Category Archives: Economy

Economy, Market News

Eurozone: Central Banks Continue to Guide Economic Outlook

Leave a comment

Central Banks Continue to Guide Economic Outlook

Federal Reserve policy measures have recently shown various ways central banks are currently guiding the global economic outlook.  According to Ask Traders, markets have reacted favorably with the stock market hitting fresh record highs after the Federal Reserve decided to cut interest rates by 25 basis points. Central bank members in the Eurozone have adopted a similar stance policy metrics, which include a monetary union of 19 out of the 28 countries in the EU (European Union) and is the second largest economy (both in nominal terms and purchasing power parity or PPP), after the United States. Eurozone GDP was estimated to be around $18.8 trillion in 2018 and the Eurozone economy holds great weight for world economists because the region also produces 22% percent of global GDP each year.

Future Economic Outlook

For the most part, the Eurozone kept pace with the central banks around the world in 2019, although its growth has not quite matched prior highs. The incomes underpinned by unplanned but healthy consumer spending but restrained by some well-directed investments and activities with an unsupportive external backdrop. There’s obviously a drop in the economy as the Brexit event has taken its toll on consumers. Britain is one of the world’s top GDP producers, and political analysts have said that the conservative party’s victory in UK elections will create a clearer roadmap ahead, reducing uncertainties. 

Global Marketplace

Recently, the European Commission reproached France, Italy, and Spain for not procuring meaningful fiscal management measures and exposing themselves to potential economic shocks.  The European Union contains the internal elements of mixed economies, based on the free market principles and advanced social models. Euronext is the prime stock market of the Eurozone, which is also the 6th largest stock market in the world. European Union maintains a content relationship with other major economically developed countries (United States, China, Switzerland, Russia, Turkey, Japan, Norway, South Korea, India, and Canada which are also the highest trading partners of EU). The subtotal amount of the trades made in the Eurozone by foreign countries is $5.1 trillion in 2012. In comparison, the EU traded around $9.1 trillion over foreign countries across the globe, which is one of the highest domestic and foreign investment levels currently visible in the world economy.

Sectors of the Economy

The four main industry sectors in the EU include services, agriculture, tourism, and energy. However, the services sector holds the highest importance in the EU economy as it produces 70% of the region’s total GDP figure. That’s quite high in comparison to other sectors, as the agriculture sector holds just 1.8% of total GDP.  In 2013, the EU spent approximately $45 billion which is 33 percent of its total budget of $148 billion. The Eurozone is also a major tourist zone, so the EU emphasizes tourism an important sector continued growth. London and Paris were recently the most visited places with 16.9 and 16 million visitors, respectively. Additionally, the Eurozone has uranium, coal, oil and natural gas reserves for its energy production. The EU is the 2nd largest consumer and the 19th in oil production, as the region produces 1,241,370 (2013) barrels a day.

The Eurozone is a highly developed union but still faces many of the same challenges other economies around the world. The EU thrives more and more every year by its significant contribution to the world economy. The member states play the role of them by growing economically. Bulgaria, Czech Republic, Estonia, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, Poland, Romania, etc. are some of the growing GDPs.  Besides these, there are already some economic giants in the Eurozone. Austria, Belgium, Finland, France, Germany, Ireland, UK, Spain are the top countries based on per capita income.

Labour Market and Economic Growth

In the Eurozone, the unemployment rate was 8.1%. Among the member states, the Czech Republic had the lowest with 2.3% and Spain with the highest of 14.9%.  The momentum is not on the EU’s side. Slow global growth, uncertain external backdrops will reduce investment and export activity. Lower job gains due to hard labor markets in important countries will somehow resist consumer spending. But the political uncertainties of Spain and Italy summing up with Brexit (described below) already clouds the outlook. Growth is at 1% in 2020 which looks shacky but despite these, economists are positive about its longevity in terms of growth.

Brexit Factors

Brexit simply refers to Britain’s exit from the EU. It is a major turnoff for Eurozone economics as Britain is one of the most significant country let alone the EU but also in the world. After winning the elections the new PM proposes a new Brexit deal with new customs arrangements. Brexit means that UK will be out of the EU with financial, economic, and political relationships. 

Eurozone Economy after Brexit

Though all the dark clouds, the eurozone economy keeps growing at a modest pace. But sooner or later a slowdown is expected in the eurozone economy because of trade tensions and Brexit uncertainty.  The Eurozone economy expanded 0.2 percent in the three months to September. According to Eurostat, the annual growth rate is 1.1 percent. The current situation states that fears are there that it could slow down. Economists expect the growth to fall to 0.1 percent in the next quarter.

Global Economic Barriers

The EU has many barriers both externally and internally. Research from 1999 to 2003 by examining 166 manufacturing industries in 11 EU members, barriers still remain. Apart from transportation costs, the most damaging is the technical barriers.  In numeric terms, the costs associated with geography and transport explain only 25 percent of the trade integration variation. And the distance between the origin and destined shipments are at 5 percent. The policy factors can explain only 7 percent of the variation. Technical barriers at 5 percent is another major issue that the EU must deal consider going forward.  Apart from all the chaos and difficulties in trade and business which defines the economy, Economists are still hopeful. Some minor and major changes in the policies, agreements, and contracts, along with some enforced initiatives can clear all the clouds and EU will hold its significance, nevertheless.

 

 

Economy, Investing, S&P 500, Stock Markets

Stock Markets: Q3 Earnings Season Update

Leave a comment

Stock Markets: Q3 Earnings Season Update

Uncertainties concerning the US and China trade negotiations remain an issue affecting business performance in the US. Out of this concern, the Fed cut interest rate in October 2019 by 0.25 percent. In terms of growth, the US GDP grew at a rate of 1.9 percent against a market expectation of 1.6 percent. The growth is a slight decline from 2.0 percent realized in Q2 of 2019. However, consumption by households grew to 2.9 percent while government spending increased by 2 percent.

The US economy performed better in Q3 compared to the rest of the world, as both the fixed income and equities earning were positive. Below are two highlights from the US third-quarter earnings results.

Stock Market Earnings Were Better Than Expected

Many analysts had expressed reservations regarding the third-quarter performance due to the current global economic slowdown and the China-US trade wars. The actual results from the Q3 period indicate that the markets have appreciated. An Increase in consumer spending resulted in a better than expected GDP for the third quarter

The S& P 500 is considered a good indicator of US stocks and business performance. To date, 91 percent of companies in the S&P 500 have reported their earnings. Seventy-three percent of these companies have reported better than expected per share. Historically, an average of 56 percent of companies usually achieves better than expected EPS. In terms of sales, 60 percent of the companies have reported figures above estimates, which is above the five-year average. The S&P 500 is on an uptrend throughout the third quarter. It gained 1.7 percent in that period. The index is now up by 20.9 percent in 2019; it’s the best-run since 1997.

Despite the positive earning, some analysts viewed the earning as a mixed bag. The aggregate net income for the companies that have reported so far is lower than in the net income of the same companies in previous periods. However, revenue growth is in a range previously achieved by this group of companies. For these companies, net income is down by 0.6 percent, while revenues are up by 4.9 percent.

US Economy Resilience to Tariffs and Wage Inflation

Trade wars between china and the US have seen the two countries impose steep tariffs upon each other. The depreciation of the Chinese Yuan countered a recent decision by the US to apply tariffs on more Chinese imports. The twists and turns that have characterized trade negotiations with China have not impacted the Q3 earnings significantly as initially feared. Although manufacturing dipped in Q3 2019, businesses still reported increased revenues.

For several months, the average hourly rate has been increasing steadily. While unemployment at its lowest level in decades, the wage rate is rising at a faster pace than inflation. For Q3, the annualized weekly wage rate rose to 3.3 percent. The rise was an improvement of a 2 percent increase in the second quarter. The increase in wages has not affected profits and earning to warrant a freeze on employment or layoffs.

Conclusion

In Q3, the earnings in the US appreciated. A Majority of companies forming the S&P 500 have reported a higher than expected EPS, better sales than the forecasts, or both. Businesses have proved resilience to rising wages, and the uncertainty brought about China and US trade wars.

Economy, Market News, S&P 500

Economic Policy: Recent Fed Rates Cuts and Their Significance

Leave a comment

Economic Policy: Recent Fed Rates Cuts and Their Significance

The Federal Reserve (Fed) has the responsibility of implementing monetary policy on behalf of the US government by setting interest rates. When interest rates are low, capital is available, which stimulates economic growth. However, if unchecked, low-interest rates may lead to high inflation. High-interest rates create a situation of low money supply, which may cause a recession or even depression.

The Fed is required to maintain acceptable levels of unemployment between four to five percent while restricting inflation to figures around two percent. The Fed achieves this mandate by raising or lowering the fed overnight lending rates (the fed funds rates). At the end of October 2019, the fed decreased the fed funds rate to a target of between 1.5 to 1.75 percent. This is the third cut since July this year.

Why Did the Fed Cut Interest Rates?                    

By lowering the fed funds rate, the Fed aims at stimulating economic growth. The department of commerce has released data for the third quarter that shows GDP growth at a rate of 1.9 percent. Although the figures are better than the market expectation of 1.6 percent, it is a decline from the 2.0 percent growth in the previous quarter. The US growth is on a decline, in the third quarter of 2018, GDP growth was at 3.4 percent. The 1.9 percent growth rate is the slowest in 2019.

The October interest rates cut was more of a precautionary move. A majority of fed committee members believe that the US economy is reasonably strong. The current unemployment rate is the lowest in recent times. Consumer spending performed better than expected. The rates cut is a result of reduced investments and exports due to weakening global growth. The Fed’s decision to cut interest rates is to protect the US economy from the trade-war effects and global slowdown.

Importance of the Fed Funds Rate

The Central Bank of America monitors the performance of the US economy due to its significance to the global markets. Currently, the US is operating on a budget deficit meaning the economy is a net importer. Many countries across the globe depend on exports to the US for stability. Should the US economy underperform, many economies will be hurt. A recession in the US will adversely affect Canada, Mexico, Europe, and many other nations like it did in 2008-2009.

Significant volumes of investment instruments in the financial markets are US dollar-denominated. For this reason, the Fed has to worry about the economy, and by extension, the US dollar. The US dollar is of great importance in international investments and the flow of capital across borders.

Three Funds Rate Cuts: The Performance Connection in Bonds

Historically, three successive interest rates cuts have had positive effects on the performance of the bond market. Between 1995, 1996, and in 1997, there were three consecutive rate cuts and a pause. The S&P 500 returned 24 percent and 19 percent in those years. Where there had been an economic slowdown followed by three rate cuts and a stop, the economy always responds by accelerating. The October funds rate cut was the third in a row. Fortunately, the Fed has no intention of cutting the rates further soon. Going by precedence, the bond market is in line for better returns.

Conclusion

Data from the US economy is not giving a clear picture of the status of the economy. While there has been a decline in GDP growth, unemployment and inflation rates are within their targets. The rate cut will help address declining GDP growth and shield the US economy against the impact of the current trade wars. Bond investors should expect improved yields if history repeats itself.

Economy

Australia’s Economy Supported By Strong Employment Trends

Leave a comment

Australia’s Economy Supported By Strong Employment Trends

As the world economy seems to be caught in a wide range of tumultuous events, certain regions have managed to show stable growth trends in key areas of its workforce.

In August 2019, Australia’s employment figures increased by 34,700 (to reach 12.93 million), which was a strong improvement on the increase of 36,400 during the previous month.  These results actually beat analyst estimates for jobs growth, which were a full 10,000 jobs lower (based on expectations that global trade tensions might limit jobs growth).

Full-time figures continued to show stability, while part-time employment additions were particularly strong (with massive gains of 50,200 for the month).  Overall, these jobs numbers are well above the historical averages, as the typical monthly employment change in Australia was just 13,900 from 1978 until last year.  This trend shows that recent improvements have been particularly well received by Australia’s employment workforce.

Job Market Expert – Roland Coombes

According to Roland Coombes, job consultancy expert at iTouch Resume Solutions:

“Australia’s labor market has shown incredible resilience in the face of growing economic uncertainty around the world.  While many economic analysts were actually expecting jobs declines over the last few months, the Australian economy has easily managed to beat those deteriorating expectations and exhibit sustained consistency in growth.  Overall, this is an exciting time for Australia’s current job seekers.“

Interestingly, there are several economic data reports which support the positive outlook for Australian job seekers.  As a result, it cannot easily be argued that improved jobs gains over the last few months are something of an anomaly. Specifically, the country’s unemployment rate has held steady (near the 5% level) and the number of job vacancies has steadily risen since the beginning of January 2017.  Of course, these are long-term trends and it is unlikely the market will see any changes that are significantly negative before the end of this year.

For job seekers, this is highly encouraging news.  Essentially, the strong labor market suggests that job seekers have an excellent chance to get the jobs they truly want.  Ultimately, it just comes down to the proper presentation and having an excellent resume to show to potential employers. As long as the jobs vacancy figures continue to rise, there is little reason for Australian job seekers to be discouraged in their efforts.

Jobs Business
Australian Jobs Vacancies

Of course, there are still risk factors that could become apparent in the event that there is a slowdown in the global economy.  However, all of this suggests that the current environment marks a great time to take advantage of the country’s stable economic trends and to apply for jobs that might have seemed elusive in the past. Recent jobs vacancy figures show that Australia’s employers are actively looking to hire for many positions.  However, it would appear that these employers are having a hard time filling these positions because not enough people are applying for consideration.

Given the recent trends in Australia’s jobs market, it seems that there hasn’t been a better time in recent memory to update your resume and begin looking for a new career.  It’s hard to argue with the fact that now is a great time to advance your jobs prospects now that Australia has shown its ability to overcome negative expectations for the world economy.  All it takes is the proper presentation and a well-polished resume. Once these key requirements are secured, it seems that the sky’s the limit for job seekers looking to get started on a new career path for the future.