Every Friday the Current rounds up the biggest business stories of the week. This week; oil and gold prices have been down but both could rebound, retail sales in the US have now fallen for three months but the US dollar remains strong, the euro’s free fall continues, India lowers interest rates and Brazil raises interest rates.
Goldman Sachs says that $40 oil prediction is wrong
Early in the week Goldman Sachs Group Inc. said that the price of oil is rebounding more quickly than anticipated. Goldman had predicted that oil prices would bottom out at $40.50 in the second quarter of this year before rebounding to around the $65 mark by 2016. Oil prices fell nearly 50% in 2014, but began to recover in February when West Texas Intermediate crude hit a high of $54 and BRENT Crude hit $63 – greatly surpassing Goldman Sach’s expectations. Rising oil prices may hurt consumers but the struggling oil industry will be pleased and could arrest the decline in production and jobs in Canada’s oil sands.
Gold prices plunge, but could soon bounce back
Gold prices soared in January to $1 300 as investors pulled out of the tanking stock market and plowed their cash into commodities. Since then prices have fallen to around $1 150. The catalyst behind this rapid and somewhat unexpected decline was the growing strength of the US dollar. The greenback has gone from strength to strength lately even as the euro, sterling and Canadian dollar flounder. Gold is considered an alternative to currency, so as the US dollar strengthens investors are pulling out of gold and buying currency. But gold prices could rebound. Investors flock to gold in times of uncertainty and the current situation in Europe might have investors looking for a safe alternative – like gold. Jeffrey Gundlach of DoubleLine Capital predicts that as uncertainty in Europe grows gold could soon rebound to $1 400 per ounce.
Retail sales fall in US for three straight months
The US Commerce Department reported that retail sales in the US declined 0.6% in February, the third straight month of retail sales decline the country has experienced. Gas, automobiles, food services and construction materials remained at the same level following a 0.1% decline in January. Although the 0.6% decline is an improvement on January’s 0.8% decline, many had expected an increase of 0.4% – as a result some experts are now lowering their first quarter GDP predictions. The culprit behind the disappointing figures is likely the harsh weather experienced across the country which dissuaded consumers from making purchases. Despite this news the NASDAQ closed at over 5 000 on March 2- for the first time since the year 2000.
USD hits 12 year high against euro, 5 year high against sterling
Last Tuesday the euro hit a 12 year low against the US dollar at $1.07, by Wednesday the euro fell to around 1.05. Many experts are now suggesting that the USD could reach parity with the euro. The rapid pace of the euro’s decline has offset the Loonies own issues to maintain a favourable rate for Canadian buyers of the euro. In February the Eurozone experienced its third straight month of negative inflation as consumer prices dropped by 0.3%, although the unemployment rate dropped to its lowest in nearly 3 years to 11.2%. With few signs of stability in Europe on the horizon there is no telling how far the euro could slide.
Alibaba to invest 200m in Snapchat
Chinese tech giant Alibaba is set to buy a $200 million stake in the American app Snapchat, valuing the company at $15 billion – over twice its valuation last year. Jack Ma, the founder of Alibaba, is China’s richest person and is seeking to expand his tech empire beyond China’s borders. Snapchat meanwhile has begun expanding its services, most recently the new “Discover” option allows media companies to share bite sized clips of content to millions of Snapchat users around the world.
India lowers interest rate
India’s central bank dropped the country’s primary interest rate for the second time this year by a quarter of a percent to 7.5%. Inflation in the rising Asian market sat around 5.1% in January. Recent reforms in India granted the central bank the power to set inflation targets, and the bank quickly exercised this power and set a goal of 6% inflation until January 2016 with a 4% target thereafter. Despite this India’s annual rate was 5.1% in January. The government has also set out to simplify the country’s complex tax code, and lower the corporate tax rate to 25%. The country has long been seen as a potential emerging economic superpower, and these reforms (and the recent $13 billion sale of 3G telecoms licences) could finally actualise that potential.
Brazil’s inflation worries
Brazil’s inflation rate rocketed to 7.14% in January prompting the country’s central bank to raise its interest rate to 12.75% (a 0.5% increase) the highest it has been in 6 years. Lower interest rates lead to lower inflation which should strengthen currency values but, with inflation in Brazil already so high the effect could be minimal.
The rise and fall of gold prices over the course of 2015 have been a major story, and one that will continue in the coming months. Uncertainty in Europe is high, warding investors away from European stocks and bonds and into gold, but the high value of the US dollar has been diminishing gold prices. It is still unclear which of these two opposing forces will ultimately succeed and therefore if gold will rise or fall.
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