Key economic indicators to watch for in the coming week in the U.S. are QoQ GDP – to be released next Thursday – and the April Flash University of Michigan Consumer Sentiment on Friday. In addition, more housing data (March new and existing home sales) will be published earlier in the week.
While Russia started its offensive in Eastern Ukraine – with no signs of a potential return to the negotiating table – a crucial election is taking place in France, where President Emmanuel Macron is seeking re-election in a runoff against far-right Marine Le Pen. A Le Pen win – while unlikely as she is polling between 8 and 10 points behind Macron – is a major tail risk for global financial markets, as sentiment could be negatively impacted by her alleged plans to weaken the EU.
The Q1 GDP numbers, though a “lagging” indicator, will give investors a better sense of how the US economy reacted to the Ukraine crisis and to higher inflation – and potentially higher interest rates – just as the IMF has downgraded global growth projections for 2022. According to Bloomberg consensus estimates, the median expectation is for a 1% QoQ annualized growth in Q1, a considerable slowdown from the 6.9% in Q4 20211. However, median forecasts for consumer spending expect it to remain strong, up 3.1% QoQ annualized according to the same forecast.
This is in line with preliminary data published last week, which shows consumer sentiment – a leading indicator – “jumped by a surprising 10.6% in early April, although it remained below January’s reading and lower than in any prior month in the past decade.2” The final data will be released next Friday. While it can be seen as flimsy – it is, indeed, a “sentiment” measure not based on actual hard data – this statistics tends to shed light on how American consumers feel about the economy, and it is usually significant.
Monday will mark two months since the start of the Russian invasion of Ukraine. The past week has marked a shift in strategy from the Russian command, which is now concentrating its ground attacks on the Donbas, while keeping the rest of the country on the edge through missile strikes and sporadic shelling.
The current goal appears to be to make Ukraine a permanently non-functioning country. It is hard to imagine Russia winning the war – though conquering territory in the Donbas may be spun as a victory by President Putin – but it is also unlikely that a country under constant threat of war with its neighbor can attract the kind of international capital needed for a swift economic development.
Global markets will anxiously wait for the results of France’s presidential election runoff between President Macron – the incumbent who won the first round – and far-right leader Marine Le Pen – who came second – this coming Sunday. The polls are much closer than in 2017, when Macron won by 30 points, but there is still a 12% gap Le Pen needs to plug. The top risk for Macron is voter disaffection, especially from first-round leftist voters who coalesced around far-left firebrand Jean-Luc Melenchon, who, while harshly critical of Le Pen, shares some of her concerns on workers rights, globalization and pensions.
Even as the risk of a Le Pen victory is limited – and she may end up pivoting towards more reasonable positions if she does win – her plan to amend the Constitution to strip EU law of its primacy is a tail risk3 that investors can’t ignore.
Yieldstreet’s goal is to continue focusing on originating new investment opportunities across different asset classes, despite the ongoing public markets volatility, which we expect to continue to affect risk-adjusted returns in public markets down the road. Last week, we launched additional commercial real estate offerings, an opportunity for investors in an asset class that is often overlooked, but that has historically provided a robust risk-return profile.
1A recent Goldman Sachs report remains confident in the US economic prospects, despite the difficulty of avoiding a “hard landing” – “…We don’t believe a US recession due to monetary tightening is inevitable, for three reasons. One, we think the Fed’s goal of cooling the labor market while avoiding a recession will be aided by post-Covid normalizations in labor supply… Two, we expect sharp pandemic-related increases in durable goods prices to normalize on their own as companies rebuild inventories, which should help rein in inflation. And three, we expect that the peak drag on home sales and homebuilding from higher mortgage rates will occur when underlying growth momentum is fairly strong…”
2According to the preliminary data – “Nearly the entire gain was in the Expectations Index, which posted a monthly gain of 18.0%, including a leap of 29.4% in the year-ahead outlook for the economy and a 17.2% jump in personal financial expectations. A strong labor market bolstered wage expectations among consumers under age 45 to 5.3%-the largest expected gain in more than three decades, since April 1990. Consumers still anticipate that the national unemployment rate will inch downward, acting to improve consumers’ outlook for the national economy” – http://www.sca.isr.umich.edu/
3For more information about tail risk https://www.investopedia.com/terms/t/tailrisk.asp#:~:text=Tail%20risk%20is%20the%20chance,considered%20to%20instantiate%20tail%20risk.
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