Good day to everyone. Thanks to Wade for writing up last week’s Money Matters, I certainly enjoyed reading it while I was away! Wade talked about all the hoopla out there around the US debt ceiling causing a partial shutdown (furlough to be more precise), and the affect it has had on many government sectors in the USA such as defense/energy/commerce. Some museums and national parks, including the spectacular Grand Canyon and Statue of Liberty have been closed to visitors recently, however with this week’s developments, it looks as if the furlough will unwind and things can return to the way they were. With US debt ceiling issues that have been talked about for the past several weeks being temporarily resolved – finally – the US government has just agreed to raise the debt ceiling at the last minute. This has resulted in the general markets having an initial 1% rise on average so far this week so we’ll see how this translates and pans out for us by next week when we revisit the review of markets in our next Money Matters installment. Essentially what this temporary resolve means is that the debt issue will be delayed now through to January/February of next year, and hopefully they’ll use this time constructively to figure out more sustainable measures. However as we can’t rely on governments to be constructive, we’ll continue to use this time to stick with the fundamentals and encourage a diversified approach.
Despite the ongoing issues in the US, it doesn’t seem that many were/are overly concerned about a default, as looking back on markets, the US S&P ended last week up 1.6%, the Hong Kong Hang Seng just above where it started the week, and the UK FTSE was also up 1.1%. Some of the gains could be attributed to Janet Yellen as she looks to be appointed the next FED head as speculated some weeks back and as we mentioned in Money Matters at the time. Once again, if she replaces Bernanke next year, we could expect more QE and more low rates.
So default or no default, political stalemates, or whatever might next get thrown at the markets, let’s continue to stick to the fundamentals. Given the IMF (International Monetary Fund) has cut some growth forecasts whilst raising others, it may be prudent to take a look at the GDP’s to get a better idea of where we’re (and markets as a result) are at, rather than focusing on just the headlines. Equally, it’s important to remember that just because one economy is slowing down doesn’t mean that’s it’s moving slowly, just like speeding up doesn’t mean that you’re going fast.
The World Bank’s latest GDP forecasts:
China: 7.5%
East Asia (excluding China): 5.2%
UK: 2.9%
USA: 1.6%
So although China’s expected GDP might be at the lowest in several years, China is still outpacing most of the world with their economic growth and potential, and in addition, continues to make positions for the future. One key position from China was to sign a currency swap agreement with the Eurozone. This means trade between China and Europe can take place in both Euro and RMB currency, rather than having to trade in USD. This adds a huge position to China’s further economic expansion in terms of global trade and only helps strengthen their ties with Europe.
Have an enjoyable weekend ahead and we look forward to being back in touch with our readers again next week with a recap of the markets and hot topics.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Austen Morris Associates Wealth Management & Investment Team
Darren Cox
Co-Head of Portfolio Management
