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US Remains 'Best and Safest' Place to Invest

US Remains 'Best and Safest' Place to Invest
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Monday, 29 July 2019 01:51 PM Current | Bio | Archive

On Friday we got the “advance estimate” for the second quarter of the U.S. Gross Domestic Product (GDP) that showed an annualized growth rate of 2.1 percent that beat market consensus of 1.9 percent and that followed an “unrevised” 3.1 percent growth rate in the first quarter of this year, which is a “good” result.

Notwithstanding this was a good number, the market reaction was relatively limited.

Growth in domestic final sales continued to drive the economy forward with a 3.5 percent increase (2.3 percent – year-on-year y/y), which was the largest quarterly gain in a year that was driven by a 4.3 percent advance (2.6 percent y/y) in personal consumption expenditures, which was the strongest quarterly gain since the fourth quarter of 2017 and that was pushed by a 12.9 percent strengthening (4.4 percent y/y) in durable goods purchases.

Current-dollar GDP increased 4.6 percent in Q2 after having increased 3.9 percent in Q1.

Price inflation also picked up last quarter.

The GDP chain price index rose at a 2.4 percent annual rate (1.8 percent y/y), which was the quickest growth rate in four quarters.

The PCE chain price index advanced 2.3 percent (1.4 percent y/y) after rising 0.4 percent in Q1.

Higher food & beverage prices, as well as costlier clothing and home furnishings, accounted for the acceleration.

All this underlines the fact that the U.S. economy is doing well and performing “near trend growth” with an unemployment rate that’s near a 50-year low notwithstanding all the uncertainty that is caused by the trade tensions/disputes, which logically weigh on business investment.

For equity investors, I think the U.S. economy still remains one on the best and safest places of the developed economies to be invested in while it certainly shows no serious signs (yet) that it’s on its way to an imminent recession.

It will be interesting to see if the Federal Reserve will under these economic circumstances cut its Fed funds rate on Wednesday and will take something like an insurance against the risks that are posed by slowing “global” growth and continuous trade tensions?

Anyway, about three quarters of market participants still expect a 0.25 percent rate cut on Wednesday. 

In the meantime, over in the United Kingdom (UK) the British pound tumbled to a 28-month low against the dollar to below USD $1.23 per British pound when Prime Minister Boris Johnson’s government said it now assumed there would be a “No-deal Brexit” because a “stubborn” European Union was refusing to “renegotiate” the divorce agreement that was negotiated between Prime Minister Theresa May and the European Union (EU), but that never made it “through” the UK parliament.  

Prime Minister Boris Johnson, speaking on a visit to Scotland, insisted he remained “confident we will get a deal”. “I don’t want to exaggerate this…to be absolutely clear the formal position of the EU is unchanged,” he said. “But I think they understand that the UK and the EU are two great political entities and I’m sure it is possible for us to come up with a new deal that will be to the benefit of both sides and that’s what we are aiming for”.

The next milestone on sterling’s descent against the dollar comes at $1.2106, which it touched during intraday trade on March 14, 2017, the Financial Times reported.

In simple words, all this means that the “Brexit” saga still alive and well, that’s for sure.

It might be helpful for investors to recall that:

  • Prime Minister Boris Johnson has pledged that the UK will leave the EU as scheduled on October 31, with or without a deal, and, last but not least.
  • Many in the world are convinced, for good reason I must say, that a “No-deal Brexit” would send shock waves through the world economy, tip Britain’s economy into a recession, roil financial markets and weaken London’s position as the pre-eminent international financial center.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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HansParisis
For equity investors, I think the U.S. economy still remains one on the best and safest places of the developed economies to be invested in while it certainly shows no serious signs (yet) that it’s on its way to an imminent recession.
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2019-51-29
Monday, 29 July 2019 01:51 PM
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