Marching into May

Marching into May

Marching into May 398 367 AMA Team

53fa69e9-5b56-4d92-a3be-cc70ba492eddInternational Workers Day (also known as May Day or Labour Day) was celebrated last week, which meant a holiday for many around the world. Tens of thousands of people took to the streets all over the globe to mark the occasion; in Europe this saw many protests against the austerity measures imposed by governments trying to contain the Eurozone’s debt crisis, while the ferry tragedy in Korea also filled the news last week along with the escalating situation between Ukraine and Russia. As always, let’s take a look at the major events in the financial world last week.
On the brink of civil war
Ukraine Special Forces made their move last week with helicopter and ground assaults on several pro-Russian separatist controlled cities in the eastern part of the country. Tensions between Russia and Ukraine continue to rise and Catherine Ashton, the European Union’s foreign policy chief, plans to set in motion an independent investigation of the recent incident and has urged “everyone to exercise utmost restraint and not to exploit this tragedy to fuel more hatred, division and senseless violence”. Following suit, Obama urged Russia to withdraw its support to the separatists to ensure an unhindered Presidential election come May 25th and seeks to coordinate a united EU-US response to Russia’s actions in Ukraine. The global market has their eyes and ears on the political decisions surrounding Ukraine, and as fears rise that Russia will send troops into Ukraine after Kiev engaged the separatists; the Russian ruble depreciated 0.6 percent against the dollar to 35.8425, marking a total retreat this year of 8.3 percent. Along with the ruble, Russian bonds also fell, sending yields to a seven week high. However, the markets are still not priced for a Russian military invasion, and as long as the tensions keep rising the markets will fall accordingly.
U.S. rise offset by trouble in Ukraine
97d4dad4-0c3a-43d4-b4ff-705087243a64With positive economic data and evidence of a gain in momentum, the U.S. economy is on the rise. The Dow Jones Industrial Average and the S&P 500 reached record highs midweek as earnings topped forecasts and the Federal Reserve announced they would further trim bond purchases. At the start of the week, U.S stocks rose, however the positive payroll data (which has seen all time highs in the last 2 years) was offset by growing concerns in Ukraine. This left the S&P 500 up 1% at the close of the week. The Dow rose 0.9 percent to 16512.89 and the Nasdaq Composite index rose 1.2 percent to 4123.90.
The European Central Bank’s dilemma1aac9f47-c800-40bc-81d6-1584d27f4cafThe European Central Bank’s policy meeting is this week, and the big question is if they would ease monetary policy to prevent deflation of the Euro or keep it as is? Data that supports further easing is based on the current inflation which is very low and the fact there are few inflationary pressures in the Eurozone at the moment. On the other hand, economic activity in the Eurozone continues to expand, albeit at a modest rate, and with the likes of the unemployment rate in Germany which is at its lowest rate since 1991, and the overall manufacturing PMI in the area continuing to be strong, there is less likelihood that the ECB will ease (monetary policy) further; particularly if economic activity is accelerating.
We also saw the British pound reach a 4 year high versus the dollar as an effect of data from the first quarter that showed accelerating economic growth and increasing house prices. The pound has risen 5.5 percent the past 6 months, and ended at 1.6865 to the dollar as markets closed.
China scrambles to keep economic growth9731cb2f-6bc6-463f-a48a-2946eeb562adThe Chinese service-industry index rose in April to 54.8 from 54.5 in March. As we touched on last week, the HSBC China Manufacturing PMI Index was not as weak as anticipated, however the property expansion plunged last quarter and the Chinese government faces an increasing challenge in keeping the rate of economic expansion while avoiding a large-scale stimulus. The majority of provinces failed to reach their growth targets last quarter, resulting in GDP growth of 7.3 percent this year which was expected by economists but still fell short of the government’s target of 7.5 percent.
Traders buy gold in anticipation of a crisis507dd649-6070-4a1d-9564-908ff847b50cThe Ukraine offensive made its mark on gold prices as well. At the end of the week gold prices had dropped on the back of the U.S. government statement that they had added 288,000 workers to their payrolls in April, which was more than anticipated. But with the news from Ukraine, prices for the June delivery went up to $1302.90 an ounce, an increase of $19.50. Silver also jumped 50 cents to $19.55 an ounce. U.S. crude oil for June delivery increased 34 cents to $99.76 a barrel.
Last week we saw a lot of positive economic data from the first quarter giving the markets an initial boost, with the US economy leading the way, but with the Ukraine crisis and an increased chance of a Russian invasion, this dampened the celebration and neutralized a lot of the positive effects. But the question remains, and it is yet to be seen as to what will happen next in the region – be it further sanctions or continued aggression. At this point though, we continue to remain positive and hope that calmer heads will prevail thereby allowing the recent positive results from the global economy in the first quarter to play their part and are not damaged by political maneuverings.
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 Knut Stie von Krogh on behalf of Austen Morris Associates’ Wealth Management and Investment Team.
www.austenmorris.com

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