AMERIPRISE FINANCIAL, INC.
Our Interconnected World: What Does it Mean for Today's Economies?
08/03/2015 | David Joy
"No man is an island." This famous phrase by seventeenth century English poet John Donne is equally applicable to twenty-first century economies. The convergence of global trade and the twenty-four hour news cycle has amplified the influence of events in foreign markets on our own and others around the globe.
This phenomenon is certainly visible in the impact of the economic slowdown and stock market decline in China, and the cumulative psychological impact of the ongoing crisis in Greece. Commodity prices have remained under pressure. Just since the Shanghai Composite index began to correct in June, North Sea Brent crude oil has fallen 23 percent, from $65 a barrel to $50. Copper has slumped 12 percent, aluminum is down 7 percent. The MSCI EM index is down 5.5 percent in local currency terms, 8 percent in dollars. The Japanese Nikkei index is flat after having risen 17 percent since the start of the year. The dollar has rallied 2.5 percent and the yield on the ten-year Treasury note has dropped from 2.45 to 2.17 percent.
The Impact on the Consumer
Consumer confidence in the U.S. was certainly impacted by these developments as well. The Conference Board reported the biggest drop in its index of consumer confidence in almost four years in July. And although not as steep, that reading was reinforced by the subsequent decline in the University of Michigan's July Consumer Sentiment index. Not that growth is so robust at home that we should remain immune to outside influence. Far from it. But, the U.S. economy has rebounded from the sluggish first quarter, posting an advance reading of 2.3 percent annualized growth in the second quarter and employment has remained strong.
It is clear that the consumer remains cautious. In addition to worrisome headlines from overseas, income growth remains challenged. Year-over-year gains in average hourly earnings remains stuck at 2 percent, barely above inflation. And last week we learned that the wage component of the second quarter Employment Cost Index rose by the smallest amount in several decades. Personal consumption in the second quarter did rebound from the depressed level of the first, but remained well below the levels posted in the final three quarters of last year.
Housing continues to improve, but even here there is evidence of consumer caution in the ongoing strength of multi-family construction over single family. It will be difficult for the U.S. economy to accelerate as hoped in the second half of the year without a bigger contribution from the consumer.
China and Greece Hinder Consumer Confidence
The latest round of news from both China and Greece will do little to engender renewed confidence. Manufacturing reportedly slowed even further in July, the fifth straight month of contraction. And in Greece, in a sign of progress the stock market opened on Monday for the first time in a month, with restrictions. The bad news is that prices fell 16 percent on the day, with bank stocks falling the limit, down 30 percent.
Back home, the economic calendar is robust, capped by the July employment report on Friday. This is the first of two jobs reports the Fed will see before their September meeting and the wage data will be important, especially following the weak Q2 Employment Cost Index report, which lowered the odds of a September rate increase in the opinion of some.
Important Disclosures:
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.
The Shanghai Composite Index is a capitalization-weighted index of all stocks on China's Shanghai Stock Exchange.
The Nikkei index is a price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange.
The MSCI EM (Emerging Markets) Latin America Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets in Latin America. The MSCI EM Latin America Index consists of the following 5 emerging market country indices: Brazil, Chile, Colombia, Mexico, and Peru*.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
08/03/2015 | David Joy
"No man is an island." This famous phrase by seventeenth century English poet John Donne is equally applicable to twenty-first century economies. The convergence of global trade and the twenty-four hour news cycle has amplified the influence of events in foreign markets on our own and others around the globe.
This phenomenon is certainly visible in the impact of the economic slowdown and stock market decline in China, and the cumulative psychological impact of the ongoing crisis in Greece. Commodity prices have remained under pressure. Just since the Shanghai Composite index began to correct in June, North Sea Brent crude oil has fallen 23 percent, from $65 a barrel to $50. Copper has slumped 12 percent, aluminum is down 7 percent. The MSCI EM index is down 5.5 percent in local currency terms, 8 percent in dollars. The Japanese Nikkei index is flat after having risen 17 percent since the start of the year. The dollar has rallied 2.5 percent and the yield on the ten-year Treasury note has dropped from 2.45 to 2.17 percent.
The Impact on the Consumer
Consumer confidence in the U.S. was certainly impacted by these developments as well. The Conference Board reported the biggest drop in its index of consumer confidence in almost four years in July. And although not as steep, that reading was reinforced by the subsequent decline in the University of Michigan's July Consumer Sentiment index. Not that growth is so robust at home that we should remain immune to outside influence. Far from it. But, the U.S. economy has rebounded from the sluggish first quarter, posting an advance reading of 2.3 percent annualized growth in the second quarter and employment has remained strong.
It is clear that the consumer remains cautious. In addition to worrisome headlines from overseas, income growth remains challenged. Year-over-year gains in average hourly earnings remains stuck at 2 percent, barely above inflation. And last week we learned that the wage component of the second quarter Employment Cost Index rose by the smallest amount in several decades. Personal consumption in the second quarter did rebound from the depressed level of the first, but remained well below the levels posted in the final three quarters of last year.
Housing continues to improve, but even here there is evidence of consumer caution in the ongoing strength of multi-family construction over single family. It will be difficult for the U.S. economy to accelerate as hoped in the second half of the year without a bigger contribution from the consumer.
China and Greece Hinder Consumer Confidence
The latest round of news from both China and Greece will do little to engender renewed confidence. Manufacturing reportedly slowed even further in July, the fifth straight month of contraction. And in Greece, in a sign of progress the stock market opened on Monday for the first time in a month, with restrictions. The bad news is that prices fell 16 percent on the day, with bank stocks falling the limit, down 30 percent.
Back home, the economic calendar is robust, capped by the July employment report on Friday. This is the first of two jobs reports the Fed will see before their September meeting and the wage data will be important, especially following the weak Q2 Employment Cost Index report, which lowered the odds of a September rate increase in the opinion of some.
Important Disclosures:
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.
The Shanghai Composite Index is a capitalization-weighted index of all stocks on China's Shanghai Stock Exchange.
The Nikkei index is a price-weighted average of 225 stocks of the first section of the Tokyo Stock Exchange.
The MSCI EM (Emerging Markets) Latin America Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets in Latin America. The MSCI EM Latin America Index consists of the following 5 emerging market country indices: Brazil, Chile, Colombia, Mexico, and Peru*.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
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