Moving in to the last week of April, there have, once again, been a number of stories influencing the markets worthy of a review. And, as we move in to May, Austen Morris Associates’ Asia Pacific head office will be observing the Chinese Labour Day Holidays and thus our Asia Pacific head offices will be closed on Thursday 1st and Friday 2nd May 2014 in accordance with this. Normal business hours resume from Monday 5th May 2014 whilst our African Headquarters will remain open throughout this week.
Trembling Russia
By the end of last week, the S&P’s Ratings Services cut Russia’s credit rating to BBB, which is one step above to junk; due to the present situation in Ukraine. This action was followed by a sudden boost of one-half percentage by the Russian Central Bank on its interest rate to 7.5%. The conflict has caused Russia’s inflation to rise up to 7.2%, the Ruble to be weakened by over 6% (against the US Dollar) since the takeover of Crimea, and the high dependency on a non-variable price of oil exports has left Russia vulnerable and on the edge of an economic downturn for the second quarter of 2014.
Russia’s economy has contracted by 0.5% in the first quarter of 2014 according to the Russian Economic Ministry. The main repercussions for Russia’s latest takeover are high inflation, US & EU restraints, S&P’s downgraded credit rating and a deviation of money towards Crimea.
Stronger U.S.
On the other hand, we’ve seen the U.S. economy show a much brighter scenario. Even though jobless claims have risen, the unemployment rate recently hit 6.5, its lowest level since December 2007. The Bloomberg Consumer Comfort Index showed the highest rise since January 2008 derived from the positive stock market scenario (Apple – 7% increase in profit for its first quarter; Facebook – tripled first quarter earnings, growing 72% of its revenue; Microsoft – smaller-than-expected profit decline at 6.5%; and Comcast with their 30% first quarter profit increase) and employment rise as well as and the latest home price boom from cities like Dallas, Houston, Denver and Pittsburgh. Durable goods and business spending plans rose to 2.6% and 2.2% respectively in March.
We’ve also been witness to the U.S. announcement of imminent political sanctions against Russia and it’s yet to be seen whether the conflict escalates through economic means or into substantial warfare but regardless, we anticipate investors out there will keep turning into safer assets like precious metals in the interim. With that, Gold and Silver prices have been extremely volatile this past few months and Gold was knocked down to $1,270 earlier this week but quickly sparked up above $1,300 per ounce. The metal is still a favorite to many investors believing that Gold will hit price records, although this remains to be seen.
The EU marches on
A review of the Composite Purchasing Managers’ Index (PMI), shows Europe has been experiencing the most rapid business activity since May 2011, rising from 53.1 to 54.0 in March. In addition, Europe’s consumer confidence level has hit its highest since August 2013. Low inflation is still present however and this could possibly slow Europe’s eagerly anticipated progress on its economic recovery.
Red Crowned Crane – Immortal?
Once seen as the world’s engine, China continues to show below expected economy figures. The HSBC China manufacturing PMI Index rose to 48.3 from 48.0 this month which was not as weak as anticipated and will likely keep the Chinese government from taking any immediate action to stimulate the economy.
South America – Where’s the water?
Recent news surrounding the world’s warming climate has highlighted the world’s global coffee supplies could be under threat. And with Brazil being one of the main suppliers of coffee beans, their climate situation is about to hit our pockets. Coffee bean prices have doubled since last year due to the irregular dry spell. Brazil, producer of a third of the world’s coffee, has been experiencing irregular rain that has led to a shortage of supply, leading the industry to gain millions of dollars yet directly affecting coffee houses around the globe, which will be taking a bigger hit than that of the end consumer.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of the market at this time. For more information about Austen Morris Associates please visit our website.
Written by Diego Cruz Almada on behalf of Austen Morris Associates’ Wealth Management and Investment Team.
www.austenmorris.com
