Dear PGM Capital Blog readers,
In this weekend’s blog edition we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of May 25, 2015:
- USA GDP shrank 0.7 percent in first quarter of this year.
- Brazil Economy contracted with 0.2 percent in Q1-2015.
USA ECONOMY CONTRACTED IN Q1-2015:
On Friday, May 29, the USA, Bureau of Economic Analysis (BEA) reported in a second estimate, that the real gross domestic product of the USA, – the value of the production of goods and services in the United States, adjusted for price changes – decreased at an annual rate of 0.7 percent in Q1-2015, this compared with an increase of 2.2 percent in
Q4-2014, as can be seen from below chart.
Highlights:
The downturn in the percent change in real GDP primarily reflected:
- Real personal consumption expenditures increased 1.8% in Q1-2015, compared with an increase of 4.4% in Q4-2014.
- Durable goods increased 1.1%, compared with an increase of 6.2% in Q4-2014.
- Nondurable goods increased 0.1%, compared with an increase of 4.1% in Q4-2014.
- Services increased 2.5%, compared with an increase of 4.3% in Q4-2014.
- Investments:
- Real nonresidential fixed investment decreased 2.8% in Q1-2015, in contrast to
an increase of 4.7% Q4-2014. - Investment in nonresidential structures decreased 20.8%, in contrast to
an increase of 5.9% in Q1-2015. - Investment in equipment increased 2.7%, compared with an increase of 0.6% in Q4-2014. Investment in intellectual property products increased 3.6%, compared with an increase of 10.3% in Q4-2014.
- Real residential fixed investment increased 5.0%, compared with an increase of 3.8%.
- Real nonresidential fixed investment decreased 2.8% in Q1-2015, in contrast to
- Real exports of goods and services decreased 7.6% in the Q1-2015, in contrast to an increase of 4.5% in Q4-2014.
- Real imports of goods and services increased 5.6%, compared with an increase of 10.4% in Q4-2014.
Below chart shows a detailed breakdown of the USA GDP figures Quarter over Quarter, from Q2-2011 – Q1-2015.
BRAZIL ECONOMY CONTRACTED WITH 0.2% IN Q1-2015:
On Friday, May 29, the Brazilian government said, that the country’s economy, the world’s seventh largest, contracted by 0.2 percent in the first quarter of 2015 after an expansion of 0.3 percent in Q4-2014 as can be seen from below chart.
Highlights:
- Household spending contracted the most by 1.5% compared to a 1.1% growth in Q4-2014.
- Government spending shrank by 1.3%, compared with -0.9% in Q4-2014.
- Exports grew by 5.7% recovering from 4.4% contraction in Q4-2014
- Imports rose 1.2%, compared with a contraction of 4.9% in Q4-2014.
- Year-on-year, the economy shrank 1.6%, the fourth consecutive contraction.
PGM CAPITAL COMMENTS:
USA GDP figures Q1-2015:
Looking further under the hood of the USA Q1-2015 GDP figures, we see that:
- Current-dollar GDP – the market value of the production of goods and services in the United States – decreased 0.9%, or US$38.7 billion, in Q1-2015 to US$17,665.0 billion, this compared with an increase of current-dollar GDP in Q4-2014 of 2.4%, or US$103.9 billion.
- Real gross domestic income (GDI), which measures the value of the production of goods and services in the United States as the costs incurred and the incomes earned in production, increased 1.4% Q1-2015, compared with an increase of 3.7% (revised) in Q4-2014.
- The price index for gross domestic purchases, which measures prices paid by U.S. residents, decreased 1.6% Q1-2015, a downward revision of 0.1 percentage point from the first estimate; this index decreased 0.1% in Q4-2014.
Below table gives an overview of the above mentioned figures.
| Percent change from preceding quarter | ||
| First Estimate | Second Estimate | |
| Real GDP | 0.2% | -0.7% |
| US-Dollar GDP | 0.1% | -0.9% |
| GDI | 1.4% | 1.4% |
| Gross Domestic Purchases Priceindex | -1.5% | -1.6% |
Brazil Q1-2015 GDP
Brazil Q1-2015 GDP figure confirmed a five-year slowdown in South American largest Economy.
The economy grew just 0.1 percent in 2014, its fourth straight year of meager growth.
And Brazil is preparing for an even tougher stretch this year: the government is forecasting a decline of 1.2 percent, bigger than the 1.0 percent contraction foreseen by the IMF.
When we look further under the hood of these Q1-2015 GDP figures we’ll see that:
- Annual inflation stood at 8.17% in April, well above the target of 4.5%.
- Unemployment, long the brightest indicator, has risen in the first four months of the year, to 6.4% in April.
Under president Dilma Rousseff, the economy has never returned to the blistering growth it posted under her predecessor and mentor, Luiz Inacio Lula da Silva, which reached 7.5 percent in 2010, his last year in office.
Like much of Latin America, Brazil has been hit hard by the sharp decline in commodities prices after a boom in the 2000s.
It is also reeling from the impact of a massive corruption scandal at its largest company, state-owned oil giant Petrobras (NYSE: PBR), which has stained the ruling Workers’ Party and key Rousseff allies.
As can be seen from below chart, the shares of Petrobras, lost approx. 82 percent of their value since Ms. Dilma Rouseff, became the president of Brazil on January 4th 2010.
Without wanting to mingle with internal Brazilian politics it is worth mentioning that mid March this year there were demonstrations in Brazil demanding the impeachment of Brazil president Ms. Dilma Rouseff for the enormous corruption scandal at the government-controlled oil giant, Petrobras, where she (president Dilma Rousseff) was chairwoman from 2003 to 2010.
Conclusion:
The USA Q1-2015 economic data, gives us an indication that it is looking increasingly unlikely that the Fed will be able to justify a significant rate hike in 2015. Due to this we believe that, when the markets realize this, gold could very well break out of its holding pattern.
Regarding Brazil, we are loud and clear, SELL SELL and SELL Brazilian securities with the exception of AMBEV (NYSE: ABEV) and BRF.SA (NYSE: BRFS)
Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that, markets can remain irrational longer than you can remain solvent.
Until next week.
Yours sincerely,
Eric Panneflek