IMF asks US Federal Reserve to delay rate rise – BBC News 06-04-15

Salient to Investors:

Christine Lagarde at the IMF said:

  • The Fed should delay any rise in interest rates until 2016 and wait for more tangible signs of wage or price inflation.
  • Pockets of vulnerability in the US economy could cause serious trouble for the wider economy.
  • The IMF predicts US growth of 2.5% in 2015 and 3% for 2016; versus the OECD prediction of 2% growth in 2015.
  • The US dollar is moderately overvalued.
  • Greece will keep its word on the debt payment due on Friday.

Read the full article at http://www.bbc.com/news/uk-33011262

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OECD slashes US forecast as gives global economy B minus – BBC News 06-03-15

Salient to Investors:

The OECD said:

  • The global economy’s predicted growth is lowered to 3.1% in 2015 and 3.8% in 2016 due to an unexpectedly weak Q1 and investment yet to take off. The global economy rates a B-minus.
  • Large businesses have been unwilling to invest as vigorously as in previous cyclical recoveries, and many governments have delayed investing in infrastructure.
  • The US’ predicted growth is lowered to 2% in 2015 and 2.8% in 2016 due to transitory disruptions, including a strong dollar and bad weather in early 2015.
  • China’s predicted growth is lowered to 6.8% in 2015.
  • The Eurozone’s predicted growth is raised to 1.4% in 2015 and 2.1% in 2016 due to bolder-than-expected monetary easing.

 

Read the full article at http://www.bbc.com/news/business-32990410

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Income Inequality Significantly Hurts Economic Growth, OECD Says – Bloomberg 12-08-14

Salient to Investors:

The OECD said:

  • Widening inequality creates a drag on economic growth that can be counteracted by tax policies to benefit the less well-off. Changes in wages and salaries have been the biggest direct driver of inequality. The earnings of the 10% best-paid workers have risen relative to the 10% at the bottom, who also saw a drop in annual hours worked.
  • Inequality undermines growth by preventing disadvantaged people from accessing education to develop their skills, impeding social mobility.
  • Policy makers need to be concerned with the general welfare of the bottom 40% of society and not just the poverty of the lowest 10%. Tackling poverty won’t be enough. Needed are government transfers, including policies to improve access to public services such as health care and education. Policies that help to limit or reverse inequality may also make societies wealthier.
  • Inequality knocked 6%-7% off US GDP growth between 1990 and 2010, and hurt growth in the UK, Italy and Mexico.
  • A widening in inequality like that seen in OECD states over the past two decades would slow growth by a statistically significant 0.35% a year, or 8.5% over a quarter century.

Read the full article at http://www.bloomberg.com/news/2014-12-08/income-inequality-significantly-hurts-economic-growth-oecd-says.html

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Bonds’ Point of No Return About a Standard Deviation Away – Bloomberg 06-03-13

Salient to Investors:

Yields on US Treasuries, German bunds and Japanese government bonds are 1 standard deviation above their historical norm. Yields on Treasuries and bunds are more than 40 basis points below what would be 2 standard deviations from their means, and Japanese bonds are 5 basis points away. Treasury 10-yr rates have reached two standard deviations above the average twice since 2009, and each time the notes rallied. Sovereign yields are at 1.39 percent versus the 3.64 percent average of the past 20 years.

Tame inflation and lower IMF global growth estimates indicate the central banks won’t pull back anytime soon, averting a further rout.

Robin Marshall at Smith & Williamson Investment Mgmt said you need much higher yield increases to call the start of a bond bear market, and inflation is still very low and economic strengthening in the US and elsewhere is unconvincing.

Bill Gross at Pimco says fixed income’s three-decade bull market is over, but likes Treasuries that mature in 5-to-10 years as there will be no tapering for now.

Tom Fitzpatrick at Citigroup said a price that is 2 standard deviations away from its long-term level is considered extreme and excessive and may suggest a market turn. Standard deviations greater than one occur 32 percent of the time and 2 standard deviations 5 percent over any given time. Fitzpatrick said that while yields have been falling for 32 years, all indicators suggest we are not at that turning point yet, and expects Treasury yields to set fresh 2013 lows in half2.

Robert Tipp at Prudential Financial said investors are wary of what has historically been a freight train when the Fed acts or is perceived to be getting ready to act, buy says most of the selloff is behind us. Tipp says the US is not an island in the world economy, and most of the data coming in from major trading partners is disappointingly slow.

Zach Pandl at Columbia Mgmt Investment Advisers sees a period of sustained increases in rates because of the self-sustaining recovery as evidenced by the improvement in housing and the labor market.

The OECD said the 17-nation euro area will shrink 0.6 percent in 2013 versus shrinking 0.5 percent in 2012.

Kazuyuki Takigawa at Resona Bank says the euro zone economy needs another rate cut, maybe 25 basis points within a couple of months.

Rick Rieder at BlackRock said rising bond demand from retirees seeking regular income will help to cap yields, and there is too much demand for fixed income and for yield and not enough supply in a deleveraging world. Rieder said the population is aging and true income levels haven’t grown much, while the pressure for rates to stay low is just too great – every time rates move up, people will enter to take advantage of better yields. The number of securities rated AAA or AA in indexes compiled by Bank of America Merrill Lynch dropped to 6,168 on May 31 from 7,728 five years ago.

Willem Sels at HSBC Private Bank said the market might be getting a bit ahead of itself because while the US economy is improving, other major economies remain weak – central banks will not be happy to see bond yields rising much higher.

Read the full article at http://www.bloomberg.com/news/2013-06-03/bonds-point-of-no-return-about-a-standard-deviation-away-1-.html

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http://www.bloomberg.com/news/2013-06-03/bonds-point-of-no-return-about-a-standard-deviation-away-1-.html

Bonds Drop Globally as Stocks Reach Highs on Growth Optimism – Bloomberg 06-02-13

Salient to Investors:

OECD predicts faster global economic growth, led by the US and Japan: growth in member countries will accelerate to 2.3 percent in 2014 from 1.2 percent in 2013, China, will grow 8.4 percent in 2014 after growth of 7.8 percent in 2013.

Neil Mackinnon at VTB Capital said investors’ guessing what the Fed will do has been central to the performance of all asset classes.

Analysts expect yields on US Treasuries, German bunds and UK gilts to rise by year-end, and fall in Japan.

Bruce Bittles at RW Baird says the market is a power house and his biggest concern is many are being pushed into the market that really don’t want to be there and will exit at the first sign of trouble.

Brian Kim at RBS Securities said some Chinese data has not been as resilient as expected and concerns about the China story have been rising, especially as commodity prices are moving lower on the back of that.

Russell Silberston at Investec Asset Mgmt said commodities are underperforming because of concern about growth, especially in China.

Ole Hansen at Saxo Bank A/S said ample supply is keeping a lid on agricultural prices, while precious metals are struggling with higher bond rates and subdued inflation. Hansen said Brent oil may rebound to $110 in the next few months because any supply worries impacts Brent the most, while US inventories of crude oil are at a record high but not easily exported.

Read the full article at http://www.bloomberg.com/news/2013-06-02/bonds-tumble-worldwide-as-stocks-reach-highs-on-growth-optimism.html

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Latin America Disappoints After Squandering Commodity Boom – Bloomberg 05-29-13

Salient to Investors:

Latin America is disappointing investors, economists and businesses with slower-than-forecast growth as waning commodity prices and strong currencies hit nations that failed to diversify and become more competitive.

Economists cut Brazil’s 2013 outlook for the second time in 7 days, forecasting the worst 3-year period in a decade.

The region has invested too little of windfall revenue in roads, technology and education, and to promote businesses outside of mining and agriculture. Chile has the region’s best OECD reading-skills results but is ranked 44 among 65 countries, with Peru second-to-last.

Brazil, Mexico, Colombia, Chile and Peru increased primary exports to an average 71.3 percent of foreign sales from 58.3 percent in the decade through 2011, instead of reducing vulnerabilities to commodity boom-and-bust cycles. SA Commodities said 212 vessels awaited cargo in Brazil during March, and the line of trucks to unload soybeans at its busiest port surged to a record 15 miles long.

Alberto Ramos at Goldman Sachs said the easy growth has been collected, and they need to find domestic sources of growth, rather than relying on abundant external liquidity and high commodity prices.

James Gaul at Boston Advisors is more cautious on the region than several years ago, driven by this decline in the global, commodity-led growth theme.

Analysts predict the region will grow 3.38 percent in 2013 versus predicting 3.81 percent 6 months ago, and Asia to accelerate to 6.44 percent.

Alonso Cervera at Credit Suisse said Mexican results in general have disappointed, and Q1 confirmed that Mexico is still dependent on a healthy rest of the world.

The IMF said Latin America will not sustain growth at current levels, given labor constraints and recent trends for capital and productivity increases, and potential growth through 2017 is closer to 3.25 percent versus 4 percent average a year in the decade through 2012.

The World Bank said Brazilian companies spend 2,600 hours a year dealing with tax issues compared with 209 hours in the East Asia and Pacific region.

Henry Stipp at Threadneedle Asset Mgmt said lower commodity prices may help cut inflationary pressure and give central banks more room for monetary stimulus.

Economists have cut Columbia’s 2013 growth forecast to 4.2 percent versus 4.9 percent last August.

Michael Shaoul at Marketfield Asset Mgmt said Latin America has not yet bottomed and will not recover to the growth level of the previous decade because the commodity boom is over and policy makers failed to reduce their dependence on primary goods when money flowed into their economies.

Read the full article at http://www.bloomberg.com/news/2013-05-29/latin-america-disappoints-after-squandering-commodity-boom-era.html

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OECD Forecasts Global Economy to Recover Next Year: Economy – Bloomberg 05-29-13

Salient to Investors:

Pier Carlo Padoan at OECD said:

  • Global economic growth will accelerate at multiple speeds in 2014 with both the US and Japan continuing to outpace the euro area.
  • Rising unemployment is the most pressing challenge and euro countries with trade surpluses such as Germany need to allow wages to rise
  • Reform fatigue is mounting as visible results in growth and jobs fail to materialize.
  • Protracted monetary easing may lead to excessive risk taking, bubbles and resource misallocation. Exit from unconventional monetary policy may be difficult to manage, possibly leading to sharp rises in bond yields and serious negative consequences for growth.

The OECD said:

  • US will grow 1.9 percent in 2013 and 2.8 percent in 2014, Japan will grow 1.6 percent in 2013 and 1.4 percent in 2014, and the euro-area economy will contract 0.6 percent in 2013 and grow 1.1 percent in 2014.
  • The US has repaired its financial system.
  • Japan’s shift to a more stimulative monetary policy is welcome.
  • Public debt in many euro-area countries will soon start to decline given the fiscal effort made over several years.
  • Combined OECD countries will grow 2.3 percent in 2014 versus 1.2 percent in 2013.
  • China will grow 7.8 percent in 2013 and 8.4 percent in 2014.
  • An early withdrawal by the Fed could jeopardize the fragile recovery, but waiting too long could result in a disorderly exit.

Read the full article at http://www.bloomberg.com/news/2013-05-29/oecd-sees-global-economy-recovering-next-year-as-europe-lags.html

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Rich-poor divide accelerating, says OECD – BBC News 05-15-13

Salient to Investors:

The OECD said:
  • The gap between rich and poor widened more in the 3 years to 2010 than in the previous 12 years. The richest 10% of society in the 33 OECD countries received 9.5 times that of the poorest in terms of income, versus 9 times in 2007.
  • Countries with the biggest gaps included the US, Turkey, Mexico and Chile. Countries with the least gaps were mainly in north Europe, Iceland, Norway, Denmark and Slovenia.
  • If governments do not stop cutting back on welfare support the gap will widen.

Read the full article at http://www.bbc.co.uk/news/business-22545210

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World Economy in Best Shape for 18 Months, Poll Shows – Bloomberg 11-29-12

Salient to Investors:

Andrea Guzzi at IST Investmentstiftung fuer Personalvorsorge said the global economy is recovering and healing, thanks to the US and the emerging markets – more people are becoming wealthy, less and less are poor. Guzzi said many countries have oversized banking sectors.

Gala Prada at Fiatc Mutua de Seguros y Reaseguros expects QE4 or more asset purchases if the economy doesn’t improve.

Christian Thwaites at Sentinel Investment says US companies have better profit potential, balance sheets and access to capital.

In a Bloomberg global poll:

  • Two-thirds of investors see the global economy as either stable or improving. the most since May 2011.
  • The US offered the best opportunity over the next year for the eighth straight quarter, China ranked second, and the EU offering the worst returns.
  • Over 1 in 3 forecast say equities offer the best returns in the coming year, with real estate second, and bonds offering the worst returns.
  • 75% expect the Fed to begin outright purchases of Treasurys after its plan for swapping short-dated securities for longer-dated ones expires. 40% expect the Fed to continue QE3 into 2014.
  • 70% expect large banks to reduce payrolls further in the next year, citing regulatory changes.
  • 75% expect a short-term agreement to avert the fiscal cliff. The OECD says the world economy would go into recession if the US fails to act.
  • Near 50% of investors plan to increase equities over the next 6 months, while more than 50% expect the S&P 500 to will rise during the period.
  • More than 60% say housing values will be higher in six months.
  • 12 percent see commodities as the best-performing asset class over the next year versus 18 percent in September.
  • 48% intend to reduce T-bonds over the next 6 months, while 50% say Treasuries are safer than AAA-rated corporates.
  • Over 40% say EU markets offer the least opportunities over the next year, 23% say Japan, 17 percent say the Middle East.
  • 40% are less likely to put money into Egypt.
  • 50% don’t expect a military strike against Iran in 2013.

Read the full article at http://www.bloomberg.com/news/2012-11-29/world-economy-in-best-shape-since-2011-investors.html

U.S. Fiscal Cliff Could Lead Global Recession, OECD Says – 11-27-12

Salient to Investors:

The OECD said:

  • Failure to prevent the fiscal cliff would increase the risk of a global recession.
  • The greatest threats to the world economy lie in the euro area, whose debt crisis urgently need fixing.
  • Reducing the large federal budget deficit is necessary to restore fiscal sustainability, but should be done gradually and in the context of a well-identified medium-term consolidation plan.
  • The Fed should stand ready to enlarge its third round of quantitative easing program if the U.S. economy deteriorates.
  • The U.S. labor market has recovered very slowly, and the unemployment rate will to decline to 7.5 percent at the end of 2014.
  • US GDP will grow 2.2 percent in 2012, 2 percent in 2013, and 2.8 percent in 2014. Euro area GDP will contract 0.4 percent in 2012 and 0.1 percent in 2013.

Read the full article at http://www.bloomberg.com/news/2012-11-27/u-s-fiscal-cliff-could-lead-global-recession-oecd-says.html.

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