Week of July 13, 2015
IMF Cuts Global Growth ForecastLast week, the IMF cut its global growth forecast by 20 basis points to 3.3%, the weakest rate of expansion since 2009. The IMF chief economist was quoted as saying, “we have entered a period of low growth.” He cited mounting debt, high unemployment and limited policy options as headwinds for expansion this year. The IMF expects global growth to pick up next year and expand to its fastest pace in five years, at 3.8%.
2015 Rate Hikes Still On CourseLate last week, Federal Reserve Chair, Janet Yellen, gave a speech to the City Club of Cleveland where she stated, “I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy.” These comments were the first since the collapse of the Chinese equity market and renewed turbulence in Greece. She also emphasized that the pace of hikes will be gradual to support the improving, but fragile economic backdrop. Fed watchers will have their eyes trained on more commentary this week as Janet Yellen heads to Capitol Hill to sit before lawmakers and present the Federal Reserve’s semiannual report on monetary policy.
Gold Loses Its Luster
One of the interesting aspects of the recent global turmoil surrounding the Greek bailout and the bursting of the bubble in Chinese equities is that an asset class known to thrive amid chaos has instead languished. Prices of the traditional safe haven peaked in 2011 due to rising anxiety of increasing amount of debt in Europe. But this time around, the price of the yellow metal has moved lower. The gold price is off 3% year-to-date and has collapsed 40% to its lowest level in five years, to roughly $1,160 an ounce. Experts point to a few reasons for gold’s under performance. Many argue that financial markets are becoming immune to the fearful headlines while others say a stronger dollar and expectations of higher interest rates weigh on the demand for assets with no yield like gold.
Fun Story of the Week
Flying has never been hassle free but one of the growing annoyances over the past several years has been the rise of baggage fees. Most airlines charge fees that can top $100 to check luggage and there is very little passengers can do about it. However, James McElvar, member of the boy band Rewind, recently found a creative way to avoid paying the ~$70 fee on an EasyJet flight from London to Glasgow: he wore all of his clothes instead of packing them. McElver bundled up in four jumpers, six t-shirts, three pairs of jeans, two pairs of sweatpants, a couple of jackets and two hats before boarding the flight. The 19-year old said he immediately regretted his decision when he discovered he could barely walk down the jet way. Shortly after takeoff he became sick and collapsed from heat exhaustion. After landing, the singer was taken to a nearby hospital where during his recovery he received a tweet from Virgin’s train service. It read, “Next time travel with us, we won’t make you wear all of your clothes at once!”
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Mashable, July 2015, https://mashable.com/2015/07/13/rewind-singer-baggage-fees/?utm_cid=mash-com-Tw-main-link
Wall Street Journal, July 2015, http://www.wsj.com/articles/yellen-fed-remains-on-track-to-raise-rates-in-2015-1436545887
Wall Street Journal, July 2015, http://www.wsj.com/articles/no-gold-rush-as-greece-and-china-troubles-roil-markets-1436427839
Bloomberg, July 2015, http://www.bloomberg.com/news/articles/2015-07-09/imf-cuts-world-growth-outlook-as-risks-rise-from-greece-to-china
Wall Street Journal, July 2015, http://www.wsj.com/articles/imf-sees-2015-global-economic-growth-at-weakest-rate-since-financial-crisis-1436446905
Wall Street Journal, July 2015, http://www.wsj.com/articles/u-s-treasury-bonds-extend-selloff-as-fears-on-greece-china-ease-1436533964