Colors: Orange Color


High US growth unlikely to be sustained

U.S. Gross Domestic Product rose 4.1 percent, its best pace since the third quarter of 2014 and the third-best growth rate since the Great Recession. Despite the strong growth in the economy, U.S. Treasury yields fell as investors questioned whether the high growth rates will be sustainable especially in light of historically low levels of unemployment. Also the latest news suggests that the large state-owned Chinese banks seem to be selling US dollar against the Yuan in the forwards market, in an effort to stall the Yuan declines. We believe USD/CNH will fall under these circumstances.

Global wheat prices continue higher today in response to ongoing challenging growing conditions in Europe, the former Soviet Union (CIS), and Australia, which is experiencing one of its driest winters in history. Significant downgrades in both the quantity and quality of the current crop in the European Union and CIS were highlighted by the International Grains Council last week as the reason for cutting the outlook for world wheat production in 2018-19 to 721 million tons, a five-year low.

The earnings season is well under way with more than half of the companies in the S&P 500 having reported already. As expected, the numbers are strong with earnings per share up 24% year-on-year and revenue up 10% y/y. Despite strong tailwinds from the corporate sector, however, US equities are only up 0.6% over the past two weeks. Investors knew that earnings would be great so the attention is on companies’ outlooks and where the economy is headed.

Trade concerns between the world’s largest two economies returned to haunt markets on Thursday after President Trump ordered his administration to consider more than doubling previously proposed tariffs on $200 billion worth of Chinese goods. The new proposed tariffs of 25% dragged Asian equities heavily during morning trade, sending the Hang Seng Index to its lowest level since September 2017. China’s CSI 300 and Shanghai Composite both fell more than 2.5%, while the Yuan continued to trade near its one-year low.