Map of the G7 Countries and the European Union
The finance ministers and central bankers from the 7 largest advanced economies (G7) are meeting in Japan to discuss a wide range of global issues that will include, the Brexit, crude oil prices, financial regulation, cybersecurity, monetary policy, tax evasion and global growth.
The week began with a surge in oil prices on news that Goldman Sachs was predicting higher prices. The American based investment firm was calling for $50.00 USD (United States Dollar) by the end of 2016. The reassessment was based on lower production levels forecast in China, Nigeria and Venezuela.
Crude oil prices reached a 7 month high before falling back again.
Oil exports from Iran are surging this month. They are 60% higher than a year ago. Shipments to Europe are already 50% of what they were before sanctions. Iran is regaining market share faster than expected, by lowering crude prices in a bitter contest with Saudi Arabia in the quest for new customers.
Markets in Asia were up at the beginning of the week, but down in Europe and generally flat in the United States.
As the week progressed, global markets would then ratchet down as investors assessed various economic indicators. The big mover in equities was the increasing indications that the United States Federal Reserve Bank (Fed) may well raise interest rates already this summer.
Global stocks have now fallen to a 6 week low.
As the equivalent of the central bank in the United States, if the Fed does raises interest rates, the effect will not only hit the American economy, but the world economy as well.
Both United States Treasury yields and the USD are moving up, in anticipation of a hike in the interest rate. As the leading reserve world currency, an increase in rates will create a ripple effect on global growth .
The American New York Stock Exchange will decline for the fourth consecutive week. The United States composite NASDAQ, is looking at its 5th week of decline. This is the longest stretch of a diminution for the index in 3 years.
Also related to oil, Saudi Arabia has been given another credit rate cut along with Bahrain and Oman. Moody’s Investment Service took this action, in response to far lower world crude prices in these oil dependent economies.
Bank of England Logo
Bank of England warns that leaving the European Union (EU) through the upcoming vote known as the Brexit decision, will lead to slower growth, higher inflation and a possible recession in the United Kingdom.
Inflation in the United Kingdom edged lower last month to 0.03%, after a spurt in March. It reiterates the fact, that price levels remain relatively weak across the entire developed world.
France reports Gross Domestic Product (GDP) for 2015 at 1.3%. The public debt of 3.6%, exceeded the Euro-zone limit of 3%. In relation to GDP debt public debt has been revised upwards from 95.7% to 96.1%.
The European Central Bank (ECB) is limiting its sovereign debt purchases from both Ireland European Central Bank and Portugal, due to nearing the caps put in place on individual country bonds.
The International Monetary Fund (IMF) in exchange for their cooperation, wants the Euro-zone to permit Greece to skip either interest or principal payments on sovereign debt until 2040. There is a strong reluctance among various European governments led by Germany, to acquiescence to such a suggestion. The main reason is the total amount owed by Greece to other European governments and institutions, already exceeds $225 billion USD.
The IMF has also agreed to provide Iraq, a 3 year aid package worth $5.4 billion USD. The Iraqis are struggling with fighting ISIS and far lower crude oil prices, for a much longer period than expected.
Despite the EU agreement with Turkey, there have been no deportations of Middle Eastern refugees from Greece. Legal difficulties concerning the return of migrants, is the main reason for this.
Shanghai, the Financial Capital of China
In China, new data was released that indicates that the economy is definably growing more slowly. Credit growth, fixed asset investment, industrial production and retail sales all came in below market expectations.
Lower domestic and global demand is frustrating Chinese government efforts, to reverse an economic slowdown. Growth is now at a 7 year low of 6.7% in the first quarter of 2016.
In a related story, China is seeking assistance from the United Kingdom in how to create a super regulator for financial markets within the country. The action shows that the Chinese are becoming increasingly willing to seek outside help, in providing oversight of its markets.
Japan actually avoided a recession last quarter as consumer spending and government spending provided enough stimulus, to make up for the drop in business investment. Growth was reported to be 1.7%, the fastest pace in a year.
Argentina returned to the global credit markets last month. The country is now set to issue the first major corporate bonds worth up to $200 million USD, that will come due in 2020.
Rodrigo Duterte
The transition in the Philippines begins, with Rodrigo Duterte winning the presidential election. He will assume office next month. He has pledged to maintain the best period of growth since the 1970’s. The country has recently been granted for the first time ever,the status of an investment grade credit rating.
The economy of the Philippines expanded 6.9% in Quarter 1, giving the country the fastest growing economy in Asia. China has now been relegated to 2nd place, with India rapidly closing in. Filipino growth is the result of strong investment, higher domestic consumption and more construction.
The World Health Organization (WHO) is warning about the spread of the Zika virus to various parts of Europe.
On Friday morning, American West Texas Intermediate (WTI) oil decreased -0.52% to $47.91 USD, but prices are still $2.00 USD above where they stood last week. International priced Brent is down by -0.66% at $48.49 USD. This is about $1.00 USD increase in valuation from the week before.
In corporate news the giant drug and chemical company Bayer based in Germany, has made an offer to buy Monsanto. If the deal goes through it will create a firm that will provide $67 billion USD in annual sales. It will then be the largest seed and chemical crop company in the world.
The Investment Newsletter had 5 target fills to report this week.
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