Banks’ Net Interest Income, Supermarket Shortages and T-notes In Focus

Highstreet Banks See Net Interest Income Soar

Barclays, NatWest, Lloyds and Santander are the latest high street banks to come under fire for failing to pass on savings rates to consumers. Recent figures evidenced in annual reports reveal that these banks’ net interest income (the difference between what banks charge consumers to borrow vs what the pay on consumers’ savings) has soared given a rise in their net interest margin. For example, Lloyds’ have seen their net interest margin rise 0.4 percentage points from 2.54% to 2.94% which has meant that their net interest income has risen from £11.2bn to £13.2bn over the course of the last year. Meanwhile NatWest saw their net interest income rise £7.5bn to £9.8bn as their net interest margin rose 0.55 percentage points from 2.3%. This comes as the Bank of England delivered their ninth consecutive rate hike increase, as interest rates hit fresh 14-year highs in the UK, driving up the cost of borrowing and returns on savings.

Given the rise in net income margins, banks have faced criticism that they have been not adequately passed on higher savings rates to consumers as inflation continues to be in double digits. As such, only recently Danny Kruger MP, a member of the Treasury Select Committee said that “the FCA should investigate the conduct of the banks as a matter of urgency” adding that “something is going wrong when banks are profiting from rising interest rates while savers aren’t seeing the benefits.”

Hence, as markets weigh on Threadneedle Street potentially having another 50bpts of rate hikes in them before they reach their terminal rate, questions will continue to be asked on the extent to which banks’ are passing on this on to consumers as the BoE tries to reduce liquidity across the economy.

Supermarket Shortages

Yesterday, Lidl joined a whole host of supermarkets to limit the amount of certain fruit and vegetable items a poor weather on the continent and North Africa causes supply issues. Last night, the food and farming minister, Mark Spencer hosted a meeting with the chiefs of UK supermarkets to discuss the latest issues.

According to wholesalers, importers and retailers that spoke with the BBC “the picture is nuanced, with the UK facing specific issues. For instance, it has lower domestic production and more complex supply chains.” Some groups have also expressed how rising energy prices have exacerbated costs to farmers, as well as labour shortages in the industry. Body Care

As investors upwardly revised their rate hike expectations from the Fed, the two-year (which is sensitive to short term hike expectations) saw highest monthly rise since 1981 over February. Yesterday’s session saw yields close 2.5bpts higher at 4.8% as it approached levels not seen since November, which was itself the highest yields have been since 2007. Hence, over the course of February, 2-year yields rose 70bpts. The US 10-year yield also rose to 3.98% yesterday, as it breached its highest level since November. This means that 10-year yields have risen 50bpts over February as investors weighed on rates being higher for longer.

Equities Update

Yesterday saw further pressure on equities yesterday as investors continue to digest the prospect of a hawkish fed which has seen the market upwardly revise a terminal rate of around 5.3%. Investors also considered the impact that falling consumer confidence would have on equity markets. As such the S&P 500 ended yesterday 0.3% lower while the tech heavy Nasdaq and Dow Jones also lost 0.1% and 0.71% respectively. Across the Atlantic, despite ending the month higher, European shares ended in the red, with the Stoxx 600 falling 0.3% over the session. Makeup

Looking more globally, MSCI’s All-World index closed 0.2% down yesterday, feeding into monthly losses which has seen the index loose 3% over February after having gained 7% over January.

Despite a mixed tone in global risk sentiment yesterday, oil benefited from upbeat expectations of China’s reopening which fed into WTI crude futures rising 2%. By the end of trading in London, WTI had surpassed $77.6dbp putting it at its highest level since mid-February. Notwithstanding yesterday’s rally, crude fell around 0.75% during the course of February while Brent fell around 2/3rds of a percent over the same period. This comes as investors upwardly revised their rate hike expectations from the Fed, thus concerning markets over the prospect of suppressed demand due to easing growth. UK Free Legal Advice

Yesterday’s move indicates that WTI crude futures have fallen a little over 22.5% on the year, having spiked at around $120dpb last March.