Here’s today’s ‘Just A Minute’ bringing you a 60 second summary of what’s happening in the financial markets.
WHAT WE’RE WATCHING TODAY
U.S. Economy Back On Track As Strong Retail Spending Adds To Momentum
The U.S. economy is back on track after a difficult first quarter and it is not expected to cool off again anytime in the near future. A number of economic reports this week, spearheaded by sales at retail stores, are expected to show a faster pace of growth in April and May. Furthermore, trends point to the nation’s gross domestic product increasing in the second quarter after little growth in the first quarter of the year. Part of the snapback in growth reflects spending and investment that normally would have taken place in the first quarter had it not been for the severe weather. The prospect of the momentum extending beyond the second quarter is likely to rest mainly on whether companies continue to add workers. Job gains have averaged 238,000 a month since February which is the second best three-month stretch since the recession ended.
However, the recovery has been uneven since it began in mid-2009 and analysts are not ready to declare good times are here to stay after years of disappointing growth. The unexpected hiccup in the housing market is one of the biggest threats to the rosy scenario for the U.S. economy beyond the second quarter. Sluggish sales could dampen demand for a variety of goods that new owners need to buy for their homes and hurt retailers in the process. In April, economists predict that builders started work on more new homes and permits for new construction also rose. However, both permits and new construction are still likely to remain below the post-recession highs set in November and December.
CBI: U.K. Interest Rates Will Rise From Early-2015
Encouraging signs that the U.K. recovery is becoming more broad-based has led the Confederation of British Industry to raise its 2014 and 2015 growth estimates for the U.K. It now expects the U.K. economy to expand by 3 percent this year and by 2.7 percent in 2015, up from previous expectations of 2.6 percent and 2.5 percent respectively. Interest rates are expected to start rising in the first quarter of 2015. In the first quarter of this year, Britain posted GDP growth of 0.8 percent quarter-on-quarter, marking the fifth consecutive quarter of expansion.
However, as 2015′s general election looms, the CBI warned that political uncertainty could threaten the U.K.’s recovery and that the priority for the next government should be to keep the deficit reduction strategy on track, to tackle the U.K.’s economic challenges and to reform public services. The CBI also highlighted that business investment in the U.K. was on the rise. In the final quarter of 2013 it was 8.7 percent higher than the year before, and the trend is gaining momentum. It now expects business investments to grow by 8.3 percent this year and by 9.1 percent in 2015.
Is Beats Electronics Worth $3.2 Billion? Some Analysts Say Why Bother?
It was reported last week that Apple would be interested in acquiring Beats Electronics, the well-known headphone maker and music streaming distributor, for $3.2 billion founded by Dr. Dre. Although, at $3.2 billion this would be Apple’s largest acquisition to date, $3 billion is less than two percent of the company’s cash and less than ten percent of its annual free cash flow, in the overall scheme of things, it’s not a deal that is going to have a material impact on results. However, the change in Apple’s acquisition strategy will generate some questions for management and the Board of Directors. Some are struggling to see the rationale behind this move. Beats would undoubtedly bring a world class brand in music to Apple, but have pointed out that Apple already has a world class brand and has never acquired a brand for a brand’s sake. Beats does not have any intellectual property that would drive the acquisition justification beyond the brand. Instead, analysts believe that Apple’s cash should be utilised for acquisitions in the internet services space, which happens to be Apple’s biggest weakness. Traders will be watching the market for news…If Apple completes a $3.2 billion acquisition of Beats, Carlyle Group which owns just under 50% of Beats will bank a near $1 billion profit.
That sums up Monday’s highlights!
We hope you have a profitable day on the markets!
