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US
Comments from the Federal Open Market Committee’s (FOMC) January 29-30 meeting revealed that the US Federal Reserve has ongoing concerns about downside risks to growth in the US economy. Inflation numbers were higher than expected, with a 0.4% increase in January. The market believes that slower growth is driving the Fed’s actions rather than inflation.
The Philadelphia Fed’s general economic index was minus 24 in February, down from a reading of minus 20.9 in January. This reinforced the view that the US is in or close to recession. The futures market has already priced in a 0.5% cut, expected at the Fed’s meeting in March.
Reports that private equity firm KKR delayed billions of dollar of debt for a second time triggered selling on markets. KKR has put off repaying asset-backed commercial paper due on 15th February for two weeks.
Asia Pacific
Japan’s January Trade numbers surprised the market, showing a deficit of 76 billion yen instead of the expected surplus of 8.2 billion. The shortfall was due to a weakening of exports from the US.
Australia’s largest telecommunications company, Telstra, reported that first-half profit was up 13% at AUD $1.93 billion. The higher than expected rise was due to a gain in market share and growth in both retail broadband and mobile units. Telstra raised its full year forecasts by 1% and now expects growth of 6-8% for the year.
UK
The nationalization of Northern Rock dominated the news this week, after the government approved legislation to rescue the troubled lender. Northern Rock is the first major bank in 25 years to be nationalized.
In January, UK retail sales saw the largest monthly gain in 11 months, which suggests there will not be further rate cuts from the Bank of England.
End note
More countries are revising global growth forecasts downwards. It appears that the US economic slowdown and the weaker greenback is already impacting on trade and will continue to do so. The market has all but factored in an expected 0.5% interest rate cut at the US Federal Reserve meeting in March.
Strong demand for commodities from China is boosting Australia’s economy. It is the only major country that is contemplating raising interest rates. Volatility continues in the stock markets, taking the lead from the US markets. It’s a trend that seems sure to continue until the true economic condition of the US is determined.
Happy Investing!
Julia Lee
Head of Fundamental Analysis
HUBB Financial Group
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