Where Are We Headed?
This weekly is on the early side and I am wary of what Friday brings, especially as the debt ceiling saga gives rise to further bond market volatility.
The Central Bank of Canada announced it is scaling back on its pandemic relief given the current progress of the Canadian economy. Not surprisingly, this provided a big boost to the Canadian Dollar. Economic figures out of Canada have been strong across the board ranging from housing to industry.
Other central banks will likely be keeping a close eye on developments – Australia being one of them. Both US and UK data have also shown a strong bounce back of the manufacturing and services sectors. UK public sector net borrowing has come in less than anticipated – though still incredibly high. All this is fuelling the “war” between central bank officials who believe rates will stay lower for longer, and markets who believe the inflation net is closing.
The FCA has proposed property funds require a notice period of between 3 and 6 months between a redemption request and return of cash. Their recommendation means property funds effectively move from daily dealing to a similar dealing status as hedge funds. This is with the backdrop of investment group M&G announcing the reopening of its suspended £2bn UK property fund. It suspended it in December 2019 due to significant outflows on the back of investor worries. Since then, the fund has sold £700m of assets and a further £250m is under offer or exchanged. Even before this all happened, we avoided investing in physical property funds within our portfolio due to the potential for liquidity (ease of buying and selling) problems and the risk of fund suspension. Given the FCA proposals, investors will need to be mindful of the implications.
In the UK, March CPI Inflation increased to 0.7% y/y (Feb: 0.4% y/y) and gets closer to the BoE’s 2% target. Motor fuel was the big contributor rising 2.9% m/m.
The top court in Germany has cleared the way for ratification of the EU’s €800BN pandemic recovery fund. It was originally feared they might block it as there is a lawsuit pending by Buendnis Buergerwille, a political group, which argued the EU should not be allowed to issue debt to finance its recovery programme
Meanwhile, the UK and Australia have agreed the vast majority of a free trade deal and are looking to reach full agreement, in principle, in June.
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