Britain’s gilt-edge status
Markets are highly sensitive to uncertainty. But reaction to the second defeat for the Prime Minister’s Brexit deal has been remarkably benign.
there is a conviction that if the Uk can achieve an agreed departure from the eU there is not much to worry about. Indeed, the Commons votes and the spring statement have been regarded as a narrow-range trading opportunity rather than a chance to take a 1992 George soros- style bet against the Bank of england.
truth is, that in spite of public perceptions the Brexit impact on the pound has been limited. even more reassuring in terms of the threat of disruption has been the calmness on the government bond market.
the pound’s fall against the dollar since the 2016 referendum is just 5pc.
there has been a far bigger 13pc decline against the euro. since so many Brits travel to europe that may be the reason for the public belief in a battering.
as we know from the euro crisis in 2010 it is government bond markets which generally are most sensitive to political events.
Gilts barely moved after the second meaningful vote. there are fundamental reasons for this. the improving public finances mean that the requirement for new bond issues is not so heavy.
Moreover, since the financial crisis of a decade ago the banks and insurers are required to hold more bonds as a safety net, creating home-grown demand.
robert stheeman, who heads the Debt Management Office, describes the gilts market as ‘quiet and relatively benign’, which is remarkable given the round-theclock bedlam in Westminster.
the lower budget deficit means the debt office will need to raise £114.1bn in the 201920 financial year, £10bn below what had been expected. Conditions are so calm that the only debate at present seems to be over whether the next family of index gilts should be linked to the consumer prices index (as Mark Carney would prefer) or stick with the older, more generous retail prices index.
If there were to be a run on the pound I have always suspected it would start in the gilts market. Global investors seem to have more faith in Britain’s stability than panicky politicians. Life changes tHe arrival of a new chairman more often than not signals executive change. so it has proved at standard Life aberdeen (sLa) with the arrival of sir Douglas Flint, a veteran of many a skirmish at HsBC.
the hydra arrangement of two chief executives at sLa with technician keith skeoch and more entrepreneurial Martin Gilbert, the creator of aberdeen, was never going to last. the problem has been made more acute by the struggles of the asset management industry as low- cost passive funds have stolen the thunder of the activists.
sLa assets have been shrinking fast. In the last year some £40.7bn escaped.
When the merger was put together two years ago one would have bet on the ebullient Gilbert outlasting skeoch. But Gilbert, after three decades at aberdeen, has been hinting for some time that he might want out. Last year, as stand-in chairman, he skilfully guided sky into new ownership in a complex battle involving three media superstars – Fox, Disney and Comcast.
He recently has brought some ballast to troubled fintech group revolut. at sLa he will continue to cultivate key clients.
there must be questions as to whether sLa can weather the storm and remain independent. the boss of fund manager Invesco, Martin Flanagan, suggests that one-third of the asset management industry will vanish over the next five years as a result of fee pressures.
sLa is less protected from consolidation than other independent Uk managers, such as Jupiter and schroder, and where family holdings offer a shield. standard Life was once regarded as setting the bar as flagbearer for scottish prudence and an enforcer of good governance.
It has been hoisted by its own petard. Phil deal PHILIP Hammond can’t resist a crack.
the best in his spring statement speech was his observation that the archer 2 supercomputer at edinburgh University, which is to get £79m, is capable of a staggering 10,000trillion calculations per second ... and that with the right algorithms might even come up with a solution to the backstop.
eureka!