Current Environment - Macro Overview

  April 1, 2015

The first quarter of 2015 saw increased volatility as a preoccupation prevailed with weak oil prices, feeble economic growth, and a strong dollar affecting U.S. corporate earnings.

With U.S. companies generating over 50% of their revenues from overseas, some market observers believe that the Fed may have a twofold initiative in maintaining low rates and reining in the value of the dollar to levels that would hinder U.S. multi-nationals less. As the dollar has strengthened, U.S. products have become more expensive and less competitive internationally, shifting some customers to purchase foreign products for the time being.
 
Greece’s fiscal complications are approaching deadlines as the country owes the International Monetary Fund (IMF) a 450 million euro payment on April 9th, and a 1.4 billion euro payment to government bond holders in mid-April. Without a fresh injection of cash, the Greek government has threatened to default on its loans to the IMF. No country has ever officially defaulted to the IMF in its 70-year history and only a few countries have deferred repayment, including Sudan, Zimbabwe and Somalia.
 
European financial markets skirted deflationary threats in the first quarter as equity indices in the region rose and bond prices elevated when the European Central Bank (ECB) began its bond buying program in March. The euro hit an 11-year low, as the ECB’s stimulus program ignited a fall in rates with an ensuring drop in the euro. The euro had its worst quarter in its 15-year history as a currency, losing 11% against the U.S. dollar in the first quarter alone.
 
Regulators with the Securities Exchange Commission (SEC) voted unanimously in March to require computer driven trading firms, also known as “high speed and high frequency traders”, to have the same regulatory guidelines as traditional firms. For decades, a regulatory loophole allowed these high-risk firms to evade rules and mandates in place for other investment firms. The SEC hopes to avoid so called “flash crashes” by implementing the rules.
 
Sources: Fed, SEC, Moody’s, S&P, Eurostat

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