Glossary

A-rating : A rank used by credit rating agencies assigned to a government or company's debt. An obligor with an 'A'-rating' generally has a strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.

AA-rating : A rank used by credit rating agencies assigned to a government or company's debt. An obligor with an 'AA'-rating' generally has a very strong capacity to meet financial commitments.

AAA-rating : A rank used by credit rating agencies assigned to a government or company's debt. An obligor with an 'AAA'-rating generally has an extremely strong capacity to meet its financial commitments.

Accommodative monetary policy : an approach by a central bank to reduce interest rates and boost money supply as a means to stimulate economic activity.

Asset class : a group of securities that show similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. The main asset classes are equities or stocks, fixed income or bonds, and cash and cash equivalents or money market instruments.

Asset Purchase : Purchase of financial assets by central banks such as buying back bonds in order to add liquidity into the economy, and lower the cost of borrowing, by setting low interest rates.

Asset Purchase Programme : A programme through which central banks buy back bonds in order to add liquidity into the economy, and lower the cost of borrowing, by setting low interest rates.

Austerity : a lowering and reduction in spending and benefits, particularly relating to governments’ public services.

Autumn Statement : One of two statements the UK HM Treasury makes each year to UK Parliament which states the economic forecasts, changes to national insurance contributions and the Government's announcements in regards to spending plans.

Bank of England's Asset Purchase Programme : The aim of the Facility was to improve liquidity in credit markets by which the Bank of England can buy high-quality assets financed by the issue of Treasury bills.

Bank of Japan's Asset Purchase Programme : A programme by which the Bank of Japan purchases various financial assets, with the aim of boosting liquidity and lowering long term interest rates.

Bank recapitalisation : The restructuring of bank's long-term financing.

Bond-buying programme : A programme through which central banks buy back bonds in order to add liquidity into the economy, and lower the cost of borrowing, by setting low interest rates.

Bond dividend yield : The rate of return on a bond expressed as a percentage of the principal invested.

Bunds : German government bonds.

Cash reserve ratio (CRR) : The reserve requirement (or cash reserve) ratio is a central bank regulation that sets the minimum level of customer deposits and notes that each commercial bank must hold as reserves (rather than lend out). These required reserves are normally in the form of cash stored physically in a bank vault or deposits made with a central bank.

Company fundamentals : The intrinsic value of a company as analysed by looking at its revenue, expenses, assets, liabilities and other financial aspects.

Consensus Economics : provide the results of surveys that cover estimates for the principal macroeconomic indicators including GDP growth, inflation, interest rates and exchange rates worldwide.

Consumer confidence : a measure of consumer optimism.

Continuing resolution: A type of legislation used by the United States Congress to fund allow government agencies to continue spending in the absence of an approved budget which has not been signed into law by the end of the Congressional fiscal year.

Contraction : Two consecutive quarters of negative growth.

Core government bonds : principally the government bond markets of the US, UK, Germany and other developed countries outside of the eurozone such as Canada and Switzerland.

Corporate assets : Securities issued by corporations, e.g. equities and corporate bonds.

Credit spreads : The difference in yield between a corporate bond and a government bond.

Currency depreciation : depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies.

Current account : The difference between a nation's total exports of goods, services and transfers, and its total imports of them.

Debt buyback operation : repurchase of a debtor's own outstanding debt to reduce the debtor's obligations, usually at a discount.

Debt ceiling : Under US federal law, the amount that the government can borrow for expenditures is limited by the ‘debt ceiling’, which can only be increased with a separate vote by Congress.

Deflation : a decrease in the price level of goods and services. Deflation occurs when the inflation rate falls below 0%.

Easing : Action by a central bank to reduce interest rates and boost money supply as a means to stimulate economic activity.

Equity dividend yields : the rate of dividend payments made by security issuing companies, relative to the price of that company's share price.

Expansionary fiscal policy : an increase in the use of government revenue collection (through taxation) and expenditure (through public spending) to influence the economy.

Federal Open Market Committee : a committee within the Federal Reserve System that makes key decisions about interest rates and the growth of the United States money supply.

Federal Reserve : The Federal Reserve System is the central bank of the United States.

Fiscal cliff : The term 'fiscal cliff' was first coined by Federal Reserve Chairman, Ben Bernanke, early last year and refers to the fact that a large amount of tax cuts are due to expire in January 2013 and, on current policy, spending cuts are due to kick in at the same time. Indeed, if nothing is done to change current policy, the fiscal drag or reduction in government spending the US economy could experience, would amount to roughly 5% of US GDP, which would be an enormous hit and probably push the US into a technical recession.

Fiscal deficits : when a government's total expenditures exceed the revenue that it generates.

Fiscal policy : the use of government revenue collection (through taxation) and expenditure (through spending) to influence the economy.

Fiscal stimulus : an increase in public spending, or increase in the level of taxation, by the government in order to encourage or support economic growth.

Five Star Movement : Italian political party founded by Beppe Grillo.

Fiscal tightening : reduction in government spending.

FTSE 100 Index : the UK index that tracks the leading (by market capitalisation) 100 publicly-traded companies on the London Stock Exchange.

German Bundesbank : The central bank of Germany.

Gilts : UK government bonds.

Government bond yields : A measure of the cost of borrowing for governments.

Gross Domestic Product : The value of a country’s total output of goods and services, produced within a given period.

Hawkish : term commonly used to describe a negative view towards inflation with a preference for higher interest rates in order to maintain or reduce inflation.

Housing Starts : refers to the number of new houses that are being built within the United States. The real estate sector is often one the first impacted by impending economic instability, making housing starts a highly reliable economic indicator.

HSBC Flash Purchasing Managers' Index (PMI) : provides the earliest indication of economic conditions in China, based on analysis of pre-production data from HSBC China PMI survey.

Hung Parliament : Situation following an election when a party or coalition of parties has no overall majority of seats in parliament.

Inflation : the rise in the general level of prices of goods and services in an economy over a period of time.

ISM manufacturing index : Index released by the Institute for Supply Management, that tracks the level of manufacturing activity of the previous month.

Large caps stocks : Large cap is an abbreviation of the term 'large market capitalisation'. A term used by the investment community to refer to companies with a market capitalisation value, generally of more than USD10 billion. Market capitalisation is calculated by multiplying the number of a company's shares outstanding by its stock price per share.

Liquidity : is the amount of capital that is available for investment and spending.

Long Term Refinancing Operations (LTRO) : operation that allowed European banks an opportunity to refinance themselves with a maturity of three years. In two major operations in December 2011 and February 2012, the European Central Bank injected EUR1019 billion though LTROs into European banks.

Loose monetary policy : Action by a central bank to reduce interest rates and boost money supply as a means to stimulate economic activity.

Monetary easing : Action by a central bank to reduce interest rates and boost money supply as a means to stimulate economic activity

Monetary policy : process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.

Negative real returns : the net rate of return of scheduled bond holder payments, after adjusting for inflation is negative. This is usually occurs when the rate of inflation is higher than the nominal rate of return, resulting in the reduction in value of the asset.

Nikkei-225 index : a price-weighted index of the 225 top Japanese companies that are listed in the Tokyo Stock Exchange.

Payroll tax : tax an employer withholds and/or pays on behalf of employees based on the wage or salary of the employee.

Peripheral eurozone : countries seen to be lesser developed compared to their peers, generally refers to Portugal, Ireland, Italy, Greece and Spain.

Promissory note: A written, dated and signed two-party instrument containing an unconditional promise by the maker to pay a definite sum of money to a payee on demand or at a specified future date.

Public sector net borrowing : is the measure of fiscal revenues and expenditures as well as the amount of new debt created by a government. If this number is positive, it means the U.K. government is running a fiscal deficit, while a negative number represents a fiscal surplus.

Purchasing Managers' Index (PMI) : is an indicator of financial activity within a region/country or sector. It reflects whether there is a positive or negative sentiment in the a region/country or sector. An indicator of financial activity reflecting purchasing managers' acquisition of goods and services.

Quantitative easing : A programme through which central banks buy back bonds in order to add liquidity into the economy, and lower the cost of borrowing, by setting low interest rates.

Real bond yield : Bond yield adjusted for inflation.

Real returns : Returns after adjusting for inflation.

Recapitalise : Restructuring a company's debt and equity mixture, most often with the aim of making a company's capital structure more stable.

Recession : two consecutive quarters of negative economic output or growth.

Recovery : a period of increasing business and economic activity following a recession.

Reserve requirement ratio (RRR) : The reserve requirement (or cash reserve) ratio is a central bank regulation that sets the minimum level of customer deposits and notes that each commercial bank must hold as reserves (rather than lend out). These required reserves are normally in the form of cash stored physically in a bank vault or deposits made with a central bank.

Return on equity : A measure of how efficiently profits are generated from a company’s shareholder equity.

Risk assets : Assets that are considered to carry higher levels of volatility, such as equities, high yield bonds, commodities.

S&P 500 : Standard and Poor's 500 Index is widely regarded as a gauge of the U.S. equities market. It includes 500 leading publicly-traded companies in the U.S.

Safe haven : Type of assets generally perceived by investors as less vulnerable to market volatility.

Sequestration : automatic spending cuts due to kick in 2013 as part of the agreement reached between Republicans and Democrats in July/August 2011 at the eleventh hour when the US debt ceiling was increased to avoid a default.

Shorter-dated maturities : bond instruments with maturities between one to five years.

Soft economic activity : economic activity that is subdued by comparison to cycles of strong economic activity.

Soft landing : a gradual shift or deceleration in the rate of economic output.

Sovereign credit rating : the credit rating of a sovereign entity, such as a national government. The sovereign credit rating is used by investors as an indication of the level of risk level of investing in the government debt of a country.

Structural reforms : The intervention of government to deregulate and, or liberalise sectors of an economy, such as labour markets.

Volatility : a measure for the fluctuation of the price of financial instruments over time.