Eleventh-hour negotiations between European Commission officials and Greece before a scheduled €300 million ($337 million) debt payment today broke down. Athens has now requested emergency procedures to bundle tranches due to the International Monetary Fund to a single payout of €1.6 billion later this month, buying a little more time before technical default, which would prevent the European Central Bank emergency funding facility for Greek banks from continuing. Public statements today by Deputy Social Security Minister Dimitris Stratoulis, a far-left leaning member of the ruling Syriza party, suggested that the ruling party may call for an early election ahead of that if it is unable to come to terms with creditors. In trading early this morning, yields on ten-year Bunds fell to 0.82 percent and the euro slid below $1.12 as investors reposition again.
May jobs report drives bond yields higher. The Bureau of Labor this morning reported that nonfarm payrolls increased by 280,000 in May, significantly beating consensus forecasts, even as the unemployment rate rose to 5.5 percent despite gains in private sector hiring. Critically, both wage and labor force participation levels rose for the month. In response, U.S. Treasury markets initially sold off, with yields of ten-year notes reaching 2015 highs.
Germany factory orders rise sharply. April factory order data released today by Deutsche Bundesbank, Germany’s central bank, rose by 1.4 percent for the month with an upward revision to March figures. The increase was driven by export demand from within the euro zone that was strong enough to offset slower domestic orders. Separately, the Bundesbank raised its GDP forecasts for 2015 and 2016, with total growth for the year anticipated at an annualized expansion of 1.7 percent and 1.8 percent next year.
U.S. government reports massive data breach. The U.S. Office of Personnel Management confirmed yesterday that it had a suffered a data breach in December in which the personal information of up to 4 million federal employees was compromised. Unconfirmed reports suggest that hackers from China are suspected to have perpetrated the data theft. A White House statement is expected.
U.K. growth outlook downgraded. The British Chambers of Commerce today reduced growth forecasts, reducing projected GDP for 2015 to 2.3 percent from a prior 2.7. While underlying fundamentals remain strong, BCC researchers noted that a growing trade deficit and an overreliance on consumer spending presented challenges for the U.K.’s economy.
SunGard files for IPO. Financial services software company SunGard filed yesterday with the Securities Exchange Commission to prepare to go public. Industry sources have speculated that the valuation for the Wayne, Pennsylvania–based firm may reach $7 billion, a significant shortfall from the price paid for the firm by a consortium of private equity funds nearly ten years ago.
Goldman nears settlement. Multiple media outlets have reported that Goldman Sachs Group has nearly finalized a multibillion dollar settlement with the U.S. Justice Department relating to mortgage-bond-sale practices prior to the 2008–’09 financial crisis. The Wall Street Journal reported yesterday that Morgan Stanley is also in the process of negotiating a settlement but that those discussions were moving more slowly.
Vodafone and Liberty in deal talks. London-based telecoms provider Vodafone Group announced yesterday that it was in discussions with Liberty Global to exchange European mobile-phone assets. Analysts speculate that Liberty, controlled by John Malone, the Colorado–based media billionaire, could be seeking to package mobile services into plans for its European client base.
Portfolio Perspective: Bank of England Interest Rate Decision Distorts Reality — Kevin Doran, Brown Shipley
Though yesterday’s Bank of England announcement that interest rates are to remain at the historic low of 0.5 percent comes as no great surprise, I believe interest rates have been kept too low for too long. This has led to a number of unintended negative consequences. Firstly and of greatest concern to me, is the introduction and gradual creep of macroprudential policy from the Bank of England. Unless interest rates are set appropriately, then the level of market interference required via further macroprudential policies is only likely to ratchet up. Secondly, low interest rates have helped to rebalance our economy, resulting in a transfer of wealth from savers to borrowers — a move that can only be described as a war on savers. This shift has also meant levels of household indebtedness have remained stubbornly high because of the availability of cheap debt. Finally, an increasingly entrenched lower-for-longer mentality has served to weaken the pound, which has imported inflation to assets, particularly Gilts, and real-world inflation has fallen into negative territory. Such a chasm only distorts reality.
Kevin Doran is the chief investment officer for Brown Shipley in Manchester.
