Macro Highlights May 4th 2015

Analysis - 5/5/2015

Our Investment Research Department publishes a weekly newsletter with a round-up on the main economic developments and news flow.

Financial assets run into interference

After four months of stellar performances, stockmarkets hit a wall of turbulence last week and, like bond and real estate benchmarks, had to come down to a lower orbit. Gold, the dollar, the yen and the pound have all slipped as well in the past seven days. Only oil, the euro, the Swiss franc and (naturally) cash have managed to hold an upward course.

Actually it is quite normal that financial assets have encountered resistance. After getting off to a flying start this year, they were bound to see a consolidation phase sooner or later. Markets never move in a straight line. (...)

No use crying over spilt milk

US first-quarter GDP data turned out to be rather disappointing, as foreshadowed by industrial production and job creation in March. The severe winter weather and the dollar’s muscle-flexing over the previous ten months ended up taking their toll on America’s corporate sector.

Even so, growth remains sustainable thanks to buoyant consumption. Consumer sentiment continues to run high, wages and property prices are still rising and inflation is low. (...)

Better for the uptick to come too late than too early

In the past the US Federal Reserve has always started raising interest rates well before the economy reached full employment or 2% inflation and did so, at the latest, three years after the end of a recession. This time, even though the country pulled out of the last recession six years ago and the unemployment rate has eased almost to its target level, the Fed continues to put off the first hike in the cost of money.

One of the reasons for this postponement is persistently weak inflation and the risk of deflation, which cannot be ruled out altogether. Another is awareness that a rise in the federal funds rate will have a substantial impact on the US economy. (...)

Squaring the circle in brazil

Humming along for a decade at nearly 4%, Brazil’s GDP growth easily won the hearts of investors. But that is no longer the case at present: in real terms the country narrowly avoided recession in 2014. Worse, the imbalances created by wayward public finances and lax monetary policy must now be put right at a time when the Rousseff administration, deeply scarred by the Petrobras corruption scandal, has never been so unpopular. (...)