The week began with global equities and markets almost all down. This was the result of a number of factors that included the fall in German business sentiment in Europe and the growing fear of corporate defaults in China. Investors were also looking to see what the central banks in Japan and the United States were going to do later in the week.
The United States has posted results for GDP (Gross Domestic Product) growth for the first quarter of 2016. The provisional rate is only 0.5%, when 0.7% had been expected. This follows the 1.4% reported for the 4th quarter of 2015. There is increasing concerns among investors that the United States economy may be heading for a recession later this year.
The Central Bank of the United States known as the Federal Reserve Bank (Fed) decided to keep interest rates unchanged this week.
The largest economies in Europe continue to grown albeit slowly. Expansion of consumer spending in France, helped boost domestic GDP to 0.5% in the first quarter. Spain is expected to grow 1.5% for the same period. GDP in Italy rose to 0.3% for the first part of the year. Italian unemployment is now at its lowest level in 4 years, coming in at 11.4%.
Total Euro-zone growth for quarter 1 is now listed at 0.6%, when only 0.4% was expected. GDP is 1.6% higher than last year. Europe is now growing faster than the United States.
Business confidence in Germany slipped this week. This was the result of data released by the central bank predicting a slowing economy in the second quarter, after a strong showing in the first part of the year. The Business-Climate Index dropped slightly to 106.6 in April from 106.7 in March. A score of 107 had been expected.
In 2014, Germany recorded the highest trade surplus in the world worth $285 billion.
At the same time, consumer confidence in Germany rose to 9.7 from 9.4 last month.
Unemployment in Germany as expected, remained at the all time low of 6.2% in April. The number of jobless continued to decline for the 7th consecutive month.
Also in Europe, GDP in the United Kingdom slowed to 0.4% in first quarter of 2016. This was a decline from the 0.6% recorded, in the last quarter of 2015. These statistics are particularly important now, considering the June referendum on whether the country should remain in the European Union.
Mariano Rajoy Prime Minister of Spain
since 2011.
Spain is on track to have a new general election in June of this year. A caretaker regime has been ruling the country since the election last December, which left both establishment parties too weak to form a new government. Smaller parties now control almost 40% of the seats in the legislature. Three attempts have been made to form a coalition that have all ultimately failed. The Conservative Popular Party received the largest voting share last year.
Meanwhile in China, there are growing investor fears how rapidly the country is accumulating debt. In 2007 the country’s debt to GDP ratio was 148%. Over the subsequent years, it has grown dramatically. At the end of the first quarter this year, it is reported to be 237%. This equates to a total of $25 trillion USD (United States Dollar). Worryingly, the Chinese government continues to use massive fiscal stimulus to try to keep economic growth moving forward.
People’s Bank of China headquarters in Beijing.
On Friday, the central bank in China raised the yuan 0.56% higher, to give their currency the biggest one day revaluation since the historic one in July of 2005.
Legislators in China have passed a new law giving more power for police to investigate and monitor foreign nonprofits. The central government wants to limit outside influence of Chinese culture.
The middle of the week decision of the Bank of Japan (BOJ) not to expand monetary stimulus not only sent Japanese shares down on the Nikkei, it sent most world markets lower as well. The BOJ is becoming more cautious with the massive fiscal stimulus and negative interest rates already in place. Further moves in quantitative easing for now have been postponed.
Aramco Headquarters in Dhahran, Saudi Arabia.
Saudi Arabia released their economic plan known as Saudi Vision 2030. The program is designed to ween the kingdom off of the overwhelming reliance on oil revenues, now estimated to be at 80%. The effort will focus on creating a sovereign wealth fund, that will contain over $2 trillion USD in diversified assets. Most importantly for investors, it calls for selling under 5% of the state controlled energy behemoth known as Saudi Aramco.
Precious Metals all increased in price this week. The international price for gold was at $1234 USD on Monday, by Friday morning the price had increased to $1267.40 USD. This was a 2.71% increase. Silver experienced an even higher spike. At the beginning of the week it was selling for $17.11 USD by the end of the week the price had surged to $17.63 USD, which equates to a 3.04% increase.
On Friday morning, American West Texas Intermediate (WTI) oil increased an additional 0.59% to $46.30 USD, less than $3.00 above where prices stood last week. International priced Brent is also up +0.29% at $48.28 USD.
The rise in crude prices this week, is due to concerns about declining production in the United States and a deprecating American dollar. Another concern is the rapidly disintegrating economic and political situation in Venezuela, a major oil exporter.
In major corporate news, Apple reported its first year to year revenue drop in 13 years. The American communications and technology giant touted as one the most innovative and valuable company in the world, is experiencing a slow down in global sales. Revenues dropped 13% to $50.6 billion USD.
Another big mover this week was Facebook with shares popping 9% overnight. The American social media giant saw sales surge 52% to $5.3 billion USD. Net profits increased from $512 million USD to $1.51 billion USD. Revenues from ads increased 57% to $5.2 billion USD. The company now plans to create a new class of nonvoting shares. This will strengthen control that Mark Zuckerberg now has over the corporation.
The Investment Newsletter had 5 target fills this week.
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