Profitability Reports of our clients from May 2018

Profitability Reports of our clients from May 2018

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WORLD MACRO PANORAMA

EURO ZONE: Inflation showed an unexpected acceleration in May up to 1.9% YoY, an important recovery against the April figure as a result of the base effect due to a change in the calendar, an increase in energy prices and a recent euro depreciation.

On the other hand, the GDP data stood at 0.4% Quarterly, below expectations and the previous quarter (0.7% previously), in addition, the confidence indexes have deteriorated, however, they remain in an expansive zone, we see risk in which the uncertainty is transferred to the real economy (factory orders, job creation, consumption and investment) especially in Germany and France.

In the political sphere, the uncertainty on account of the protectionist measures of the US administration was a constant that influenced the behavior of the markets, movements that became more acute in the last week of the month with the Italian political situation, as a consequence the financial conditions has restricted representing a new risk to growth.

Italy: In the short term, the risk of an absolute advantage of La Liga decreases (due to the immediate increase in budget), however, as of August, the rating agencies will present their revisions and proposed economic measures that would cost between 70 and 100 billion of euros will continue to generate uncertainty about the debt.

UK: The BOE meeting in May has decided to maintain the rates unchanged due to the moderation in the growth of the first quarter. In August an increase in rates is expected.

The negotiations between the EU and UK are resumed on June 28: it will focus on the definition of the border in Ireland, in what refers to the customs union May has said that it will remain until 2020: if it continues, it would prevent it from entering into commercial agreements with other countries.

USA: Maintains the rhythm of growth supported by the investment generated by the new fiscal program, however the weakness of consumption continues.

Regarding the commercial aspects, the Trump administration has decided to extend the deadline until June 15 for the EU to voluntarily decrease exports, protectionist measures will impact inflation: construction and automotive sector.

The next meeting of the FED will be on June 13, the consensus expects a further increase in interest rates.

CHINA: Moderation in the activity affected by domestic consumption and investment, while industrial production is maintained at the same time as the trade balance (increases month by month).

JAPAN: Quarterly contraction of GDP due to weakness in domestic demand and residential private investment, however in the first quarter, investment increased 3.4%, being one of the main growth drivers.

Financial Markets (at June 1, 2018)

During May the markets chose to maintain prudent positions due to the commercial uncertainty generated in the United States, the increase of geopolitical risks with the exit of the nuclear pact and the sanctions to Iran, and finally the risks italian political instability.

Thus, risk assets prolonged sales in the midst of adversity, while german bonds and 10-year American treasuries experienced higher demand with yield of 0.34% and 2.82% respectively. In Italy, the 10-year bond reached the level of 3.10% due to the fear of elections, however it ended at 2.50% with important revaluations especially in the short sections, before the agreement between La Liga and the Five Star Movement.

Spanish debt, for its part, was more influenced by the contagion effect of the Italian situation than by its own internal events; the 10-year bond ended around 1.45%. On the other hand, the IBEX35 registered a -5.16% monthly drop, the Eurostoxx50 dropped by -3.67% while the DAX had a slight variation of -0.06%.

On Wall Street, the optimism remained, the Dow Jones ended the month of May at 24,415 points with an advance of 1.05%, the S & P500 did it at 2,705 points recording gains of 2.16%, while the NASDAQ had a monthly variation of 5.3 % consequently to the dynamic recovery of technological actions.

Different picture for the Asian markets that fell during the month of May -1.32% in the case of the Nikkei225 and -1.10% for the Hang Seng.

In terms of the macroeconomic agenda, noteworthy is the Eurozone inflation figure, which exceeded expectations and stood at 1.9% in May, as well as the reduction in unemployment for the month of April to levels of 8.5%; the foregoing would allow the ECB to advance in the normalization of monetary policy; However, the shaken political scene has weighed more on markets that have not reacted at the moment to the possibility of withdrawal of stimuli.