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Global Market Wrap-Up - April 21, 2014

Monday, April 21, 2014
By: 
Mark Hanna

5 Themes for the Week

1) Chinese 1st Quarter GDP Falls to 7.4% in First Quarter - China reported its lowest GDP growth in 18 months last week; this reading was down from the 7.7% reported in the previous quarter. Since there is always dispute over "official government" out out of China, it is worthwhile looking at alternative measures. According to Capital Economics, a London research firm, which looks at measures of electricity, shipping and real estate, China's economic activity slowed in the first quarter to around 6%, year-over-year, compared with 6.3% in the fourth quarter.

Over the past week, China's premier and central bank chief told business leaders at a conference that they would use monetary policy or "slightly bigger adjustment" measures if growth slips below acceptable levels. Already, Beijing has announced plans to build more railways and cut some taxes. Stimulus measures in coming weeks will likely involve a deepening of some of the same sort of targeted spending measures that were recently rolled out, including stepped-up investments in transportation, urban renewal and alternate energy projects, analysts said.  

2) U.S. Upset with Chinese Yuan Devaluation - Somewhere a glass house is breaking apart. Last week, the U.S. slammed China for intervening heavily in the currency markets and allowing the yuan to fall 2.5% against the dollar in the past two months. A semiannual Treasury report called the decline in the yuan "unprecedented" and pressed Beijing to disclose its market intervention more regularly. Of course this is coming from a country which for half a decade has been printing money at an unprecedented pace. Further, America's easy money interest rate policies result in a flood of cash into developing markets, pushing them to build up dollar reserves to intervene in their currencies and keep them stable.

3) Budget Deficit Headed in Right Direction - Short Term; Long Term Remains Daunting - For the fiscal year 2014 ending September 30, the Congressional Budget Office said the deficit would fall to $492 billion from a $514 billion February estimate - and nearly a third lower than last year's $680 billion deficit. The forecasts assume no changes to tax and spending laws.

The CBO left intact its previous economic projections, which envision rising deficits after 2015 as more of the massive "baby boom" generation retires and draws more federal benefits or drops out of the workforce. Mandatory spending programs, including Medicare, Social Security and Medicaid, will swell to 11.5 percent of GDP in 2024 from 9.5 percent in 2013. In 2024, they will cost $3.1 trillion, CBO said, accounting for more than half of all federal spending.

4) Another Massive Week of Key Earnings - Last week kicked off the heart of earnings season wih a bevy of earnings reports - while there were some high profile misses such as IBM, the market rallied from a very oversold short term condition as the continued theme of lowly revenue growth combined with cost cutting pushed ahead ok income growth. This week another round of well followed names will be in the news:

  • Monday: Netflix, Halliburton
  • Tuesday: AT&T, McDonald's, Comcast, Yum! Brands, Gilead Sciences
  • Wednesday: Apple, Facebook, Delta Airlines, Dow Chemical, Texas Instruments, Procter & Gamble
  • Thursday: General Motors, Starbucks, Microsoft, Amazon.com, Las Vegas Sands, UPS, Verizon, Visa, Caterpillar
  • Friday: Ford

5) Initial European Flash Purchasing Managers Data - On Wednesday, manufacturing purchasing managers' index (PMI) readings for the eurozone and its two largest component economies – Germany and France – will take center stage. This April data is the first indicator of economic performance in the second quarter. March reports showed manufacturers lowering prices on the goods they sold to consumers...so those looking for Mario Draghi to take action soon will see if this repeats.

 

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