US trade deficit edges up to $48.5bn in Q4 2016

WEEKLY GLOBAL MARKETS UPDATE

US GDP growth for Q4 came in at 2.1 percent, after being revised up from 1.9 percent. This growth may have come from corporate profits having grown a healthy 9.3 percent. However, the US trade deficit, which stands at $48.5 billion, confirms a growth in the deficit from $44.5 billion. Imports have grown 2.3 percent stemming from a higher demand for oil and other consumer goods, while exports rose 0.6 percent. While inflation is finally meeting the Fed’s target, the Fed now must be wary of the risk that they might be behind the inflation curve. If the Federal Reserve increases the interest rate by more than 0.25 percent at the next meeting, markets may get affected as they have only priced in an increase 0.75 percent for the year.

However, economically, growth of 2.1 percent and healthy corporate profits indicate that the US economy is moving in the right direction. To further highlight the health of the US economy, consumer sentiment remains high, supported by higher incomes and favorable job prospects. Wages increased by 4.47 percent in January year over year, and retail sales grew 5.7 percent in February slightly higher than expected. The S&P 500 is up 0.90 percent for the week, and 4.65 percent for the year. In corporate news, Red Hat, which is a cloud and cyber security services provider, announced a stellar quarter as performance beat market expectations. Revenue growth of 15.7 percent year on year beat analysts’ expectations by $10 million. Red Hat projects to deliver revenue between $2.72-$2.76 Billion for 2018, and the stock is up 23 percent year to date.

European markets

For the quarter, which came to an end on Friday, the Stoxx Europe 600 index scored a 5.5 percent gain, its biggest quarterly advance since March 2015. This also marks the third consecutive quarter of gains in the index. However, eurozone inflation came in below analyst consensus at 1.5 percent vs. 1.8 percent expectation. This was mainly due to the Easter effect, which tends to push prices up for airfare and hotels. Easter was held in March last year, whereas it is in April this year. The March reading for inflation was also low due to a slower rise in food and energy prices. The fall in Eurozone consumer price inflation in March will further support the ECB’s current monetary policy path of purchasing assets into 2018.

The unemployment rate in Germany unexpectedly fell to 5.8 percent in March, and is the lowest rate since the beginning of the data series in January 1992. Jobless claims fell by 30,000 compared to February, referring to data adjusted for seasonal swings. This marked the strongest monthly fall since September 2011. Economists polled by The Wall Street Journal had expected a smaller fall in jobless claims of 10,000. Strong gains have been seen in public services jobs, education and healthcare. However, job losses are expected in the financial sector.

UK Market

The FTSE 100 index has logged a fourth straight quarterly rise, its longest winning streak since 2011, as it finished the first quarter of 2017 up 2.5 percent. Much of this rally has come thanks to a weak Pound. Investors will be cautious to see if a potential rally in the GBP will affect equity performance in the UK, especially companies that are heavily dependent on exports. British Prime Minister Theresa May invoked Article 50 on Wednesday, officially starting the country’s withdrawal from the European Union. A letter of notification was signed late Tuesday, and it was delivered to European Council President Donald Tusk.

GCC markets

In the GCC, Saudi’s Tadawul All-Share Index rose 2.18 percent for the week off the back of the rise in oil from $51.1 at the beginning of the week to $53.62 at the end of the week. Saudi Aramco announced the pricing for their Islamic bond sale of $10 billion, priced at .25 percent over SAIBOR. Data from the UAE shows that inflation was flat on a month on month basis, after having risen 2.284 percent for the month of January. The United Arab Emirates General Index is down 0.49 percent for the week. This may be attributed to Aldar Properties posting a 6.2 percent share price decline, which dragged the Abu Dhabi Securities Exchange index down, by 17.2 points. In positive news for the UAE, more demand for preventative healthcare solutions signals a growth in demand for healthcare in the UAE, which may decrease healthcare spending in the long run. Preventive care, a rise in specialist services and digital health applications will drive the UAE healthcare market from $17 billion today to $28 billion by 2021. Healthcare market has been growing around 10 percent year over year since 2015; however, niche subsectors focusing on preventive care are expected to grow at a faster rate.