Karen Ward

In my latest opinion article for the London Standard, I consider whether the stars are finally aligning for a much-needed rise in UK investment. To find out the answer, read here: https://lnkd.in/edyYW6HQ

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Excellent analysis that speaks to the need for regulators to shift their focus away from price and number of networks and instead look towards the value delivered to customers and economies from having robust and well invested networks capable of carrying and nurturing new services and products.

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#Forecasting is a thankless task. If you are a forecaster you will know what I mean. But for central banks, it is their job. Independent central banks have a responsibility to their governments/ #Parliament and the Public. They have to explain their #monetarypolicy decisions. Best practice is to do that explaining in an open and transparent way. Central bank #accountability also means engaging with experts - people who can understand what and how the central bank is doing. Experts ask questions, can spot weaknesses. Experts offer challenge, debate and scrutiny. But they also offer solutions. This should in theory drive improvements. The link below takes you to the ebook put together by David Aikman and Richard Barwell. It’s made up of 28 individual contributors. They comment on the #BernankeReview of the Bank of England’s forecasting process. My reading of the contributions (and their titles) is that the Bernanke Review was met with disappointment. - It did not go far enough. - A missed opportunity. - A huge missed opportunity. - Worse than a missed opportunity. - The original sin of forecasting. - Few cheers. - Could do better. - Go big or go home. But there is a silver lining: the #BoEWatchers community is growing. My contribution is on page 82-85. I propose the #bankofengland introduces: -8️⃣ press conferences -9 dots (#dotplot) - a staff and #MPC individual forecasts I am not alone in making these suggestions.

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ECB CUTS RATES? WILL IT DO MORE? One cut doesn’t necessarily make for a starting gun. While the ECB became the second G7 central bank to cut rates, it is by no means certain that it will follow through with more than one cuts this year. A rate cut cycle faces two headwinds.   For one, inflation ticked up in the Eurozone last month. While prices of goods have been lower, services inflation remains sticky. We are at a point where China is deliberately lowering export prices to capture market share. One way or another, this practice has a time limit. If services inflation hasn’t come down by then, Europe could find itself having to raise rates again. Second, even if prices continue to come down, the ECB still depends on the Fed. If Christine Lagarde lowers rates before the Fed has kicked off, she risks significant capital flight towards higher yielding savings accounts in Dollars, not to mention importing inflation from goods and commodities priced in Dollars. #ECB #Interestrates #economy #europe

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Click the link below for Lipper's webinar review of the UK fund market, Q2 2024. Looking at active v passive flows, which asset classes have been making the running (and which haven't), insights at the more granular level of the #Lipper fund classifications, and a drill down into where the money's been going in #sustainable_investing. The downside is that you have to listen to me do it, but you can't have everything...

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Basel 3.1: indexation reversal adjustment What is ‘indexation reversal adjustment’? You need to ask Conrad O'Donnell who led some excellent analysis for the BSA and coined the phrase. I learnt a lot from working with Conrad on this important topic. I’m not sure the impact in our sector had really been appreciated before his analysis. So big shout out and thank you to Conrad O'Donnell 🙏 The indexation reversal adjustment is the impact of changing LTVs and RWAs for mortgages so that they are based on the original valuation of the property. This compares to the current approach whereby a lender will update valuations periodically to give a current valuation i.e. to take account of changes in house prices. The current valuation approach is more risk-sensitive and will allow LTVs and RWs to rise and fall in line changes in the valuation. So why the change? I suppose the idea is to reduce cyclicality in risk weights. This means when house prices are more volatile then capital requirements remain stable. It is also more conservative. The PRA proposals do still require a re-calculation if “there is a significant decrease in the market value of the property as a result of a broader decrease in market values.” So in essence, the requirements are non-cyclical as property prices rise, but become procyclical when property prices fall i.e. just at the point you don’t want them to be cyclical! I have a personal view that the revaluation during a downturn will be difficult to implement. Firms will naturally not wish to re-value their whole portfolio too soon or too late. Calling that moment will be challenging. For the supervisor to call it will be even more challenging as they will need to do it across all firms at the same time and the risk is its at a point that is too late and exacerbates any capital issues. So, some learnings from me: 🏠The impact of changing to original valuation will be a large one-off hit. The BSA has proposed that the PRA allow firms to freeze the valuation at the B3.1 implementation date of 1st July 2025 but then stop future indexation. This would create a natural transition, rather than the headache of finding all old valuations for every loan 🏠The impact is particularly harsh for lifetime mortgage portfolios where the product is longer, unlikely to include a product switch and there are no regular repayments 🏠Firms will likely need to store two valuations in their systems. A current valuation will be needed for risk management purposes as well as original valuation for the regulatory capital calculation. So there is an IT aspect to this change, as well as the challenge of finding all old valuations that may no longer be stored 🏠While I think this policy has a significant risk of unintended consequences, it is also a key component of the Basel package, so in my personal opinion it is unlikely to change, well not until after the next housing market crash! #financialregulation #baselcommittee

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Will the £22bn black hole suck the UK back into recession? It's been a tough week for Rachel Reeves, the UK Chancellor, ahead of her keynote speech today and first Budget next month. Consumer confidence has slipped, the fiscal deficit overshot, closely-watched business surveys have fallen and economic data - which had been coming in much stronger than expected - have softened. Many commentators suggest she is partly to blame: her decision to means test pensioners' fuel allowance and constant talk of the need to cut government borrowing have hit confidence. There is worse to come: household energy bills are set to rise by 10% on 1st October. But we think the pessimism is overdone. Real incomes are rising strongly, the Budget won't be draconian, the housing market is recovering strongly which will boost both the economy and the public finances, and household energy bills are likely to fall next year. The UK is set to beat pessimistic growth expectations in 2025, just as it has been doing this year.

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I spoke to a junior PM this morning about the reaction function, risk and correlation. What might be important on paper is not in realty. Take UK Macro and The BOE. We have seen real weakness in GBP (eurgbp rallied 100 points) which makes sense because of the threat of higher taxes under Labour. UK Macro has been akin to a limp biscuit nobody wants. Soggy, stale and full of rogue elements to it. My conservations on UK Macro, Labour and The BOE 1. I got a Labour win right-royally-wrong on my GBP bear view. Time will tell but I do feel GBP could go a lot lower (not against USD as I'm a USD bear because of The TSY curve) So with that in mind take what i write with caveats. 2. ONS quality still questionable post the statistician watchdog citing concerns. They may have sorted a lot out but I just feel this is wide spread. I'm all ears on a counter to this. 2. The UK Macro virus reaction function on GBP has a very bad correlation. Rubbish. Why is that? Nobody cares. (By that i mean traders) 3. If you want to short GBP better to buy EURGBP dips 4. The mass HNW exodus continues as stealth tax increases. A few clients of mine are in Dubai. A natural haven for many. Have a cracking Monday!

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“Mind the gap” between the constructive and engaged public commentary and the critical and increasingly concerned private commentary on UK Penson Funds re-aligning to the UK public equity markets. The vested interests are not aligned in this discussion with the result that time is running out for delivering an effective solution to the ongoing liquidity drain from UK Public Equity markets. Pension fund managers first and foremost must put the interests of pension fund holders first, then there are the genuine concerns from pension trustees about being forced to invest in “underperforming UK assets” and this quite apart from the need for both more of us to save for our pensions and to save more to provide the level of pensions we need. Listen to the discussion and you can only conclude that the UK Government has to make the “investment” case for UK Public Equity markets significantly more compelling/ attractive to achieve far greater active pension engagement and higher asset allocations to the UK Public Equity markets. Whether that is achieved through the abolition of stamp duty, bringing back some form of tax credit on UK dividends, creating a British ISA and changing the rules and obligations on pension fund trustees and fund managers or a combination of some/ all of the above or indeed other means (and quickly) is what the pension fund industry needs in order for it to willingly step up in size. If the UK Government really has no fiscal scope to do these things, then – all other things being equal -  the UK pension fund industry is unlikely of itself to upsize its asset allocations to the UK Public Equity Market. That leaves only one alternative which is for the UK Government to legislate requiring UK Pension funds to allocate a minimum level of asset allocation to UK public equities. A “forced” solution is not what anyone wants – the UK Government should be setting policies that create the conditions for self-interested pro-active engagement by UK Pension Funds into greater UK public equity asset allocations. Time is increasingly short and discussion time targets of “2026 and beyond” are simply far too distant. Moreover this entire issue is potentially about to become much more difficult – Trump will be in the White House in January 2025, cutting US regulations, cutting US taxes and imposing US trade tariffs, providing potentially yet more fiscal stimulus to the US economy. If you believe that the US equity market will respond in a positive way to “Trumponomics” – then the UK needs to get its act together very quickly indeed as the investment case “gap” between UK  public equities and global equities is likely to widen further and potentially accelerate away from us. The time for taking action is now – it is a “call to arms” that the UK must heed. Failure to act leaves U.K. plc exposed to becoming substantially poorer.

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NFO: Digesting today’s Budget, NICs and IHT-Pension 💣 probably the biggest reaching stories but I note CGT has got folks animated too and implications for MPS outside of a tax wrapper 🧐 the arbitrage between MPS and Multi Asset funds perhaps just swung in a new direction 💡 Thoughts welcome 🙏 Earlier mumblings for IFA Magazine #newfundorder https://lnkd.in/eebmKW4z

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UK interest rates (and sterling) have started 2025 with a bang 💥 • Global uncertainty and fears of sticky #inflation, as well as market expectations of little policy easing in the #UK, a large issuance pipeline and a precarious fiscal trajectory have pushed UK 10-year borrowing costs to their highest level since 2008. • If sustained, the rise in yields since the 30 October Budget could have wiped out the Chancellor’s GBP9.9bn of fiscal headroom, meaning more tough choices on tax, spending and borrowing loom over the 26 March Spring Statement. • A big part of the fiscal problem is a lack of growth. But the UK isn’t alone in #Europe in facing persistently weak productivity growth. Yet its interest rates are comparable to those of the faster-growing #US. And market prices suggest that longer-term UK inflation might be a bit higher than in the #eurozone. It feels like the worst of all worlds. • The market now prices less than 50bps of UK policy rate cuts this year. This isn’t much given recent data showing a cooling labour market. And UK services inflation momentum is now more comparable with the eurozone. • The #BoE seemingly agrees and forecasts inflation below target in 2027. If it still believes this, communicating its conviction more forcefully could save the exchequer a bit of much-needed cash. Are you a client? Want to find out more? Check out our reports "Feeling Gilty: What is the UK’s problem?" ** link in the comments ** #HSBCResearch #Economics #GILTS

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Global Week Ahead — The Tariff Boomerang This will be the last week of relative calm in the world of central bankers before the following two weeks put them back in the hot seat. That doesn’t mean that the #weekahead will be uneventful. Rebounding nonfarm payrolls will be the marquee release to global markets, with a side order of Canadian jobs for local market content. Watch for guidance from retailers in the US and Canada where Black Friday and Cyber Monday are bigger deals than elsewhere, but less so than in the past given how long and drawn out the sales have become. Canada kicks off bank earnings season with Q4 and full year results. Only the RBI weighs in with a policy decision, but plenty of central bankers will fight for control of the podium at the Fed, ECB, BoE and SNB while the Bank of Canada slips into communications blackout. Also keep an eye on developments concerning France’s budget following demands from the National Rally’s Le Pen set against the backdrop of an already frayed fiscal situation. She has threatened to bring down the government by filing a confidence motion if her demands are not met including a tax freeze, indexing of pensions, immigration controls, a tougher stance on crime and to cancel a drug reimbursement plan. I’ll start, however, by drawing upon work I shared with our clients in daily notes since Trump’s tariff announcements on Monday night. We’re not incorporating 25% tariffs in our projections, but the quantifiable impact upon our US and Canadian forecasts is evaluated as a risk facing our clients—along with the appropriate response that starts with negotiating, but may end with throwing it right back to compound the impact on the US that would also include the biggest possible jump in US CPI in history. Full publication attached. Key topics include: - Estimating the impact of US tariffs on the Canada and the US - Plan ‘A’ is negotiate, plan ‘B’ is the fallback - What Canada can do in dealing with US tariffs - Tariffs could drive the biggest single month jump in US CPI on record - Strong dollar policies are likely to keep driving bigger US trade deficits - US nonfarm payrolls to rebound from hurricanes - France’s government at risk of falling - Canadian jobs: may as well hire, absent investment - Canadian bank earnings to close out 2024 - Retailer guidance on holiday sales - RBI expected to hold CPI: SK, Taiwan, Thailand, Philippines, Sweden, Switzerland, Chile, Colombia - GDP: Australia, Brazil, Chile, SK - Global macro

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📊 US Election: What’s at Stake for the Global Economy and the GCC 🌍 With the race still too close to call, Scott Livermore sat down with AGBI - Arabian Gulf Business Insight to discuss the likely economic impacts of two key outcomes, modelled as part of Oxford Economics Global Scenarios Service: 🔵 #Harris Presidency - Boost to US growth via social benefits - Minimal impact on GCC economies 🔴 #Trump Presidency - Fiscal boost from tax cuts & spending - Rising trade tensions with tariffs slashing US-China trade by 70% - Energy deregulation could drive oil prices down, challenging OPEC+ and GCC diversification efforts Geopolitical uncertainty, especially around the Middle East, adds to the stakes. A second Trump term could reshape trade, energy markets, and alliances well into 2026 and beyond. Click here to read more ▶️ https://lnkd.in/dTk88G3J ◀️ #USElection2024 #GCC #GlobalEconomy #Trade #Oil #OxfordEconomics

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The FTSE 100 appears to be in a consolidation phase, as evidenced by the sideways movements within a descending channel. The index has found support at the 38.2% Fibonacci retracement level, which has held despite recent selling pressure. The RSI (Relative Strength Index) is showing signs of recovery from oversold conditions, suggesting that the selling pressure might be easing. As the market stabilizes above key support levels, particularly near the 8,100-8,200 range, there's potential for a bullish breakout once the consolidation phase concludes. If the price can break above the upper trendline of the descending channel and maintain momentum, we may see a bullish reversal, with the index targeting higher levels in the coming sessions.

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📢 Our latest Europe macro tracker is out… …and you’ve got to admit Europe’s data is getting better Service sector indicators rose further in April, to their highest levels in nearly a year. Although price pressures also picked up, especially UK services input prices, it seems rising real-terms incomes and an improvement in Europe’s terms of trade is lifting business sentiment. And we don’t think stronger activity data will stop the ECB and BoE cutting rates in June. Swipe through the slides below for a snapshot of the key charts from the report. Clients can read the full tracker from the following link: https://lnkd.in/dbYXpS7s And don’t forget to vote for HSBC on this year’s Institutional Investor Survey 2024. Voting closes on Friday 26 April. ✅ Click to vote 👉 https://lnkd.in/d_3NK_hi Questions? Just askresearch@hsbc.com #HSBCResearch #Research #Economics #Eurozone #UK #Europe

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Global commodity prices are in an upswing, and we think they have passed the trough for the cycle. Demand appears to be lifting and the supply-side is ‘super-squeezed’. So, what’s next? HSBC’s Paul Bloxham and Jamie Culling explore. To find out, read our free to view report here 👉 https://grp.hsbc/6048evV0O #HSBCResearch #Research #Commodities #ThoughtLeadership

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Two measures I look at to assess impact of political developments on markets in RSA: 1. ZAR’s performance relative to other commodity currencies 2. Market-implied breakeven inflation vs actual forecasted inflation (the inflation risk premium). Both have improved since the formation of GNU.

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