Shocks & Stares » Sovereign debt http://blogs.hillandknowlton.com/shocksandstares H&K\'s Financial & Professional Services Team Blog Tue, 19 Mar 2013 08:00:56 +0000 http://wordpress.org/?v=2.9.2 en hourly 1 FPS’ Friday Fiver http://blogs.hillandknowlton.com/shocksandstares/2011/08/fps-friday-fiver-15/ http://blogs.hillandknowlton.com/shocksandstares/2011/08/fps-friday-fiver-15/#comments Fri, 12 Aug 2011 13:36:06 +0000 David Chambers http://blogs.hillandknowlton.com/shocksandstares/?p=239 Another week and one in which unsurprisingly, UK media attention focused primarily on the England riots (Peter Oborne’s piece today captured the wider issue rather well I believe). That’s not to say things haven’t been happening elsewhere though, particularly in the financial world.

With that in mind, here’s a round-up of the key stories from all aspects of this week. Thanks to Jonathan, Ross, new writer Claire Scott, and also our MD, Ben – his article is second up and attempts to add some perspective to events.

Zut alors…..Another week, another country but the issue, namely financial stability, remains the same. Early in the week one of the world’s best known fund managers, Bill Miller, published a response to S&P’s downgrade of US government debt. The articleA precipitate, wrong and dangerous decision ran in the FT and is well worth a read.

There was a lot of this going on this week, as markets behaved in wild fashion

By Wednesday however, the bottle had stopped spinning yet again and this time it was the turn of France and its credit worthiness to come under scrutiny. With speculation about the health of some of the country’s largest banks and the ability of the nation to underwrite possible further bailouts in southern Europe giving investors sweaty palms.

Sovereign debt has become synonymous with Western governments but in today’s FT, Jamil Anderlini provides an alternative perspective arguing that the disparity between China’s official and actual debt levels deserve further scrutiny.

Putting perspective on this week…..The riots captured the UK media’s attention, and were clearly unacceptable. They raise all sorts of questions about society, as well as being highly damaging for London and the UK’s image with the Olympics round the corner. At the same time though, there are bigger and potentially more threatening global economic issues at play at the moment. While you can understand the rolling news channels’ focus on the riots, with all due respect they are a catastrophe on a much smaller scale than what is going on in Europe and the financial markets.

That’s not to downplay the riots in anyway but if things go the way they look they might (and I know of European bankers who fear the worst), and in the continued absence of any discernible leadership from Europe, frankly, a minority bent on destroying the businesses that support their communities, could, disturbingly, have far less long term impact on the wider UK population that what is happening on the continent.

The domino effect of Eurozone countries coming under immense market pressure shows no sign of slowing, market sentiment has gone haywire, and growth prospects across the West are tumbling. It’s time to wake up, smell the coffee and look beyond our own borders for signs of an even greater potential trouble.

Sound advice from Twitter given events this week

Boris rising, Dave declining…..The Blair/Brown tussle is one of negative memories from Labour’s 13 years in power. Blair admitted in his memoirs that Brown’s constant hounding for a stand down date and need for backing caused distraction and hindered progress. Jonathan Powell, Blair’s Chief of Staff, is even more damning of Brown in his recent book The New Machiavelli. If David Cameron thought his Premiership was to be without such challenges and unwanted burdens, surely he must now think again.

Boris Johnson is becoming a thorn in Cameron’s side. With speculation already rising that the future of the Conservative Party lies with either George Osborne or Johnson, it’s the latter that is fighting his corner more rigorously. This was evident this week when Johnson went against the Party line stating that budget cuts for the Met were wrong – swiftly rebuffed by Cameron yesterday when he said police budget cuts were non-negotiable.

How much of an eye does Boris have on the PM's job? (Image: ThisIsLondon.co.uk)

Johnson has also openly challenged Osborne as well – he recently called for a cut in taxes to boost economic recovery and entrepreneurship. This was delivered at a time of sensitivity for the Chancellor after the recent less than stellar GDP figures were announced and when he faced similar attacks from his nemesis, Ed Balls. Boris’ willingness to openly challenge the Party leaders must be taken seriously, even if he is not. At a time when the Government faces colossal challenges, such distractions are doubly unwelcome. It is up to Cameron to nip this in the bud and not let the future of the Party overrun the present.

It was Sarko's turn to feel the pressure of the markets this week

Good Week/Bad Week…..A tale of three men with O’s in their names this week. For Silvio Berlusconi, it was pretty much as expected – another tough week spent herding away the hounds at the door as investors continued to murmur about Italy being on the verge of downgrade/default/bailout (delete as appropriate, or not perhaps). Some relief for Silvio came on Thursday though, as the focus shifted to the hitherto tranquil setting of France, giving Mr Berlusconi’s neighbour, Nicolas Sarkozy, a rude awakening.

Sitting pretty watching all of this was our own ‘O’, George Osborne, who had a comparatively good week. Gilt yields are at rock-bottom, which the Chancellor swiftly proclaimed as proof of the UK’s position as a “safe haven” for investors, and an endorsement of his deficit reduction plans. Not everyone’s convinced though, and he also had to contend with the Bank of England downgrading growth forecasts – again. Still, compared to others, a relatively good week for George.

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