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Market Recap with Jiazi, Sunday, April 9th.

 

Global Markets Pressured: Gold, Yen, Bonds Gain as Investors Step Up Safety Plays

Equity markets stayed under pressure on Friday, while the yen and oil prices rose sharply, after the U.S. launched cruise missiles at a Syrian air base in response to a recent chemical attack. The announcement of this first U.S. military operation to deliberately target the regime of President Bashar al-Assad came midmorning for many Asian-Pacific markets, and pushed investors into haven assets like the yen, which jumped about 0.6% against the U.S. dollar in the moments after the news. Still, safe-haven assets remain in favor, with the yield on the benchmark 10-year U.S. Treasury falling to 2.3122%, from 2.3430% late Thursday. London spot gold prices were recently 1% higher.

Oil prices also surged, as concerns about supply disruptions from the military offensive in the region registered with investors. Brent crude, the global oil benchmark, was recently up 1.7% at $55.79 a barrel. In stocks, Australia’s S&P/ASX 200 was last down 0.2%, while in Hong Kong, the Hang Seng Index was off 0.5% and the FTSE Straits Times Index in Singapore fell 0.6%. Chinese gold miners listed in Hong Kong were up sharply in the morning session, as investors hedged their bets in the wake of Syria attack. In Japan, the Nikkei Stock Average recovered from slight losses following news of the attack, and was last up 0.4% following Thursday’s marked decline.

 

U.S. Consumer Confidence Soars as Corporate Profits Recession Ends

U.S. corporate profits jumped 22.3% in the fourth quarter of 2016 compared with the same period in 2015, which was the largest year-over-year gain for the measure since the first quarter of 2012. For all of 2016, profits rose 4.3% from the prior year, the strongest calendar-year profits growth since 2012. In addition, U.S. consumer spending in the fourth quarter was stronger than expected, offset in part by downward revisions for business investment, net exports and spending by state and local governments, according to the United States Department of Commerce.

 

 

U.K. Consumer Sentiment: Investors Wait Brexit Gets Away

The GfK NOP consumer confidence indicator was minus 6 points in March, unchanged from February’s figure. The index remains entrenched in negative territory, where it has been since April of last year, highlighting that consumers are still broadly pessimistic. March’s figure reflects an improvement in consumers’ personal financial situations over the last twelve months and an increased likelihood of making major purchases. Consumers’ sentiment regarding their personal financial situation over the next twelve months, the general economic situation over the last twelve months and the general economic situation over the next twelve months remained unchanged compared to the prior month. Consumers’ general pessimism comes amid a backdrop of rising inflation, mediocre wage growth and high levels of political uncertainty generated by the recent triggering of Article 50.

 

Germany: Consumers in Germany Remain in Spending Mode

German economy looks in good shape, with growth rising and inflation subsiding. The latest data showing GDP grew 0.4% in the fourth quarter of 2016 and 1.9% as compared with the prior year period, which was the strongest in five years. Unemployment in Germany fell to its lowest level since reunification in March and could fall lower. Total unemployment in Europe’s largest economy dropped to 2.662 million from 2.762 million in February.

 

 

China: PMI in March Below Expected

The Caixin Manufacturing PMI in China fell to 51.2 in March of 2017 from 51.7 in February and below market consensus of 51.5. While output and new orders eased amid softening business confidence, new export orders rose the least in three months and staffing levels continued on a downward trend. Meanwhile, backlogs of work increased further. Stocks of purchases declined slightly while inventories of finished goods fell the most in ten months. Input prices and output prices remained high, although they have dropped for three straight months.

 

Why the Refinancing Slowdown Matters for the Fed

The Federal Reserve has been buying up fewer mortgage bonds in recent months thanks to a flameout of the American refinancing boom, one factor that economists say is likely to help shape Fed officials’ thinking as they consider shrinking their giant bond portfolio. Because the Fed is buying up less of the mortgage bonds currently in the market, in many ways monetary policy is already tightening on its own. The Fed could view it as a step toward shrinking its $4.5 trillion balance sheet, as it considers whether to begin selling some securities later in 2017 after years of stimulative bond buying. At their policy meeting in March, Fed officials agreed that they would probably start shrinking their portfolio later in the year but did not decide on key details of how to do it.

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Chenjiazi Zhong is a portfolio management professional responsible for portfolio structuring, optimization, asset allocation, and fund due diligence. Prior to this function, Chenjiazi worked as an investment banking analyst at Lehman Brothers. Chenjiazi published the book “Alternatives Thinker: Endowment Investment Philosophy to Active Portfolio Management” in 2013. Serving as a guest writer, my weekly column, “Investment Conversations with Chenjiazi”(now “Market Recap with Jiazi”), sponsored by SprinkleBit Holdings Inc., is published on Sunday at 8:00am EST, covering topics of weekly economic update, market recap, outlook, interpretation of global markets and political events, advice on dynamic optimization of asset allocation strategies, and how to adjust asset classes in a portfolio context to actively manage risk. Chenjiazi holds a Ph.D. in finance, an MBA in finance from University of Miami, and a BBA in finance from École Supérieure de Commerce (ESC). Chenjiazi writes in English, French, and Mandarin Chinese.

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