Athena Wealth Management. March 2017 Investment Research Report

Transcription

1 Athena Wealth Management March 2017 Investment Research Report

2 Summary The Trump rally began to run out of fuel in March. But the MSCI emerging market index still recorded a growth of 2.35%, performed slightly better than the MSCI world index which also recorded 0.82% growth. The best performed market was France, which gained 5.43%. The worst performed market was Brazil, which recorded 2.52% loss. 1 $1200 acted as a strong support level for gold, while it still failed to break above the resistance level of $1260. Gold is expected to remain above $1200 level, as the global political environment remains uncertain. Oil reached as low as $47 during the month, as the U.S. oil production kept increasing. The U.S. Dollar Index fluctuated in between 99 and 102 levels. Fig. 1 Equity Markets Comparisons

3 In the short run, corrections are expected to continue in the equity markets, as the over-optimism starts to fade out. Yet, if Trump and the series of European elections could bring some good news, it will not be surprised to see the continuation of the uptrend in the equity markets. Also, we believe with such instability in the global political environment, the correction in Gold should be over for now. For oil, even though the U.S. oil production keeps increasing and has offset OPEC oil cuts efforts, the political uncertainty is expected to overshadow such increase, and lead to a rise in oil price, or, in commodities in general. In the long run, we believe the volatility of the equity markets will continue to increase. Fig.2 Gold Price (March) 2 Fig. 3 Oil Price (March)

4 This Month s Hot Topic: Trump the Dealmaker? President Trump failed to repeal Obamacare and was forced to pull the new healthcare plan. This time, people who stood in his way were not The Democratic Party. Instead, it was a group of Republicans, who regarded themselves as the Freedom Caucus. They wanted the full repeal of Obamacare. As the American Health Care Act proposal could not satisfy them, they refused to back Trump, thus forcing him to withdraw the proposal. Fig.1 US Debt Outstanding and Debt Ceiling 3 It turned out President Trump was not so much a negotiator after all. The market started to worry about his ability to close the other important deals like the tax reform and the infrastructure plan. Another question comes up if Mr. President fails to unite the Republican party: Will there be another debt ceiling crisis? The U.S. national debt reached around $20 trillion (Fig.1). Source: CNBC, US Treasury

5 And, the government debt to GDP ratio reached percent. As we can see from Fig.2, the outstanding debt exceeded the debt ceiling.the US Treasury would not run out of cash to pay creditors until the coming fall. However, if the debt ceiling is not raised in time, the history may repeat: In 2011, S&P downgraded the U.S. credit rating for the very first time, as the government failed to make payments to its creditors before the Congress increased the debt ceiling. As the majority party, for sure, if the republicans voted together, they could easily pass the debt limit. But the Freedom Caucus, the most conservative members in the Republican party, may not see eye to eye with Trump, just like the case of the new healthcare bill. They had always supported a balanced budget and had taken strong stands against increased deficits. It remains uncertain if they will compromise on this case. And if they do not, Trump may have to cut a deal with the Democrats. But given the unpleasant experience between Trump and the Democratic Party, cutting a deal will definietly be difficult. 4 Fig. 2 US Government Debt to GDP

6 Eurozone Market Fig.1 Eurozone Composite PMI 5 Generally speaking, the new set of data showed the economy of Euro Area was improving. DAX and CAC gained 4.04% and 5.43% respectively in March. The Composite PMI rose from 56 to 56.7, beating the market expectation (Fig.1). Also, the Consumer Confidence level increased from -6.2 in February to -5, once again outperformed the market expectation (Fig.2). The employment data and retail sales figures also brought some good news. There were million Eurozone citizens in work, the highest since the 2008 financial crisis (Fig. 3). Fig. 2 Eurozone Consumer Confidence Fig. 3 Eurozone Employed Persons

7 Eurozone retail sales increased by 0.7 percent comparing with the previous month, and by 1.8% comparing with the same month in previous year (Fig.4). Fig.4 Eurozone Retail Sales MoM 6 The defeat of anti-eu, right-wing politician, Geert Wilders in the Dutch Election undoubtedly brought relief to the concerned investors. With lower political risk and obvious signs of economic recovery, it seemed that the Eurozone was finally walking out of the darkness. Yet, Eurozone s newest industrial production increased only 0.6 percent year-on-year, still placing a question mark on the overall situation (Fig.5). Fig. 5 Eurozone Industrial Production

8 U.S. Market Investors optimism began to cool down in the third month of 2017, as the market started to doubt the ability of the new president to put his words into concrete actions. Donald Trump was forced to pull the new healthcare bill from the House floor, due to lack of support from his own party. As a result, Dow Jones fell 0.72% in the month (Fig.1). Fig. 1 Dow Jones Industrial Average (March) 7 The latest composite PMI decreased further to 53.2 in March from 54.1 from February (Fig.2). It is the lowest reading in six month. Both manufacturing and services PMIs rose at a slower pace. Fig. 2 US Composite PMI

9 The non-farm payroll in March was disappointing as well. It increased only by 98 thousand, much fewer than 219 thousand in February, and fell short of market expectations as well (Fig.3). It was the lowest payroll number since May The drop in retail jobs and the snowstorms were responsible for this. Fig. 3 US Non-Farm Payroll 8 Nevertheless, there was still some good news for the United States this month. For example, the unemployment rate dropped from 4.7 percent to 4.5 percent, the lowest since May 2007 (Fig.4). The US economy may seem growing at a slower pace in March, but in the long run, we still hold positive view towards US s growth outlook. Fig. 4 US Unemployment Rate

10 China Market Fig. 1 China Fixed Asset Investment The new set of China data was encouraging. Comparing to the same period in last year, fixed asset Investment in January and February rose by 8.9 percent (Fig.1). This rate was better than the expected rate. It meant that there were more and more property and infrastructure construction. Additionally, the industrial production increased by 6.3 percent, once again beating the expectation (Fig.2). 9 Even the private firms were getting more optimistic towards the business outlook. This could be shown by the accelerated growth in private investment, which increased 6.7% year over year. Fig. 2 China Industrial production

11 Sheng Laiyun, a spokesperson for the National Bureau of Statistics of China said the accelerated growth in private investment was mainly due to the better implementation of Public-Private Partnership (PPP) projects, as the government had been trying hard to attract more private capital into traditionally state-dominated areas. However, there was still uncertainty. The newest retail sales figure was disappointing. Retail Sales increased only 9.5 percent year over year in the first two months of the year. It was the slowest pace in nearly two years. Still, Sheng explained the reason behind the weaker retail growth was due to a slowdown in auto sales after government reduced a tax break on small cars To conclude, signs indicated that China s economy was growing constantly. There will be a summit between the Chinese President, Xi Jinping, and the US President, Donald Trump next month. Hopefully, market could get a glimpse of the future of foreign and trade relations between China and the United States from the summit. 10 Fig. 3 China Retail Sales YoY

12 Others: Europe s future? In March, the United Kingdom officially triggered the Brexit process. The anti-eu right-wing politician, Geert Wilders suffered defeat in the Dutch election. And, after the first televised French President debate, Macron started to lead the poll. He is the only one who is able to compete with the far-right extremist Le Pen. The French Presidential Election has become the see-saw battle between Macron and Le Pen (Fig 1). The present situation is similar to the US Presidential Election in November Thus, we could not underestimate the power of extreme nationalism. It is also worth noting that, according to Bloomberg survey, about one-third of the interviewed economists said a Le Pen victory would not lead to improvement in any of the areas (Fig.2). On the other hand, they saw a Macron victory would be positive for Europe and business Investments. Fig. 1 French election 2017 Polls 11 Fig. 2 Which candidate will bring the biggest improvement? Source: Bloomberg Source: Bloomberg

13 Though Eurozone s newest set of data performed pretty well, even better than the United States, the political uncertainty is still clouding the economic outlook of Europe. Because of such uncertainty, the European Central Bank is expected to leave the interest rate unchanged in the short term. Thus, it is still possible for EUR/USD to fall further. As we can see in Fig 3, Euro is moving within the ascending channel. A rebound is expected once it reaches the support level of But, if it broke the level of 1.06, it may fall further to test the level of 1.055, or even Fig. 3 EUR/USD Chart 12 Source: Tradingview

14 Disclaimer: All information contained in this document is for information purpose only. The contents of this document are based upon sources of information believed to be reliable but no guarantee is given as to their accuracy or completeness. Neither Athena Best Financial Group, nor its subsidiaries, nor its related companies, nor any of their officers, directors or employees accepts any liability or responsibility in respect of the information expressed herein. Athena Best Financial Group will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for any investment products or services. Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell. Past performance is not necessarily a guide to future performance. Investors may not get back the full amount invested, as prices of shares and the income from them may fall as well as rise. Performance shown on this document is for reference only. Actual performance may differ depending on the actual investment date and charge of the related financial product. For products that involve mirror funds, the actual performance may also differ. 13