Stock Report For Week Ended May 13, 2016
Global equities edged modestly higher on the week. The Chicago Board Options Exchange Volatility Index (VIX) fell to 14.23 from 15.6 a week ago, while the yield on the 10-year US Treasury note declined to 1.75% from 1.76%. West Texas Intermediate crude prices rose to $46.31 from $44.35 last week, and global Brent crude prices rose to $47.65 from $45.03.
GLOBAL ECONOMIC NEWS
US consumers loosen their purse strings
US retail sales rebounded in April, rising 1.3%, their biggest increase in a year. Soft March sales figures were revised higher to -0.3% from -0.4%. The sales gains were broad based, though strong auto sales were a standout. The retail sales bounce argues for faster US growth in Q2 after an anemic 0.5% growth rate in Q1.
German GDP growth doubles estimates, but inflation lags
Germany, Europe's largest economy, grew 0.7% in Q1, more than twice Q4's 0.3% pace. On an annualized basis, the economy grew 1.3%. Eurozone growth was slightly less robust on a quarterly basis, growing 0.5%. But on an annualized basis, the eurozone grew 1.5% amid heavy monetary support from the European Central Bank. Inflation, however, continues to badly miss the mark. On an annualized basis, it fell 0.5% in Germany and 1.2% in Spain during the month of April.
Greek debt relief package in the works
Eurogroup finance ministers met this week to discuss debt relief for Greece. Finance ministers hope to reach a deal by their next meeting on 24 May, which would release aid funds needed for Greece to make large debt payments due in July. The deal being discussed does not include measures to forgive debt, but would open the door for extended maturities, interest rate caps and longer grace periods. With the United Kingdom's Brexit vote looming, ministers are widely expected to work out a deal for Greece so as to avoid a crisis that could provide ammunition to Britain's "Leave" camp.
Brazilian Senate votes to try Rousseff
Brazilian president Dilma Rousseff has been suspended from office for up to six months while she is being tried in the Senate for violating fiscal laws to cover budget deficits. She has been replaced by Vice President Michel Temer. For Rousseff to be permanently removed from office, two-thirds of the Senate would have to vote to convict her.
Bank of England, IMF warn on Brexit
Both the Bank of England (BOE) and the International Monetary Fund (IMF) warned this week that the UK economy will grow more slowly if Britain votes to leave the European Union. The BOE said a vote to leave the EU would materially alter the outlook for output and inflation while the IMF said a Brexit would have negative and substantial effects on the UK economy. The IMF warned of heightened uncertainty, leading to market volatility and ultimately hurting growth. Long-term growth may be cut by as much as 9% of gross domestic product, it said.
Saudi Arabia replaces long-time oil minister
Ali al-Naimi was relieved of his duties as Saudi oil minister after more than two decades on the job. The eighty-year-old minister was replaced by former Saudi Aramco CEO and current chairman Khalid al-Falih, who is seen as continuing Saudi Arabia's present policy of maintaining its share of the global oil market, even if it leads to lower prices.
Yellen: Negative rates not ruled out, but other tools to be used first
In a letter to a US congressman, US Federal Reserve Chair Janet Yellen said negative interest rates cannot be ruled out as a possible policy tool in an adverse economic scenario but the Fed would use other tools at its disposal before resorting to negative interest rates. Yellen said the central bank is trying to learn as much as possible from recent actions by the Bank of Japan and European Central Bank.
China credit growth slows but looks can be deceiving
Loan growth in China dropped 60% in April, according to government data released this week as Chinese authorities warned that the government intends to rein in debt-fueled stimulus. Many analysts concluded, however, that credit growth may merely be shifting from the private to the public sector. Local government bond issuance has been surging in recent months.