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This week's thought-provokers for investors
(PresseBox) (Zürich, )
European peripheral equity markets continued to face selling pressure this week. Italy and Spain dropped by more than 3%. Emerging markets as measured by the MSCI Emerging Markets held up well, rising 1%. The 10-year yield continued to drop in Switzerland, Germany and the US, driven by mounting fears regarding growth in Europe and globally. Commodities were also subject to profi t-taking, with crude oil now trading above USD102/bbl and gold down at USD1634/oz. After the ECB kept rates steady on Thursday, the EUR is trading at 1.31 against the US dollar and at 1.2014 against the Swiss franc.
Eurozone CPI infl ation for April came in at 2.6%, down from 2.7% the month before, mainly due to slightly slower energyprice infl ation. The latest data confi rm that eurozone infl ation remains stubbornly above the ECB's infl ation target of "below, but close to 2%". This heightens the problems of the region's already stretched household fi nances with a continuing squeeze of real incomes.
The current crisis with a recession and signifi cant spare capacity in the region's economy are likely to take infl ation below the target as soon as food and energy infl ation slow a bit.
European manufacturing fell sharply in April, new PMI data showed this week. Spain, Italy, Greece, Germany and France all reported declines. Even Germany, the best of a bad lot in Europe, saw its PMI drop to a 33-month low of 46.2, down from 48.4 in March. This mostly related to a sharp fall in new work, especially from export markets. France's new orders fell at the fastest rate in three years, bringing the PMI to 46.9. Again more bad economic news for Europe. It's getting harder and harder for Germany to stay economically strong while the rest of Europe is falling deeper into a recession.
The UK Purchasing Managers' Index (PMI) declined to 50.5 in April from 51.9 in March, well below expectations but still in expansion territory. Total new order books only fell slightly for the fi rst time in fi ve months, but new export orders dropped to their lowest level since May 2009 as exports to mainland Europe, the US and East Asia slumped. According to Markit, the latest decline in production was largely centred on the consumer goods sector. In contrast, output rose at producers of intermediate and investment goods.
With preliminary Q1 GDP numbers indicating that the UK is already in recession, it is no real surprise that the PMI measure isn't looking so good. It is the health of order books during the next few months that will be the critical factor for employment levels, as the weakness in the eurozone as the major trading partner is hitting consumer goods producers almost everywhere.
The US ISM Manufacturing Index rebounded to a new 10-month high of 54.8 in April from 53.4 in March, more than reversing the drop in the previous two months. Four of the fi ve sub-indices rose, led by gains in new orders (up to 58.2 from 54.5 the previous month) and employment (up to 57.3 from 56.1 the previous month).
This survey, together with some upward revisions to previous- month data, may ease concerns that the weaker incoming news in recent months marked the start of a renewed slowdown in US growth similar to the one last year.
US consumption lost some momentum in March with a modest 0.3% month-on-month increase in nominal personal spending. This was the smallest gain since December and suggests that the strong annualised US real consumption growth of 2.9% in the fi rst quarter will not be repeated in the second quarter this year. It also appears that the surprisingly strong consumption growth at the beginning of the year was partly due to households running down their savings.
Real incomes need to grow at a faster rate to keep US consumption growing at a similar pace as in the fi rst quarter. Payroll data in April may provide a fi rst indication of the expansion rate we should expect in the months ahead.
China reported a continued pick-up in its offi cial Manufacturing PMI to 53.3 in April, up slightly from 53.1 in March, data compiled for the statistics bureau by the China Federation of Logistics and Purchasing (CFLP) shows. The increase in the headline index can be attributed mainly to a rise in the output component and is skewed towards larger fi rms. The small-fi rms sub-index dropped from 50.9 to 49.1 in April.
While new export orders increased in April, this positive development was off set by weak domestic orders. This raises questions about the eff ectiveness of Chinese eff orts to push for more domestic growth.
The Reserve Bank of Australia lowered the offi cial cash rate by 50 basis points to 3.75%. This larger-than-expected cut comes amid a slump in the Australian housing market and lacklustre growth in the nation's economy outside the booming mining sector and follows the release of relatively weak infl ation data last week.
Recently, the economy was clearly weaker than anticipated, not least due to the stronger Australian dollar pressuring industries outside the resources sector.
Stefan Angele, Head Investment Management & Member of the Executive Board
Important legal information
The information in this document constitutes neither an off er nor investment advice. It is given for information purposes only. Opinions and assessments contained in this document may change and refl ect the point of view of Swiss & Global Asset Management in the current economic environment. No liability is assumed for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The contents of this document or parts of it can only be used or quoted with the indication of the source. Swiss & Global Asset Management is not a member of the Julius Baer Group.
Copyright © 2012 Swiss & Global Asset Management Ltd. - all rights reserved
Eurozone CPI infl ation for April came in at 2.6%, down from 2.7% the month before, mainly due to slightly slower energyprice infl ation. The latest data confi rm that eurozone infl ation remains stubbornly above the ECB's infl ation target of "below, but close to 2%". This heightens the problems of the region's already stretched household fi nances with a continuing squeeze of real incomes.
The current crisis with a recession and signifi cant spare capacity in the region's economy are likely to take infl ation below the target as soon as food and energy infl ation slow a bit.
European manufacturing fell sharply in April, new PMI data showed this week. Spain, Italy, Greece, Germany and France all reported declines. Even Germany, the best of a bad lot in Europe, saw its PMI drop to a 33-month low of 46.2, down from 48.4 in March. This mostly related to a sharp fall in new work, especially from export markets. France's new orders fell at the fastest rate in three years, bringing the PMI to 46.9. Again more bad economic news for Europe. It's getting harder and harder for Germany to stay economically strong while the rest of Europe is falling deeper into a recession.
The UK Purchasing Managers' Index (PMI) declined to 50.5 in April from 51.9 in March, well below expectations but still in expansion territory. Total new order books only fell slightly for the fi rst time in fi ve months, but new export orders dropped to their lowest level since May 2009 as exports to mainland Europe, the US and East Asia slumped. According to Markit, the latest decline in production was largely centred on the consumer goods sector. In contrast, output rose at producers of intermediate and investment goods.
With preliminary Q1 GDP numbers indicating that the UK is already in recession, it is no real surprise that the PMI measure isn't looking so good. It is the health of order books during the next few months that will be the critical factor for employment levels, as the weakness in the eurozone as the major trading partner is hitting consumer goods producers almost everywhere.
The US ISM Manufacturing Index rebounded to a new 10-month high of 54.8 in April from 53.4 in March, more than reversing the drop in the previous two months. Four of the fi ve sub-indices rose, led by gains in new orders (up to 58.2 from 54.5 the previous month) and employment (up to 57.3 from 56.1 the previous month).
This survey, together with some upward revisions to previous- month data, may ease concerns that the weaker incoming news in recent months marked the start of a renewed slowdown in US growth similar to the one last year.
US consumption lost some momentum in March with a modest 0.3% month-on-month increase in nominal personal spending. This was the smallest gain since December and suggests that the strong annualised US real consumption growth of 2.9% in the fi rst quarter will not be repeated in the second quarter this year. It also appears that the surprisingly strong consumption growth at the beginning of the year was partly due to households running down their savings.
Real incomes need to grow at a faster rate to keep US consumption growing at a similar pace as in the fi rst quarter. Payroll data in April may provide a fi rst indication of the expansion rate we should expect in the months ahead.
China reported a continued pick-up in its offi cial Manufacturing PMI to 53.3 in April, up slightly from 53.1 in March, data compiled for the statistics bureau by the China Federation of Logistics and Purchasing (CFLP) shows. The increase in the headline index can be attributed mainly to a rise in the output component and is skewed towards larger fi rms. The small-fi rms sub-index dropped from 50.9 to 49.1 in April.
While new export orders increased in April, this positive development was off set by weak domestic orders. This raises questions about the eff ectiveness of Chinese eff orts to push for more domestic growth.
The Reserve Bank of Australia lowered the offi cial cash rate by 50 basis points to 3.75%. This larger-than-expected cut comes amid a slump in the Australian housing market and lacklustre growth in the nation's economy outside the booming mining sector and follows the release of relatively weak infl ation data last week.
Recently, the economy was clearly weaker than anticipated, not least due to the stronger Australian dollar pressuring industries outside the resources sector.
Stefan Angele, Head Investment Management & Member of the Executive Board
Important legal information
The information in this document constitutes neither an off er nor investment advice. It is given for information purposes only. Opinions and assessments contained in this document may change and refl ect the point of view of Swiss & Global Asset Management in the current economic environment. No liability is assumed for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The contents of this document or parts of it can only be used or quoted with the indication of the source. Swiss & Global Asset Management is not a member of the Julius Baer Group.
Copyright © 2012 Swiss & Global Asset Management Ltd. - all rights reserved
Über Swiss & Global Asset Management AG
Swiss & Global Asset Management is one of the leading dedicated asset managers in Switzerland and worldwide. At the end of March 2012, Swiss & Global had client assets under management totalling CHF 80.5 billion and employed around 300 staff . The company off ers a comprehensive range of investment funds, tailored solutions for institutional clients and customised private labelling services. Swiss & Global Asset Management is a unique combination of Swiss roots - in the form of long-standing client relationships and strong quality awareness - and a network that spans the globe, with more than 1,000 distribution contracts in some 30 countries.
Swiss & Global Asset Management is the exclusive manager of Julius Baer funds. Swiss & Global is a company of the GAM Holding, which is listed on the SIX Swiss Exchange.
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