“Missiles on Syria …..”

Missiles on Syria

On Saturday, the United States, France and Britain launched 105 missiles targeting three chemical weapons facilities in Syria in retaliation for a suspected poison gas attack in Douma on 7^th April.  The western countries are blaming Assad for the Douma.  Meanwhile, the Syrian government and its ally Russia have denied involvement in any such attack.  This was the biggest intervention by Western countries against Assad and ally Russia.  The US, France and Britain said that the missile strikes were limited to Syria’s chemical weapons and not aimed at toppling Assad or intervening in the civil war.  The markets in Asia were mixed and oil prices fell on Monday.  Vladimir Putin the Russian President warned on Sunday that any further attacks on Syria would bring chaos to the world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions.  The dollar firmed on Monday near a two month high against the yen after the market gained some clarity following the strikes on Syria by the United States and its allies.

Demonstration in Barcelona

On Sunday, hundreds of thousands of Catalan independence supporters flooded the streets of Barcelona calling for the release of jailed separatist leaders after a Supreme Court ruling frustrated their latest attempt to elect a regional leader.  Around 350,000 demonstrators were in the streets waving flags and wearing yellow in support of separatist leaders jailed for their role in the region’s banned drive to split from Spain last year.

German Bond Yields

Germany’s bond yields rose to a three week high on Monday on hopes that the attack on Syria by the US will not escalate into a broader conflict increasing appetite for risky assets.  The premium investors demand for holding Spanish government bonds over German bonds fell after Moody’s upgraded Spain’s ratings on Friday.

Moody’s Upgrade Spanish Rating

Moody’s Investors Service has upgraded Spain’s rating to Baa1 from Baa2 and said that improvements in the country’s credit profile outweighed a drag from political factors.  The key driver for the rating action is Moody’s view of improvements in Spain’s credit profile that emerged recently.  The increasingly balanced growth profile and improved banking sector fundamentals now outweigh the drag from political/institutional factors.  Recently there has been gradual but increasingly sustainable improvements to Spain’s credit profile.  Work has been done to address the weaknesses in the banking sector that emerged during the financial crisis.

Data From The UK

UK wages are rising at their fastest pace in almost three years while the jobless rate falling to its lowest since 1975.    The return of real-income growth is good news for households as it will put a stop on the squeeze on living standards, after more than a year where wages lagged behind prices.  Consumer spending has been suppressed last year, holding back overall economic growth.  The wage figures might reinforce speculation that the Bank of England will raise interest rates again next month.  According to ONS figures employment rose to a record high between December and February after the economy added 55,000 jobs.   Furthermore, the jobless rate fell to 4.2 percent, which is the lowest since 1975 and below the BOE’s estimate of the equilibrium rate.

 UK Inflation

Consumer prices in the UK increased 2.5 percent from a year earlier, a lower percentage than the 2.7 percent in February, according to the National Statistics.   This is lower than what was expected by economists and lower than the forecast of the BOE of 2.8 percent.  The lower inflation came from women’s clothing which rose at a slower pace than usual for this time of the year, said the ONS.  Furthermore, alcohol and tobacco taxes did not increase as usual after the government changed the timing of its annual budget announcement to the autumn.  The report also said that producer prices eased to the lowest rate since 2016, mainly due to smaller increases in food prices.  Input prices gained 4.2 percent from a year earlier in March, driven by higher crude oil costs.  The ONS’s house-price gauge showed an annual gain of 4.4 percent in February, down from 4.7 percent in January.  Prices in London fell for the first time since 2009. The figures could lower the chances of higher interest rate increases later this year.  Policy makers are expected to raise the benchmark for a second time in six months at their May meeting as inflation continues to exceed the 2 percent target.  The pound tumbled after the data sliding 0.7 percent to $1.4182.

China’s First Quarter 2018

China has carried a strong growth momentum into early 2018.  The economy grew at a slightly faster than expected pace of 6.8 percent in the first quarter, from strong consumer demand, healthy exports and robust property investment.  Consumption accounted for almost 80 percent of economic growth in the first quarter.  March retail sales rose 10.1 percent from a year earlier, the strongest in four months.  Gross domestic product growth was backed by robust exports.  Real estate investment  accelerated to 10.4 percent in the quarter which is the fastest pace in three years.  The resilience of the world’s second largest economy is likely to keep a synchronised global recovery, however, economists still expect that China will lose some momentum in the near future as local governments in Beijing will be forced to scale back infrastructure projects to contain the debt.  Property sales cooled further due to strict government controls on purchases to fight speculation.

Japanese Politics

A survey showed that support for Japanese Prime Minister Shinzo Abe was falling to 26.7 percent which is the lowest since he took office in late 2012.  The sliding ratings are raising doubts over whether he can win a third three year term as ruling Liberal Democratic Party leader in a September vote or whether he might even resign before the party election.

“Currency Devaluation Game?”

US President Donald Trump accused Russia and China on Monday of devaluaing their currencies while the United States raises interest rates.  Trump sees currency devaluation as an unfair trading advantage.  When a country’s currency is artificially low, its exports are more competitive.  In view that the US is raising interest rates, the value of the dollar will increase making US exports more expensive.  The US dollar index which measures the value of the dollar against a basket of major trading currencies, has declined by 11.2 percent since Trump became president.  A semi-annual report issued on Friday by the US Treasury, did not name any major trading partners as currency manipulators.  The Report also did not mention Trump’s recent threats to impose the tariffs on Chinese goods due to Beijing’s intellectual property practices.

European Car Sales

Figures released on Wednesday by the Brussels-based European Automobile Manufacturers’ Association (ACEA) show that first-quarter registrations edged up 0.6 percent.  The gain was the slowest since the second quarter of 2013, when the region was in the midst of a downturn.  A 5.2 percent downturn in March, led by falls in three of the biggest markets, Germany, UK and Italy, suggesting that “momentum is starting to slow” said the ACEA.  ACEA further added that auto sales dropped in March at 8 of the 10 top selling carmaking groups with steep declines at Ford Motor Co., Fiat Chrysler Automobiles NV, BMW AG and Nissan Motor Co.  The slide was drastic in the UK where car sales were down 16 percent in March and 12 percent for the quarter.  The lack of agreement between the European Union and the UK on Brexit is making businesses less willing to plan on expansion or hiring.

The CBOE Volatility Index

The Cboe Volatility Index is a barometer for investor anxiety.  It is a gauge of the implied volatility of the S&P 500 Index derived from out-of-the-money options.  On Wednesday the VIX was heading for its longest streak of daily losses in almost a year in early New York trading, before it reversed direction and rose as much as 11 percent.  The jump in the VIX saw futures settle well above the day’s range causing investors to ask questions on possible manipulation of the measure.  Cboe Global Markets Inc. declined to comment on the move.

Oil

Oil prices dropped on Monday as investor concerns became weaker about the tensions in the Middle East following air strikes on Syria over the weekend.  Oil prices had risen by nearly 10 percent in the run-up to the strikes as investors increased their holdings on assets such as gold and US treasuries that can be a shield against geopolitical risks.  Although Syria is not a significant oil producer the wider Middle East is a major crude oil exporter and tension in the region tends to put oil markets on edge.  The next event on the investor’s radar is the potential US withdrawal from a deal on Iran’s nuclear restrictions, signed in 2015.  President Donald Trump has threatened to withdraw the United States from the pact should there be action from Congress and Europe.  Even the imposition of unilateral sanctions by the US government could affect exports of oil from Iran, which is one of the largest oil producers. Attention now turns to an April 20 meeting in Saudi Arabia where OPEC and its allies will indicate if an extension of supply cuts will take place.

Metals Surge

United Co. Rusal and seven other Deripaska-linked firms were the most prominent targets blacklisted by the US on 6^th April.  Rusal produces about 6 percent of the world’s aluminium and operates mines, smelters and refineries across the world.  Aluminium prices jumped more than 20 percent since 5^th April the day before the sanctions were announced and reached their highest since 2011.   There was also a rush for other alternative supplies, stirring concerns that more US action could affect other markets such as nickel which has surged to a three year high in recent days.

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