BoE increases QE

The Bank of England increased quantitative easing by £100bn and kept base rates at 0.1%. That takes the total to £745 bn. The program was started with an initial £200 bn back in 2009.

UK government being paid to borrow money!

The government has sold a gilt with a negative yield for the first time. An auction by the Debt Management Office of a gilt maturing in July 2023 sold at an average yield of -0.003 per cent.
A negative yield means that the government is effectively being rewarded to borrow as investors agree to be repaid slightly less than they lent.

US oil price drops below $0

The consequence of an oil price war and the pandemic has resulted that in the first time in history the oil producers failed to find enough space in the US to store a glut of crude, forcing them to pay buyers to take it off their hands. West Texas Intermediate (WTI), the US benchmark, fell to -$37.63 a barrel, a loss of approximately 300 per cent.

PMIs at 7 year low

Increased Brexit uncertainty and escalating global trade tensions knocked British manufacturers in August. The purchasing managers’ index fell to 47.4 from 48 in July, its lowest reading since July 2012.

Chinese yuan

Today the Chinese yuan (CNY) finally broke through to the downside to the psychologically important level of 7.0 to the US dollar. 7.0 was a clear line in the sand defended by monetary authorities in Beijing since late 2016. While we are not currency experts, we would not be surprised to see the yuan weaken further now that 7.0 has finally been breached.

US Increases China Trade Tariff

President Trump has revealed plans to intensify his trade war with China by imposing tariffs on another $300 billion of its exports. Oil prices fell after the latest escalation in the dispute between the world’s two largest economies.

Unfortunately the markets struggled during 2018

The FTSE All-share was down 12.95% only UK gilts were able to give us a small positive return during the year. Research going back to 1901 from Deutsche Bank indicates that this is unprecedented. During 2017 there was only a little volatility, but 2018 made up for it. My crystal ball indicates that during 2019 we will need to be nimble to seek out returns. Good job we do not invest in bitcoin, it fell 70% during the year.

Unfortunately politics has not helped. Trump’s war of words with China’s President Xi Jinping has affected trade in the Far East as well as Japan and Germany. Italy has not helped as they are Europe’s largest issuer of debt and they are struggling to agree a budget with Brussels, just as the ECB slows down its version of QE. We won’t even talk about the UK.

As you are aware the US has been slowly increasing interest rates and removing liquidity from the markets as Trump’s tax cuts fuelled the US economy. This has affected any countries dependent on the USD. However more recently the US FED looks like it has softened its tone and may slow down the rate hike cycle, which will weaken the USD reducing the headwinds and helping emerging markets. You may have noticed the price of petrol coming down and it will also help gold.

In the UK we have started to raise rates to 0.75% from a 300 year low of 0.25%. But with inflation hovering around 2.3% and an unemployment rate at only 4% the BoE MPC will be looking to increase rates further when the conditions are better.