U.S. Consumers: Not Feeling It

U.S. Consumers: Not Feeling It

Consumers held back slightly in January; the ECB contemplated another innovation to support Europe's banking sector; Theresa May's Brexit deal was defeated in the House of Commons; Sweden contemplated deficit spending to support its slowing economy.


"It was a simple thing they had to do and they haven't got it right. If there was another war we'd be in trouble with this lot in charge."
Pro-Brexit demonstrator outside Parliament

U.S. Consumers: Not Feeling it

Consumer purchases, accounting for some 70% of the U.S. economy, disappointed in January, rising 0.1% vs. December 2018, vs. an expected 0.3%. Core consumer inflation was also soft, rising only 0.1% vs December and 1.8% vs. January 2018 – well short of the Fed's often-stated goals of 2%.

 Final figures for overall economic growth in Q4 also fell short, at a downwardly-revised 2.2% annualized rate. The downbeat tone of the figures so far suggests that the final growth figures for the just-ended Q1 could disappoint as well.  All of which suggests that the Federal Reserve's newly-accommodative stance may be appropriate given current realities – and could become even more dovish should future figures continue to falter.
 

European Banks: Tiering up?

The current negative rate "paid" by the European Central Bank for deposits from commercial banks (-0.4%) is seen by many   as threatening the profitability – and even solvency – of Europe's already-troubled banks. One suggested solution includes "tiered" rates to offer some relief to the more troubled categories of banks.  Though  discussions on the subject are continuing within the ECB, the conversation so far remains theoretical. But it may be worth remembering that negative interest rates were once also considered unlikely, if not impossible, in practice.
 

UK- Europe: Brexit Breakdown

With Friday's 344-286 vote against adoption of Prime Minister May’s negotiated agreement between the UK and the EU, which would have delayed implementation until May 22, the timetable for finding any other form of withdrawal agreement has been thrown into disarray. The next key date is now April 12th, by which time the EU requires an agreement with the UK on how to continue discussions.  With many believing that requirement won't be met, the prospects for a "no-deal" Brexit by that date have caused the EU to schedule an emergency meeting for April 10.
 

Sweden: Borrowing Time?

Dependent on global trade for about half its GDP, Sweden's economy is unusually vulnerable to the current slowdown in global trade, even in the context of the generally vulnerable European Union (EU). At the same time, the country's debt load continues to fall, and is now projected to be below the country’s EU-mandated 30% level within the next two years. That’s especially notable given the aggressive government borrowing by many other EU countries.

This unusual situation has prompted the country's largest trade union group to exert pressure on the government to expand its borrowing and social spending – which, counter to some expectations, is being actively considered by the current right-wing majority in Parliament.

Encouragement to borrow from any constituency is all the more notable because of the disastrous debt crisis Sweden faced in the 1990’s, which encouraged all parties to avoid excess government borrowing for the past two decades.

Even former Prime Minister Goran Persson, widely known as a long-standing opponent of deficit spending, acknowledged that current "very low" interest rates make borrowing an attractive option despite Sweden's hard-earned reluctance to increase government borrowing.


All data Source: Bloomberg, March 29, 2019 unless otherwise indicated.
 

Definitions:

The Federal Reserve ("Fed") is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

Top

Important Information

 

All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.

This material is approved for distribution in those countries and to those recipients listed below. Note: this material may not be available in all regions listed.

All investors and eligible counterparties in Europe, the UK, Switzerland:

In Europe (excluding UK and Switzerland), this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.

All Qualified Investors in Switzerland:
In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH, authorised by the Swiss Financial Market Supervisory Authority FINMA.  Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.

All investors in the UK:
In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People’s Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:

This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.

All Investors in Australia:

This material is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827) (“Legg Mason”). The contents are proprietary and confidential and intended solely for the use of Legg Mason and the clients or prospective clients to whom it has been delivered. It is not to be reproduced or distributed to any other person except to the client’s professional advisers.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.