Dear friends
April delivered another mixed bag of economic developments, with both positive and concerning trends in the global economy.
The U.S. economy grew more slowly than expected in the first quarter, while at the same time inflation fell to its lowest level in two years. These figures combined put the Federal Reserve in a tricky position with regard to rate hikes: while a larger increase could choke off markets, a lack of action would point to more serious concerns about the stability of the banking sector. Meanwhile, the persistently inverted Treasury yield curve is already foreshadowing a possible market correction.
With the U.S. dollar showing overall strength, the U.S. Federal Reserve is, however, expected to raise interest rates further at its next monetary policy meeting after all.
The Bank of Japan, for its part, already decided to postpone monetary policy adjustments and to stick with negative interest rates. As a result, the yen plunged against all major currencies and reached its lowest level against the euro since 2008.
On the corporate side, the major U.S. banks reported slowing growth in the first
quarter, but no evidence (yet) of a growing banking crisis. Government and central bank actions appear to have prevented the worst for now.
In the technology sector, Meta, the parent company of Facebook, released positive results for the first quarter of 2023, although Zuckerberg’s Metaverse division lost another $4 billion, a trend that is expected to continue throughout the year.
Although Tesla reported record vehicle deliveries in the first quarter of 2023, the growth rate was lower than expected due to increasing competition and challenging economic outlook. Tesla’s CEO warned of the impact of higher interest rates on the company and possible price cuts in case of a recession.
Cryptocurrencies made headlines when the bitcoin price briefly touched $30’000 again. This indicated increasing adoption by established companies and institutional investors. While this rise might have been due to positive regulatory developments and changing investor attitudes, a recent survey also showed that more than 46% of Millennials now own some form of crypto.
At the end of April, the S&P 500 closed at +1.5%, MSCI World Index +1.6%, 20-year bonds -0.2% and gold +0.9%. Our strategies ended the month with Universal +1.3%, Progressive +1.3% and CryptoMax -6.1%.
A conflicting new development has been the creation of a new digital currency by the BRICS countries (Brazil, Russia, India, China, and South Africa) to reduce their dependence on Western-dominated currency systems. If successful, this new digital currency could challenge the dominance of the U.S. dollar in international trade and provide emerging economies with an alternative for conducting their trade transactions.
But if demand for the dollar in global trade declines, it will be less valuable internationally, and it will therefore be considerably more difficult in the future for the Fed to simply print more money when needed without causing significant national devaluation.
Against this backdrop, it may become increasingly important for investors to consider diversifying their assets across currencies and countries as well. A topic to study more closely in the coming months…
Stay happy, healthy and wealthy!
Omar