Bolstered by strong data, investors are expressing plenty of faith in the power of the global economic recovery. But what if this spring is as good as it gets?
What’s happening: Goldman Sachs analysts predict that US economic growth will slow after the April-to-June period this year. Meanwhile, Covid-19 infections are rising dramatically in crucial economies like India, forcing local officials to enact new lockdown measures, while recent figures from China indicate that its recovery could be losing steam.
In a note to clients this week, Goldman Sachs said that the US expansion “is peaking.” The investment bank’s economists predict the country’s economy will grow at a 10.5% annual rate this quarter, its strongest increase since 1978 (outside the unusual third quarter of 2020, when activity boomed after cratering during lockdowns).
The team then expects economic growth to “slow modestly” between July and September and “decline sequentially during the next several quarters.”
“Although our economists expect US GDP growth will remain both above trend and above consensus forecasts through the next few quarters, they believe the pace of growth will peak within the next 1-2 months as the tailwinds from fiscal stimulus and economic reopening reach their maximum impact and then begin to fade,” the strategists wrote.
Meanwhile, the full economic recovery could be delayed in important engines of growth like India, which is currently in the throes of a devastating second coronavirus wave. The country reported 295,041 cases of coronavirus and 2,023 deaths Wednesday, its highest rise in cases and highest death increase recorded in a single day since the beginning of the pandemic, according to a CNN tally of figures from the Indian Ministry of Health.
While Prime Minister Narendra Modi has appealed to states to “use a lockdown as their last option,” some local leaders feel they have no other choice. The capital, New Delhi, is under a strict weeklong lockdown as its hospitals come under severe strain.
The situation will put “further pressure on India’s incomplete recovery,” JPMorgan said in a recent research note. The bank has downgraded its estimate for India’s full-year growth to 11.2% from 13.2%.
China, another key driver of the economy, is faring much better. The country just posted its strongest quarterly growth on record compared to the same period the previous year, and has so far managed to keep resurgent outbreaks under control. But some economists worry the recovery may be leveling off. GDP growth was just 0.6% in the first quarter when compared to the final three months of 2020.
“Real GDP in China decelerated last quarter more sharply than expected from the surge at the end of last year,” JPMorgan’s chief economist Bruce Kasman said.
Investor insight: Goldman Sachs thinks stocks can keep rising, given that they “generally appreciate when the rate of economic growth slows as long as growth remains positive.” But the bank thinks there could be some short-term pressure as the effects of a potential US slowdown sink in.
Credit Suisse needs $2 billion as hedge fund losses widen
Credit Suisse is seeking to raise roughly 1.8 billion Swiss francs ($2 billion) from investors to strengthen its balance sheet as losses mount from the collapse of hedge fund Archegos Capital Management.
The latest: Losses stemming from Archegos’ collapse wiped out what would have been a strong quarter, with revenues climbing 31% over the same period last year. Instead, Credit Suisse reported a loss of 757 million Swiss francs ($827 million) for the January-to-March period, my CNN Business colleague Hanna Ziady reports.
The bank took a hit of 4.4 billion Swiss francs ($4.8 billion) from Archegos’ implosion in the first quarter, and said it expects to book an additional 600 million Swiss francs ($655 million) in losses later this year.
“The loss we report this quarter, because of this matter, is unacceptable,” CEO Thomas Gottstein said in the statement. Shares in Switzerland plunged more than 5% on Thursday.
Tracking the fallout: Credit Suisse announced earlier this month that its top investment banker, Brian Chin, and chief risk officer Lara Warner would both be leaving the bank. Other members of the executive board will not receive bonuses for 2020, and board chairman Urs Rohner will give up 1.5 million Swiss francs ($1.6 million) in compensation.
Archegos is the second major stumble for Credit Suisse in recent months.
In March, the bank froze $10 billion in investment funds connected to failed UK supply chain finance firm Greensill Capital, which provided cash advances to companies owed money by customers.
Credit Suisse clients invested in the funds could suffer considerable losses.
Switzerland’s financial regulator, Finma, said in a statement on Thursday that it was investigating Credit Suisse for potential risk management shortcomings in relation to Archegos and Greensill.
Watch this space: The Archegos fiasco has also caught the attention of US regulators, which Bloomberg reports are exploring ways to boost transparency of the types of complex bets that sank the hedge fund. The review is said to be in its early stages.
75% of big companies are falling short on the climate crisis
Less than a quarter of the world’s big public companies are doing their part to address the climate crisis, according to new research highlighting the shortcomings of corporate climate pledges.
In an analysis published Thursday, as President Joe Biden hosts a virutal climate summit with 40 world leaders, sustainable finance firm Arabesque assigned companies in 14 of the world’s largest stock indexes a “temperature score” based on publicly-reported emissions data between 2015 and 2019.
It found that less than 25% of companies are on track to achieve the goals of the Paris agreement by 2050, which aims to limit the global temperature increase to 1.5 degrees Celsius.
Despite growing commitments by companies to tackle the climate crisis, emissions have continued to rise since 2015, and initial data shows there was a decrease in global Paris alignment last year, according to Arabesque, which uses data to assess corporate sustainability performance.
Georg Kell, the company’s chairman, said the research confirms that voluntary measures taken by companies “have made a difference here and there, but they don’t add up to systemic change.”
“This is a critical year,” Kell, who is founding director of the UN Global Compact, told CNN Business. “Time is running out. We need to significantly step up, we have only a few years left.”
Alaska Air, American Airlines, AT&T, Blackstone, SAP, Southwest Air and Union Pacific report results before US markets open. Intel, Mattel and Snap follow after the close.
- The European Central Bank announces its latest policy decision.
- Initial US unemployment claims for last week arrive at 8:30 a.m. ET, followed by existing home sales for March at 10 a.m. ET.
Coming tomorrow: New data from IHS Markit will shine a light on how top economies are performing in April.