Economic Outlook May 2015

May showed solid return for equities. Investors are optimistic on global growth. 

The main index in the US underperformed other markets in May. However, this was offset by an appreciation of the USD. The S&P 500 had a slight negative return of 0.04 per cent. The strongest performer last month was Japan’s Nikkei 225 which rose 5.5 per cent. Bloomberg European 500 and Oslo Børs were up 0.92 per cent and 1 per cent respectively. The USD performed strongly last month rising 1.90 per cent against the euro. Norwegian kroner depreciated more than 2.2 per cent against the greenback. The movement against the euro was significantly less, where the NOK fell 0.27 per cent. The oil price ended May at 64.60, down 3.3 per cent from April.

On the back of a harsh winter and closed ports on the west coast, the US economy slowed in the first quarter of 2015. The positive reading of the all-important non-farm payroll for April was therefore well received by market participants. The unemployment rate fell to 5.4 per cent, and has almost halved since the peak in the aftermath of the financial crises. The reason for the continued focus on unemployment is that personal consumption accounts for about 70 per cent of the US GDP. SEB expects higher employment together with lower fuel cost to lead into increased economic growth in the US for the rest of 2015.

David Camron is heading back to 10 Downing Street after the Tories won the general election on the 7th of May. Surprisingly, he does not need support from any other party. The Labour leader, Ed Miliband, and Liberal Democrat leader, Nick Clegg, both resigned after the election. Financial markets cheered as the outcome gives a more stable political condition than the polls indicated.

The Greek financial drama continued in May. Prime Minister Alexis Tsipris claim that the lenders are making unreasonable demands and showing indifference to the democratic choice made by the Greek people. At the end of May, the IMF offered to postpone all of Greece’s June payments as it became apparent that the Greek government could not make the payment of € 300 million due Friday 5th of June. The yield of the 10 year German government bond retreated towards the end of May after a sharp rise for several weeks. The main reason was statements from the ECB that it would adjust its bond purchases through the summer months.

Recent economic data from China paints a softer momentum for the economy.  While industrial production showed signs of stabilizing, retail sales and investment continued softening. Investors took the numbers with relative ease, as it support expectations for both monetary and fiscal stimuli. SEB has downgraded growth expectations and predict GDP growth of 6.8 per cent and 6.5 percent in 2015 and 2016 respectively.

As we move into the second half of the year we foresee higher growth in the US. Together with healthy growth in both Asia and Europe makes optimistic with respect of global GDP growth for the rest of 2015 and 2016. From an investment perspective we continue to highlight Asia and Europe, but encourage Norwegian investors to have conscious mind on the currency risk as the Norwegian krone is relatively weak.

We wish all our readers a relaxing and wonderful summer. The newsletter will take a two month holiday.

By Hans Kristian Hals, Head of Investment Strategy