Weekly Newsletter

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Market continued recovery. Nearly all risky assets gained during the last 2 weeks. As we expected the US Fed left interest rates unchanged.

US Earnings reporting season is maturing. Overall sales dropped by 5% as expected and the 5% earnings drop was better than expected. See also our Chart of the day. The breakdown by sectors shows that basic materials and energy lost by as much as a third of revenue and half of earnings due to fallen global commodity prices. The remaining sectors are overall positive with double digit gains in Telecom, Healthcare and Consumer Services.

Erwin Lasshofer and his INNOVATIS team think the negative effect from the dramatic drop in energy and commodities will be offset by the overall robust US economy. In total average we do see a moderate growth in the US and no signs for a big change.

In some Emerging Markets the picture is quite different. Particularly energy or commodity exporters suffer from plunging national income. For example Saudi Arabia has posted budget surpluses averaging about 7 percent of GDP in the past 15 years. After recent crude oil price slump the International Monetary Fund predicts a fiscal gap exceeding 20 percent of economic output of the worldÕs largest oil producer this year. At that rate Saudi savings would run out after five years. Sharing oil wealth with the public has helped keep the Al Saud family securely in power as turmoil sweeps the region. We wonder if crude oil prices recover before destabilization of Saudi government or because of it.