, the long-term brand benefits are manifest. Goldman Sachs is a well-known name in well-to-do circles, but you could make an argument that its Marcus retail arm has increased awareness of the Goldmans brand across the spectrum.
The UK grew less than Germany and the US in the fourth quarter of 2020, but the silver lining was the avoidance of a double-dip recession and an expectation-beating 1% print (vs 0.5%). Over 2020 as a whole, the economy contracted 9.9%, setting a 300-year record. Expectations are now looking more promising; the vaccine rollout is expected to result in the UK outpacing its global peers in the initial months of 2021.
RICS housing data showed a slow start to 2021, with a net balance of -28% chartered surveyors reporting declines in buyer enquiries in January, ending a seven-month upward streak. Listings and sales indices fell to -38% and -18%, respectively, with the pandemic and impending end to the stamp duty holiday noted as the detracting factors.
The long-end of the Gilt year curve had a slight fall across the board for the week. 5-year yields: -4bps, 10-year: -3bps, 20-year: -2bps and 30-year: -2bps.
Expectations for further US government spending pushed long-dated Treasury yields higher, following Jay Powell comments on Wednesday, before easing off by the end of the week. Powell noted that the US was still “very far from a strong labour market”, intimating that inflation was likely to remain muted and that price rises were more likely to transient trends.
The Fed is expected to wait for full employment and 2% inflation before making any rate changes. With the US sitting at 10 million unemployment and consumer prices flatlining on the month +(1.4% for the year), future raises remain a distant horizon.
The European Commission announced a “light at the end of the tunnel” on Thursday, claiming that the euro area economy will grow at 2.8% in 2021. While lower than 2020’s previous estimates, the news came with some optimism, in the form of an upward revision to 2022 growth.
Climate change and monetary policy are two phrases not commonly used together. Yet, on Thursday, France’s central bank governor rose to the challenge with a call to decarbonise ECB corporate bond holdings. Francois Villeroy de Galhau suggested that collateral rules be adjusted based on how aligned underlying issuers are to achieving climate goals. While radical at first, monetary policy as a tool for enacting climate change could be a feasible option for governments to lean on.
Stocks had a mostly flat week within the context of recent rises in anticipation of the US’ $1.9 trillion stimulus plan. Inflation, stimuli and the continuing narrative of “story stocks” are all driving stock markets, which are almost a complete anti-proxy to moves in the interest rate markets. Regarding Biden’s stimulus, congressional committees began writing legislation this week and a bill passed last Friday approved its future ratification with a simple majority of votes.
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