Is China finally driving Global Capital Markets ?

    Schwaben Blog

 

April 17, 2015

 

 

Weekly Statistics:

Today

Week Ago Year Ago
10-Apr-15 02-Apr-15

17-Apr-14

S&P TSX

15,360

15,388

14,500

S&P 500

2,081

2,102

 1,864

DJIA

17,826

18,057

16,408

OIL

$56.14

$51.70

 $93.09

USD vs CAD

0.8178

0.7946

0.9072

Gold

$1,203

$1,208

 $1,296

Global markets saw a selloff on Friday, driven by concerns over Greek’s possible exit from Euro, crackdown on margin lending in China and subpar US corporate earnings. Yields on 10-year German government bonds hit a record low of 0.07% as investors tried to move from equities to bonds. This led to a fall in European markets with Germany’s DAX loosing 2.6% and France’s CAC 40 loosing 1.6%. According to major strategists in Europe, Greece is making little progress in negotiating its debt with it’s international creditors and that could lead it to defaulting on its debt or even exiting the euro.  Athens’ main stock exchange lost around 2.5% and has declined more than 40% over the last 12 months, making it one of the world’s worst performing indices. Greece needs to pay its civil employees and pensioners at the end of this month and as the date comes closer they are tapping all the remaining cash reserves across the public sector (pension funds and regional administrations)- a total of $2 Billion Euros.  A senior Greek finance ministry official said that ” This is the last bit of cash that Greek state has”. Greece’s remaining time with euro could be decided on Saturday during their meeting with their lenders.

The Chinese securities regulator warned against excessive borrowing in Chinese markets and imposed sanctions on margin borrowing in order to control margin trading. This led to a 5%decline of  Chinese equity markets in post-close trading, which further brought the negative sentiment to Europe and North America. Margin borrowing has been a major driver of China’s stock market run and Chinese shares have hit 7 year highs after seven weeks of gain. Their main index SCH COMP has almost doubled over the last 12 months and is up almost 70% this year. The Chinese regulator also allowed fund managers to lend stocks for short selling to increase the supply of shares. This led to a fear of sell-off among investors as Chinese markets have had an enormous run over the last 12 months. The world’s second largest economy has a significant impact over the global sentiment and if Chinese markets lost 5% then this could lead to a global sell-off next week.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch

Are employment numbers a sign of things to come ?

    Schwaben Blog

 

April 10, 2015

 

 

Weekly Statistics:

Today

Week Ago Year Ago
10-Apr-15 02-Apr-15

11-Apr-14

S&P TSX

15,388

15,027

14,260

S&P 500

2,102

2,066

 1,815

DJIA

18,057

17,763

16,026

OIL

$51.70

$49.14

 $92.45

USD vs CAD

0.7946

0.7929

0.9404

Gold

$1,208

$1,200

 $1,322

 

 

The Canadian economy added 28,700 jobs in March compared to a loss of 1000 positions in February. Most of the new jobs created in March were part-time and it was the other way around in February when full time positions accounted for the bulk of hiring. The unemployment rate stayed at 6.8%, the same level as February. Economists had expected no job creation after the recent layoff announcements in retail and oil industries. Avery Shenfeld, chief economist at CIBC World Markets said, ” Employment was a lot brighter than expected for an economy entering a rough patch for growth”. The public sector and private sector added 26,500 and 19,300 positions respectively while self-employment fell by 17,000 in March. Provincially, Saskatchewan had the lowest unemployment rate at 4.4% and Newfoundland had the highest unemployment at 13.3%. If the Canadian economy continues to show strength despite a dramatic decline in oil prices, then we expect there won’t be any rate cuts by Bank of Canada (BOC) in the near future. In January the BOC cut its key rate to 0.75% from 1% and the BOC governor, Stephen Poloz, referred to the rate cut as the “insurance” against the impact of decline in oil prices to Canadian economy.

Meanwhile the US economy added 126,000 jobs in March compared with 264,000 in February. Economists were expecting a gain of 250,000 jobs. The unemployment rate remained steady at 5.5%. It remains the lowest rate since May 2008. It was first time in the last 14 months that this number fell below 200,000 mark. The labor force participation rate ticked lower to 62.7% from 62.8%.  Although it’s not positive news for the US economy, equity markets rallied after the news on the cue that the Federal Reserve won’t raise the interest rates soon based on weak unemployment figures. It is too soon to conclude that this is a sign that the US labor market is being affected by the broader economic slowdown. The slowdown could be because of a harsh winter and an appreciating dollar, but this jobs report will certainly lower the positive sentiment regarding rise of interest rates soon (may be by June).

Unemployment is a lagging indicator on the economy and capital markets. As such we would not expect that the employment numbers would indicate what we may expect. The actual employment numbers versus the expectations however does show the optimism among economists about the US economy. While we think that the US economy is still very strong the rise in the US dollar may however slow down exports of US produced goods. Many US companies however has significant non-US production facilities or subsidiaries in the the far East and other countries where they operate hence there is limited impact in their actual sales however more so in reported earnings when reported back to U$ would show lower revenues in foreign subsidiaries.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch