“The first round of the French presidential election…”

UK

The UK has experienced an unexpected growth acceleration arising from a boost in net trade, ending 2016 on a high note. A weaker pound helped exports to pick up offsetting a smaller contribution from shoppers who are to be squeezed by faster inflation. According to the European Commission net exports will contribute positively to growth this year and the next, lessening the weakness in domestic demand. GDP data show that household spending rose 0.7 percent in the fourth quarter with trade and consumer spending being the biggest contributors while business investment dropped 1 percent.

While the economy has continued growing after the Brexit vote there are some signs of strain such as a reduction in credit growth and a slowdown in retail sales. Moreover, the pound has fallen 16 percent since June 2016, leaving an impact on the cost of imports.

US

According to the minutes of the Federal Open Market Committee, Federal Reverse Officials expressed their confidence that interest rates could gradually be increased so to avoid the risk of an overheated economy. Moreover, the minutes stated that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labour market and inflation are in line or stronger than the current expectations or if the risks of overshooting the committee’s maximum-employment and inflation objectives increased. Issues that caused uncertainty were the fiscal policies arising from the Trump’s administration and what a rising dollar could cause. The Fed Officials forecast that in December the economy would expand at a 2.1 percent annual rate this year, pushing the unemployment rate down to 4.5 percent. Inflation is rising towards the 2% percent Fed target rate. The personal consumption expenditure price index rose 1.6 percent last year, excluding food and energy, the index rose 1.7 percent. Plans as to how to address the balance sheet will be discussed at later meetings.

France

The first round of the French presidential election will be held on 23 April 2017. In the case where no candidate wins the election the top two candidates will run an election which will be held on 7 May 2017. In this regard, the President is elected for a five-year term in a two-round system in line with Article 7 of the Constitution.

In order to be listed on the ballot during the first round, candidates have to secure 500 signatures from a national or local elected from at least 30 different departments or overseas collectivities, with no more than a tenth of these signatories from any single department. President Holland who is eligible to run for a second term opted out on 1 December 2016. The Nominees are Benoit Hamon (PS – Socialist Party), Francois Fillon (LR – Republicans) and Marine Le Pin (FN- National Front) and Emmanuel Macron (EM- En Marche!) and Jean-Luc Melenchon (FI- Unsubmissive France).

The yield difference between French and German 10-year bonds widened the most in a week, while the Euro and French stocks went down after an interview with Benoit Hamon the socialist presidential candidate said he is holding talks with far-left candidate Jean-Luc Melenchon about a single candidacy. This is not a good sign for bonds who are already vulnerable to political risks and also the market was not expecting this. The French 10 year bond yield climbed three basis points to 1.05 percent widening the spread over the German bunds by six basis points for bonds with the same maturity. The CAC 40 has declined by 0.9 percent, with French banking sector stocks being the most hit such as Credit Agricole and Societe Generale down by 2.4 percent and 1.9 percent respectively.

China

An upturn in the US economy and a weaker euro has led the US in 2015 to overtake France as trading partner for Germany. This occurred for the first time since 1961. However, China now has become an important trading partner with Germany (2016: EUR 170 billion), with France second most important (2016: EUR 167 billion) and the United States (2016: EUR 165 billion) in that order. In view of the protectionism approach being taken by the Trump administration, the German Chancellor Sigmar Gabriel suggested that there should be focus on the economic policy between the EU and Asia. As stated by the German Committee on Eastern European Economic Relations exports to Russia will probably increase at least 5 percent in 2017.

China Home prices

In January china home prices increased in the fewest cities in a year. According to the National Bureau of Statistics new home prices excluding government subsidized housing climbed in 45 of 70 cities (December: 46), while prices declined in 20 cities and were unchanged in five cities. Chinese authorities have tightened restrictions on property lending in order to avoid a housing bubble and financial risks. Bank in cities such as Beijing, Guangzhou and Chongqing raised the mortgage rates for first-time buyers. According to the statistics bureau home values have stabilized further in mega and midsized cities due to restrictions.

Earnings

Barclays Bank –

The shares of Barclays Bank rose as its capital ratio exceeded expectations. Moreover, the bank shows signs to divest unwanted assets six months earlier than expected in the Africa unit and the unit that houses unwanted assets. Quarter four pretax profit was GBP 330 million from a loss of GBP 2.1 billion pounds a year ago. Since the current CEO took office the stock price has increased as much as 3.9 percent to the highest level. For 2016 the ROE increased to 3.6 percent from a negative 0.7 percent the prior year, while its cost-income ratio improved to 76 per cent from 84 percent.

Glencore –

Glencore’s annual profit rose 48 percent arising from higher commodity prices and strong trading results. The commodity trader and miner whose head is Ivan Glasenberg delivered the best trading results since the commodities peak in 2008. Glasenberg turned around the business from a crisis in 2015 with debt levels being halved through cost cutting, a rebound in metal prices and asset sales. Debt levels were a major concern for investors during the commodities crises however, net debt has gone down by 40 percent in 2016 to $15.5 billion. The company engaged in deals to increase copper production in Congo and oil trading in Russia. This year the company plans to reward its shareholders after two difficult years with a special dividend and plans to pay almost $1 billion in 2017 with a dividend of 3.5 cents per share in May and September. Other highlights pertaining to 2016 financial results are: Trading division profit outlook increased from $2.2 billion to $2.5 billion for 2017, industrial division Ebit rose to $1.1 billion compared to a loss in 2016 of $292 million and Trading division Ebit rose to $2.82 billion up from $2.46 billion in 2015.

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