may 16 2019 interest rates and brexit implications€¦ · refinance now to bring your business...
TRANSCRIPT
May 16th 2019
Interest Rates and Brexit
Implications
Content
1. Interest Rates
2. FX Trends
3. Strategic Considerations
4. Brief Economic Summary.
1. Interest Rates
EUR short-term rates
EUR long-term rates
Current Yield Curves.
3-m euribor and ECB Base
-0.50
-0.25
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
01/01/09 01/01/10 01/01/11 01/01/12 01/01/13 01/01/14 01/01/15 01/01/16 01/01/17 01/01/18 01/01/19
3-month 3-year
EUR 3-year swap (10-year trend)
Daily EURAB6E3Y= 18/05/2009 - 22/11/2019 (GMT)
Line, EURAB6E3Y=, 15/05/2019, -0.2000, -0.0100, (+5.26%) Price
EUR
-0.4
0
0.4
0.8
1.2
1.6
2
2.4
-0.2000
2010 2011 2012 2013 2014 2015 2016 2017 2018 20192000 2010
EUR 3-year swap (1-year trend)
Daily EURAB6E3Y= 16/05/2018 - 04/06/2019 (GMT)
Line, EURAB6E3Y=, 15/05/2019, -0.2000, -0.0100, (+5.26%) Price
EUR
-0.21
-0.18
-0.15
-0.12
-0.09
-0.06
-0.03
0
0.03
0.06
0.09
-0.2000
16 01 18 02 16 01 16 03 17 01 16 01 16 03 17 01 16 01 18 01 18 01 16 01 16 03Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
Irish Government 10-year gilts
Daily IE10YT=RR 16/05/2018 - 03/06/2019 (GMT)
Line, IE10YT=RR, 15/05/2019, 0.498 Yield
0.5
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.9
0.95
1
1.05
1.1
0.498
16 01 18 02 16 01 16 03 17 01 16 01 16 03 17 02 16 01 18 01 18 01 16 02 16 03Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
Banking consequences
Macro impact on the business
Micro impact on the debt service capability of the business
Stress-testing of higher rate moves on borrowing submissions
Requirement to fix interest rates?
Higher margin (higher credit risk)?
Current Yield Curves
EUR GBP USD
3-m -0.310 0.805 2.21
2-year -0.220 0.98 2.25
3-year -0.170 1.03 2.19
5-year 0.00 1.11 2.19
7-year 0.160 1.18 2.26
10-year 0.460 1.27 2.36
2v10 spread 0.680 0.29 0.110
2. FX Trends
EUR/GBP
EUR/USD
EUR/GBP long-term trend
Daily EURGBP= 18/05/2009 - 22/11/2019 (GMT)
LineGrd, EURGBP=, 15/05/2019, 0.8681, +0.0001, (+0.01%) Price
GBP
0.69
0.72
0.75
0.78
0.81
0.84
0.87
0.9
0.93
0.8681
2010 2011 2012 2013 2014 2015 2016 2017 2018 20192000 2010
EUR/GBP since Brexit
Daily EURGBP= 01/06/2016 - 14/06/2019 (GMT)
Line, EURGBP=, 09/05/2019, 0.8630, +0.0027, (+0.31%) Price
GBP
0.76
0.78
0.8
0.82
0.84
0.86
0.88
0.9
0.92
0.8630
J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J2016 2017 2018 2019
Watch the volatility
Daily EURGBP= 16/05/2018 - 04/06/2019 (GMT)
BarOHLC, EURGBP=, 15/05/2019, 0.8681, 0.8692, 0.8672, 0.8678, -0.0002, (-0.02%) Price
GBP
0.845
0.85
0.855
0.86
0.865
0.87
0.875
0.88
0.885
0.89
0.895
0.9
0.905
0.8678
16 01 18 02 16 01 16 03 17 01 16 01 16 03 17 01 16 01 18 01 18 01 16 01 16 03Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
Watch the volatility
0.8860
0.8732
0.8579
0.8628
0.84
0.845
0.85
0.855
0.86
0.865
0.87
0.875
0.88
0.885
0.89
jan feb mar apr may jun jul aug sep oct nov dec
2019 EUR/GBP avge rate
EUR/GBP averages….been here
before High to
EUR/GBP High Low Low % Average
2019 0.9109 0.8469 7.56% 0.8699
2018 0.9099 0.8618 5.58% 0.8849
2017 0.9306 0.8313 11.95% 0.8765
2016 0.9365 0.7308 28.15% 0.8192
2015 0.7874 0.6930 13.62% 0.7263
2014 0.8400 0.7755 8.32% 0.8063
2013 0.8814 0.8083 9.04% 0.8493
2012 0.8505 0.7753 9.70% 0.8115
2011 0.9083 0.8283 9.66% 0.8681
2010 0.9148 0.8065 13.43% 0.8579
2009 0.9519 0.8397 13.36% 0.8915
2008 0.9803 0.7388 32.69% 0.7972
2007 0.7388 0.6534 13.07% 0.6845
2006 0.7021 0.6662 5.39% 0.6819
2005 0.7043 0.6607 6.60% 0.6839
2004 0.7107 0.6541 8.65% 0.6786
2003 0.7255 0.6467 12.18% 0.6920
2002 0.6534 0.6066 7.72% 0.6288
2001 0.6443 0.5939 8.49% 0.6220
2000 0.6416 0.5673 13.10% 0.6094
EUR/USD
Daily EUR= 17/05/1999 - 02/06/2020 (GMT)
Line, EUR=, 15/05/2019, 1.1210, +0.0007, (+0.06%) Price
USD
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.1210
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 20202000 2010
Daily EUR= 16/05/2014 - 20/08/2019 (GMT)
Line, EUR=, 15/05/2019, 1.1210, +0.0007, (+0.06%) Price
USD
1.04
1.08
1.12
1.16
1.2
1.24
1.28
1.32
1.36
1.1210
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32014 2015 2016 2017 2018 2019
3. Strategic Considerations
Strategy
Policy Strategy Development
Strategy Implementation
Gross Margin and FX Sales increase required to offset adverse FX moves
FX Move
Margin 1% 2% 3% 4% 5% 6%
20% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
21% 4.8% 9.5% 14.3% 19.0% 23.8% 28.6%
22% 4.5% 9.1% 13.6% 18.2% 22.7% 27.3%
23% 4.3% 8.7% 13.0% 17.4% 21.7% 26.1%
24% 4.2% 8.3% 12.5% 16.7% 20.8% 25.0%
25% 4.0% 8.0% 12.0% 16.0% 20.0% 24.0%
26% 3.8% 7.7% 11.5% 15.4% 19.2% 23.1%
27% 3.7% 7.4% 11.1% 14.8% 18.5% 22.2%
28% 3.6% 7.1% 10.7% 14.3% 17.9% 21.4%
29% 3.4% 6.9% 10.3% 13.8% 17.2% 20.7%
30% 3.3% 6.7% 10.0% 13.3% 16.7% 20.0%
31% 3.2% 6.5% 9.7% 12.9% 16.1% 19.4%
32% 3.1% 6.3% 9.4% 12.5% 15.6% 18.8%
33% 3.0% 6.1% 9.1% 12.1% 15.2% 18.2%
34% 2.9% 5.9% 8.8% 11.8% 14.7% 17.6%
35% 2.9% 5.7% 8.6% 11.4% 14.3% 17.1%
Copyright Treasury Solutions Ltd
Other Currency Strategy Considerations
Know
Currencies of exposures
Scale of exposures
Timing of exposures
Certainty of exposures (volume and timing)
Customer/supplier knowledge of FX movements (do they
seek price decreases if you have a favourable FX
movement?)
Current policy or practice
Current FX reporting content and frequency
Number and location of foreign currency bank accounts.
Borrowing Arrangements
Only tested in times of crisis – watch financial covenants
So focus on quality of arrangements
Ability to withstand a slowdown is a competitive advantage
Ability to move quickly to buy stressed businesses even more compelling an
argument
US corporate debt levels could be next “sub-prime”…global impact of this?
Refinance now to bring your business through Brexit!
4. Economic SummaryIndicator Current Level Last seen? US UK
GDP growth 3.0% Jan 2016 3.2% 0.5%
Unemployment 5.4% Feb 2008 3.6% 3.9%
Employed persons 2.272m Highest ever 156.6m 24.1m
Labour participation rate 62.2% Jul 2018 62.8 79.3
Youth unemployment 13.4% 2009 8.8% 10.6%
Inflation rate 1.7% Aug 2012 2.0% 1.9%
Govt budget (% of GDP) 0% 2007 (3.8%) (2.0%)
Govt debt (% of GDP)* 64.8% 2009 105.4% 84.7%
Manufacturing PMI 52.5 Sept 2016 52.6 53.1
Services PMI 54.7 Oct 2017 53.0 50.4
Balance of Trade +€6.2bn Jan 2019 is highest ($50bn) (£5.4bn)
Housing ownership rate 69.5% All time high is 81.8% in
2004. Lowest was 68.6% in
2015
64.2% 65.0%
Private sector credit €166.7bn% Low of €4.4bn in 1979.
Highest of €375.9bn in 2009
202.8% 229.4%
Government Debt(Source : tradingeconomics.com)
Household Debt(Source : tradingeconomics.com)
212%
111%
133%
117.2%
43.8%
Projections
2019 Budget included projections to 2023
Annual Income Tax to increase by 25% (€7bn) while VAT to increase by 40% (€4bn)
But will be 2023 before debt starts being repaid
Above includes annual interest bill falling by over €1bn
And that is before recent capital project increases
Looks too optimistic.
Summary
Expect increase in GBP volatility through to end Summer
EUR longer-term interest rates likely to remain static in 2019/20?
Identify weaknesses and fix NOW
Identify potential opportunities and act now?
Improve your banking/lender interaction – mutual dependency
Don’t hesitate to look for help!
May 16th 2019
Interest Rates and Brexit
Implications