Today’s Leading Economic Prospects: High Possibility Outcomes

A Mini-Series of Economic & Financial Forecasts

From time-to-time, we at CGA-Capistrano & The Soave Report publish our outlook and opinion on current economic and financial conditions affecting the world. Our sources of information are all public and we draw our forecasts based on this publicly disseminated information. While the following statements are a matter of public record, its presentation and format, as well as its concise approach, may be useful.

Possible Investment Sweeties:

• TransferWise: Ex-Citigroup CEO, Vikram Pandit, has taken an undisclosed stake in London-based TransferWise, a currency-transfer start-up. According to the WSJ, “TransferWise looks to accelerate its global expansion.” (WSJ, pag C12, “Pandit Invests in Fintech Startup”).

• The Yuan Goes Global: Despite the slowing of China’s economy, its currency – the yuan – surpassed Japan and has taken “fourth place in a league table of the most-used currencies for cross-border payments compiled by Swift.” According to Swift, there was a “substantial” increase in the use of the currency at the end of August. Notwithstanding this info, the yuan continues to be a small player globally. (WSJ, pg. C12, “China’s Yuan Goes Global”).

• Oil & Gas / OPEC: While investments in oil & gas are set to decline by $130 billion this year, there seems to be optimism in the air for oil prices globally. Abdalla Salem Al-Badri, the OPEC Secretary General, announced that the reduction of investment – a reduction of 22%, to $521 billion in 2015 – actually means less supply and therefore higher prices. However, rebound is expected in 18 to 24 months while U.S. shale production remains resilient. (WSJ, pg. C7, “OPEC Says Oil Spending Likely to Fall”).

Other Economic Headlines Affecting Global Trade:

• The International Monetary Fund Warns of Global Slump: The IMF stated that we could experience the “slowest growth since the financial crisis” in months to come. The IMF cited a slowdown in emerging markets, China’s deceleration, and plummeting commodity prices. IMF Chief, Christine Lagarde said, “My biggest concern is that the combination of downside factors should happen all at the same time.” This has caused the IMF to downgrade its growth outlook to 4% for emerging markets this year (down 0.2 percent). The report also states “modest growth in the U.S. and a meager recovery in the Eurozone.” (WSJ, A8, “IMF Sees Rising Risk of Global Slump”).

• US Trade Deficit Widens: According to the U.S. Department of Commerce, the trade gap in the U.S. widened to $48.33 billion in August. Exports declined while imports rose 1.2%. In essence, the U.S. trade deficit grew 5.2% in the period from January to August this year. Softer demand for U.S. goods, a stronger dollar, fallout from the European debt crisis, and slower growth in Asia were cited as key factors. (WSJ, A2, “Wider Trade Gap Dims Growth View”).

• European Central Bank to “Front-Load” Bond Purchases: The ECB announced that it will “front-load its purchase of government bonds to account for an expected summer lull in trading.” This news weakened the euro and sparked a rally in the government bond market. All of this came against the backdrop that the European Central Bank would “restrict market-sensitive remarks … as part of a revamped policy governing how officials communicate with financial markets.” (WSJ, pg. C7, “ECB Tightens Rules on Own Disclosures”).

• Brazil Avoids “Junk Bond” Rating: Faced with continuous charges of bribery and corruption, the Dilma presidency has survived this latest news – at least for now. Brazil avoided a “junk bond” rating from Moody’s, allowing it to retain a “Baa rating,” just one notch above the junk rating. At the same time, S&P “downgraded its rating for Brazil to junk” in September. The somewhat positive news from Moody’s allowed the Brazilian exchange, the Ibovespa, to close higher at 47735 (up 0.3%). According to the WSJ, this has given “embattled President Dilma Rousseff some breathing room to jump-start economic growth.” (WSJ, B4, “Moody’s Leaves Brazil Debt Alone – for Now”).

• Pepsi Dips 73% on Big Charge: PepsiCo’s profit took a dive by 73% due to a “Venezuelan impairment charge;” at the same time, the company’s third quarter revenue fell by 5.2%. In the so-called “accounting move,” Pepsi “deconsolidated” its assets in Venezuela and eliminated certain assets and liabilities from its balance sheet. PepsiCo’s CEO, Indra Nooyi said, “So we see a slowdown, but not significant.” (WSJ, pg. B7, “PepsiCo’s Profit Sinks 73% on Big Charge?).