International News (Issue 397) – 29 April 2016

There was interestingly quite a lot from offshore markets this week.

The US Federal Reserve sat and though left interest rates on hold as expected, arguably took a slightly more hawkish tone by remarking they were less concerned by global economic risks than at the previous meeting.

It seems likely the Fed will still take a cautious approach to raising rates, so this news is not cause for concern.

The Bank of Japan disappointed investors expecting an increase in monetary stimulus. The BOJ stood pat on recent policy and this decision sent global currency markets into a spin, driving the Japanese Yen 4% higher and in the process smashing Japan’s share-market 5% lower given its heavy export bias.

Lastly on global central banks, the Chinese Peoples Bank made an interesting decision to fix its currency aggressively against the US-dollar to finish the week.

Speaking to a few people today on it, most see it quite benignly, however my initial reaction is of the PBOC upping the ante against currency speculators, at a time when perhaps the headlines point to resurging growth (the spike in iron ore and steel prices we have spoken of), but where to my mind the fundamentals of growth remain dicier than ever.

China is and remains the single biggest risk to global investment markets and though a recent government capital expenditure flush has had a good impact on short-term economic activity, it remains highly targeted at infrastructure (that can only be built once) and by government backed entities.

The private sector remains indifferent to the recent surge.

More and more reports on the Chinese financial system point to the underlying deterioration in credit quality and it seems little can be done to arrest this decline.

Our caution on investment markets into the second half of 2016 and our desire to sell into this recent rally is driven in large part by our increasing pessimism on China’s ability to avert some sort of financial market/credit collapse.

Beyond the central banks, corporate reporting was mixed out of the US.

Apple (AAPL) stole all the headlines for the wrong reasons when it posted disappointing profit figures on Monday night.

For the first time in THIRTEEN YEARS, APPL posted a quarterly revenue decline. Furthermore, where Chinese revenue growth for AAPL this time last year was +81%, fast forward to this year and it is down 11%.

The analysts who know call it ‘screen fatigue’, which is a term used to describe the falling incremental utility of new handsets. Put simply, consumers are no longer upgrading as rapidly since the newer, high-end phones have less exciting features on them.

Despite some very sensible people claiming AAPL to be cheap, it feels like it has more downside in it since these technology companies trade on product momentum not P/E’s!

Facebook (FB) posted results that demonstrated their dominance of social media, with mobile advertising up a staggering 76% annually and now comprising 82% of all of FB’s advertising revenues.

Amazing stuff.

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