Commodity markets conclude the worst monthly drop since 2011 today, with casualties among asset managers as a result. Black River Asset Management, a hedge fund firm owned by Minnetonka, Minnesota–based agricultural commodities company Cargill, has informed investors that it plans to close four hedge funds overseeing in excess of $1 billion because of limited investor interest. The funds focus on commodity and emerging-markets sectors that have been under intense selling pressure this year. The move to close the funds is emblematic of how the shifting macro environment has impacted investor allocation in recent quarters. In a report issued today, Kenneth Chan, Hong Kong–based quantitative strategist for Jefferies, noted that in the week ending Wednesday, equity investors trimmed their buying to just $234 million of global mutual funds and exchange-traded funds from $1.4 billion in the previous week, with a preference emerging for developed-markets equities over stocks from emerging markets. Global commodities saw a net outflow of $699 million.
SNB posts major loss on currency valuation. The Swiss National Bank today reported more than $50 billion in losses for the first half of 2015 after the central bank’s currency reserves were dramatically impacted by the abandonment of a cap on the value of the Swiss franc versus the euro earlier this year. Bank policymakers said that the loss may prevent a dividend payment this year, which traditionally has been issued to bolster government coffers.
Chinese regulators target sellers. The Shanghai Composite index declined by 1.1 percent in trading today, bringing the benchmark index to a 15 percent loss for the month. In reaction to the stock market swoon, regulators continue to argue that market manipulation is a primary culprit for volatility. Media reports today indicate that today the China Securities Regulatory Commission ordered domestic and foreign brokerages to identify all customers with net short positions.
Euro zone inflation unchanged. Headline consumer inflation index levels for July issued today by Eurostat remained flat for the month, while core-inflation levels rose by an annualized 0.2 percent, in lie with consensus forecasts. Although inflation has crept higher in recent months, the price growth in the 19-nation currency region remains well below the European Central Bank’s stated target of 2 percent.
Another fitness firm plans IPO. New York–headquartered high-end fitness chain SoulCycle filed with the Securities and Exchange Commission to go public yesterday, following in the wake of New Hampshire–based Planet Fitness and wearable fitness technology firm FitBit, which issued shares in June. According to SoulCycle’s filing, Goldman Sachs Group, Bank of America Merrill Lynch and Citigroup will serve as primary underwriters.
Beijing to host 2022 Winter Olympics. The International Olympic Committee today announced that Beijing will become the first city in the history of the sporting event to host the Winter Olympics as well as the Summer Games. The bid for the 2022 event by China found won by a significant majority after a number of Western cities dropped out of the running on concerns that the net-economic impact of hosting the Games is no longer attractive.
Portfolio Perspective: Door Open for Yellen to Raise in September — Martin Murenbeeld, Dundee Capital Markets
Aside from the estimated 2.3 percent annualized expansion during the second quarter, the big news yesterday was the revision in previous quarterly U.S. GDP estimates. In short, the economy was weaker than thought in past years, which will comfort FOMC doves, as they were against raising rates too early.
I would have to think that if Federal Reserve Chair Yellen wants to raise the federal funds rate in September, there will be little opposition. I am assuming she will want to do so — if for no other reason than a zero interest rate doesn’t fit well with a growth rate of around 2 percent. A hike would have no material impact on the economy, and would end the incessant discussion of when, if or whether the Fed will hike.
Our general outlook at Dundee Capital Markets calls for a 2–2.5 percent growth rate going forward. Nonresidential investment remains in the doldrums. Without a more dynamic consumer — unlikely, as consumers need to save — or more foreign sector demand, nonresidential investment will remain subdued. Net exports will on average subtract from growth for several reasons: the U.S. dollar is too high, foreign growth is weak and oil import replacement will moderate as domestic production stabilizes. After factoring in growth in employment and productivity, the economy’s apparent, speed limit, shall we say, is about 2.5 percent. The public sector could put the pedal to the metal for a period of time with investment in infrastructure, though what is really needed other than infrastructural investment and a lower dollar is a major overhaul of fiscal policy to make the U.S. economic system more efficient.
Martin Murenbeeld is chief economist for Dundee Capital Markets in Vancouver.
