Carraighill

Brazil: The twin deficits are growing in Brazil. The fiscal deficit is approaching -10% of GDP, while the current account deficit has widened to -2.1% of GDP, up from 1.2% in January this year. Our outlook remains that if these are not corrected, pressure will continue to mount on the BRL and government borrowing costs. 

On Tuesday, Carraighill Founder and Head of Research Seamus Murphy, joined Daren Riley in a live ERI-C webinar on the topic: "Credit Spread Divergence, Lessons from Rate History, and the Earnings Outlook for Banks Vs Diversified Financials" Below, Seamus discusses a brief recap of the UK’s financial history and what could potentially happen next. If you would like to watch the full recording, please send us a message on Linkedin or email chloe@carraighill.com.

Euro-Area Inflation: Euro Area inflation fell to +1.7% YoY in August, though core CPI is still elevated at +2.7%. After the October cut, the ECB policy rate now stands at 3.25%. 

European Asset Management: Bond funds continue to receive most net flows (€21bn in August or 0.6% of opening AuM). We note that there are still large funding needs in several European countries. Government deficit spending has been highlighted in the decision by the European Commission to bring Excessive Deficit Procedure (EDP) proceedings against seven countries, including France and Italy. Going forward, we expect the trend of inflows to bond funds to persist. 

Eurozone Banking Systems: Customer spreads remained relatively stable, with a slight fall in some countries. Belgium and Ireland are the exceptions (both +2bps MoM). The Netherlands (-9bps), Portugal (-6bps), and Greece (-3bps) had the largest contractions. In the former, rising deposit costs (+9bps MoM) drove the spread lower. In Portugal and Greece, declining loan rates contributed to the narrower spread. The expansion in Ireland and Belgium can be attributed to lower deposit costs and marginally higher income.

Carraighill Managing Director Seamus Murphy spoke to Manus Cranny and Dani Burger on Bloomberg Television this morning to discuss widening French credit spreads as a result of excess fiscal deficits, the concept of "crowding out" and our expectation that short rates will fall sharpy as the yield curve steepens. https://lnkd.in/eAWTFvHi

United Kingdom: UK households continue to eschew spending. Gross savings as a percentage of Gross Disposable Income (GDI) further increased to 13.3% in Q1 of 2024 (up from 12.0% in Q4 of 2023).

United States: Job openings continue to decline, down 13% YoY, indicating weakness. The number of these openings less the number of people unemployed is now 0.4 million (over 2m one year ago). The unemployment rate is rising and is now 4.2 (3.5% in July 2023). The underemployment rate is also increasing (now 7.9%). 

European Households: Gross disposable income (GDI) continues to slow from strong levels of expansion. Robust wage growth had previously been the key driver. In every region, this has fallen MoM in the latest (August) data (ex. Austria, +10bps).

UK Asset Management: The movement to tracker funds (proxy for passive) continues, with no indication of this slowing. They now account for 21.4% of gross total FUM. This will continue to put pressure on asset managers' margins.