No Brexit Influence for UK Gilts
The European Central Bank's president, Mario Draghi, has made one affair crystal clear yesterday that the bank can not
only push the Eurozone on the path of recovery and growth, because they need help from national governments. If there
are no serious efforts and willingness to implement those structural reforms, the ECB's efforts are not going to yield
the desire results. His warning was as tough for many ears, and he made it clear that the uphill battle that he is
combating is profoundly criticised by other members and the ECB's mandate is fully stretched.
Investors are wary about the German 10 year bunds yield as it strikingly close to dip into negative territory for the
first time. However, they are still ready and interested to go with it as somehow they still feel comfortable to park
their money in these assets. Perhaps, they feel assured by looking at the Japanese investors who are paying government
to lend money. Only a few year back, anyone with one shred of investment wisdom will not accept this, but under the
current circumstances, it is considered as a standard investment strategy.
The element which stands tall among all of them is that the yield on UK Gilts is also dropping sharply and assembly
headlines by recording record low numbers. This is despite the fact that the Brexit threat is so stark that it has
pushed the volatility of Sterling to a level which is not cited since the subprime mortgage crisis. This surely makes
you contemplate why investors are feeling so calm . Perhaps, they are betting that the Bank of England will make use of
its gunpowder and will make as much noise in the market as possible by buying these gilts. So the balance sheets of
major central banks will be full with toxic assets and it wnt be too long before their medicines will not be able to
cure the problem at hand.
As for commodity space, crude oil is under pressure and as we have said before that the path of least resistance may be
for consolidation. The journey to $70 mark is increasingly problematic and full with impediments. We do not think that
there is enough catalyst to provision the kind of momentum which we had that can push the prices towards the $70 dollar
mark. Our unease is mainly with the extra supply which may be coming very soon on the market from US Shale oil producers
and the demand is no shape to engross that supply. US Shale oil producers are aching to turn on their production as the
pressure continues to mount due to heavy debt bills.
ENDS