Tag: Inflation

Interest rates and oil price volatility are still a big concern !

Posted on by Schwaben Capital Group Limited

March 27, 2015

 

 

Weekly Statistics:

Today

 Week Ago

Year Ago

27-Mar-15

 20-Mar-15

28-Mar-14
S&P TSX

14,812

 14,942.41

14,260
S&P 500

2,061

 2,108

 1,849
DJIA

17713

 18,128

16,264
OIL

$48.34

 $45.53

 $91.03
USD vs CAD

0.7937

 0.7929

0.9041
Gold

$1,198

 $1,182

 $1,298

Federal Reserve Chair Janet Yellen said that interest rates could possibly increase in 2015 and made the case that the Fed would be cautious and subsequent rate hikes would be gradual. In a speech in San Francisco on Friday, she emphasized that the coming tightening cycle will be unlike any other in recent times, as the U.S. economy continues to heal from the worst recession since the Great Depression. She emphasized that it’s the expected path of short-term interest rates that matters and not the precise timing, when asked about when the Fed will finally raise interest rates for the first time in nine years. Meanwhile investors are selling US equities at a record pace and making investments in European assets while speculating that the interest rates in US will increase by this year, sooner rather than later. The US stock funds have seen an outflow of $44 Billion in the year-to-date period for their worst start to the year since 2009.  On he other hand, European equity funds have enjoyed an inflow of $46.6 Billion so far in 2015. A stronger Dollar and increasing probability of interest rate hike in US are probably the main reason for this movement of funds. Ahead of the start of the earnings season, about 84% of the companies that have provided first quarter outlook gave negative outlooks. Many companies blamed strengthening dollar or weak commodities or both for poor outlooks. This outlook is more than 81% of the companies that warned in Q1 2014 and the five-year average of 68%.

Last week was very volatile for crude oil. Oil prices gained around 15% in the first four trading sessions of the week but lost 6% on Friday. Recently there have been news of disturbances in Yemen and that drove the prices up. Yemen is the 39th biggest oil producer in the world and produces roughly 130,000 barrels of crude oil a day. But its not the amount of oil produced by Yemen which has shot up the prices, rather its the geographic importance of Yemen in the transportation of crude oil across different nations. Its sits at Bab-el-Mandab Strait, a key choke point in international shipping. About 3.8 million barrels of oil a day passed through this strait in 2013 and a closure would keep tankers away from reaching Suez canal and SUMED pipeline.

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

US economy running at full steam – maybe the end of interest rate declines and a bumpy road for Equities for the next few weeks ?

Posted on by Schwaben Capital Group Limited

March 6, 2015

 

Weekly Statistics:

Today

 Week Ago Year Ago

06-Mar-15

 28-Feb-15

07-Mar-14

S&P TSX

 14,952.50 15,234.34

14,299.08

S&P 500

 2,071.26 2,105  1,878.04

DJIA

 17,856.78 18,133

16,452.72

OIL

 $49.78 $49.52

 $91.66

USD vs CAD

 0.7945 0.7991

0.9022
Gold

$1,168

 $1,214

 $1,341.50

The US economy added a robust 295,000 jobs in February, taking the country’s unemployment rate to lowest level in about 7 years. The median forecast in a Bloomberg survey of economists expected an increase of about 235,000. The unemployment level dropped to 5.5% from 5.7%, best since May 2008- Pre recessionary levels. Economists are now of the opinion that US economy could grow at 3% annual growth for the first time in a decade. This jobs report clearly points towards an improving and growing US economy, which is good news for equity markets. But, the increased confidence in US economy also led markets to speculate about a rate hike from Federal Reserve sooner rather than later. This in turn led to a sharp decline in equity markets with major indices like Dow Jones, S&P 500 and TSX down by about 1.5%. The Fed has always maintained that it would not rush into increasing the borrowing costs but financial commentators are of the opinion that a rate cut could be possible in mid 2015. Though the US economy has been posting solid gains in unemployment numbers, the wages of US workers are not raising as fast. The hourly wages rose at 0.1% or 3 cents to $24.78- a disappointment after an increase of 0.5% in January.

Meanwhile, the Canadian dollar sank after Canada reported its second highest trade deficit on record in January as the nation had to account for a slump in prices of oil shipments. According to Statistics Canada, the deficit widened to $2.45 Billion, doubling from a revised trade gap of $1.22 Billion in December. Economists had projected a deficit of $1 Billion. The loonie fell by almost half a cent to 79.48 USD. Total exports fell 2.8% in January, the biggest monthly decline in more than a year, while the imports were largely unchanged from December. As we discussed in our previous newsletter, the plunge in oil prices could reverse the fortunes of Canadian provinces. While Alberta has to bear the falling prices of crude oil, Ontario could benefit from a lower loonie which could give a boost to the province’s manufacturing industry.

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