Wednesday, April 8, 2015

Financial market snapshot April 2015

While Japan is still struggling, the other major economies and regions are in full recovery with the United States and the United Kingdom well ahead with growth rates of over two per cent in 2014. Over the past five quarters, the G20 has attained good growth rates in the range between 3.3 and 3.7 per cent. These rates are not exceedingly high and point to solid recovery so far. Even the Euro Zone with its host of countries suffering from debt problems managed to remain in positive territory with its growth since the end of 2013. Germany had a strong first quarter in 2014 that did not continue but the economic growth rate held above one per cent.
It is obvious that some part of this growth performance is the result of the immense monetary stimuli, which all major central banks have been applying over the past couple of years. There are signals that the American central bank will raise interest rates in the middle of this year and it remains to be seen whether growth is already robust enough to withstand such a rise.
Industrial production is relatively strong in the U.S. and Germany yet highly uneven in Japan. While the rates for the growth of industrial production have been steadily rising in the U.S., they have shown a falling trend in Germany, while in Japan the rate, which stood at 7.6 per cent in the first quarter of 2013, has shown negative rates in the second and third quarter of 2014.
Industrial production has been relatively strong in the United States where it rose from 3.3 per cent by the end of 2013 to 4.6 per cent in the second quarter and to 4.5 per cent in the third quarter of 2014. The other major industrial countries, however, continue showing a relatively poor performance.

Current Account
As in the years before, the current account deficit of the United States remained negative and even deteriorated somewhat from 1.8 per cent in the first quarter of 2014 to 2.7 percent in the third quarter of 2014. The Euro Zone maintained its solid surplus over the past quarters in the a range of 2.1 per cent to 3.5 per cent with Germany having extremely high surpluses of over eight per cent at the end of 2013 and only slightly lower surpluses of 6.8 and 6.4 in the first and second quarter of 2014. The United Kingdom could lower its deficit from 2013 to 2014 yet remains at a high level of 5.3 per cent in the fourth and 3.6 per cent in the first semester of 2014. Japan is about to maintain a balance current account on average that oscillated between a deficit of 1.2 per cent in the fourth quarter of 2013 to a surplus of 1.3 per cent in the third quarter of 2014. The same tendency as in Japan holds for China which is about to steadily reduce its surplus which stood at 0.3 per cent in the first quarter of 2014. Germany continues registering excessively high current account surpluses of over six percent in the first two quarters of 2014.

Interest rates
There has been little change regarding interest rates. In all major economic areas, the rate is below 0.5 per cent. The Libor dollar rate fell to a historical low of 0.35 per cent in December 2013 as it happened likewise with the Libor euro rate. Only the Libor rate for the yen rose slightly to 0.35 per cent. 

Exchange rate
The dollar got stronger not only against the Brazilian real but also to the Euro, the Pound Sterling and other currencies. The dollar/euro rate fell from 1.36 in January 2014 to 1.23 in January 2015. In the same period, the dollar/pound sterling rate fell from 1.65 to 1.51. The Yen held relatively steady as 103.94 had to be paid for one dollar in January 2014 and 111.31 yen in January 2015. The value of the Brazilian real began to weaken from 2.38 Real per U.S. dollar in January 2014 to 2.63 real in January 2015. The exception of the trend of a stronger US dollar is the Yuan that remained well in a small range between 6.10 yuan per dollar and 6.17 yuan per dollar from the first quarter of 2014 to the first quarter of 2015.

In the area of commodities, the big surprise was oil. Its price had been steady over a long period of time within a range between 90 and 100 dollars per barrel when in November 2014 it suddenly plunged to 70.2 dollar only to fall even further to 62.6 per cent in February 2015. This gives one more signal that the commodities boom is over. Not only oil fell in price, likewise so did corn, which receded from 457.5 cents per bushel in February 2014 to 384.5 cents per bushel in February 2015. In the same time span, coffee fell from 179.8 cents per pound to 136.8 cents per pound and soya from 1414.3 cents per bushel to 1030.8 cents per bushel.
Sugar fell only slightly from 16.5 cents per pound in February 2014 to 13.9 cents per pound in February 2015 while in the same period wheat fell from 599.0 cents per bushel to 517.5 cents per bushel.
Despite the turmoil on the financial markets and the overall strength of the US dollar, golds prices did not move much. The gold price fell from 1321.6 dollars per ounce in February 2014 to 1175.2 cents per pound in November 2014, but recovered to 1231.1 dollars per ounce in February 2015.