The big news for the week is the price level of world stock exchanges. They are now at their highest point since mid-2015. Stronger economic data from China and the United States, is fueling higher global growth and inflation.
Little reported, was the release of data by the Institute for International Finance concerning global debt. Government debt rose sharply this past year and debt is now 325% of the GDP (Gross Domestic Product) of the world.
As a result, global interest rates are finally climbing in expectation of accelerating world growth and higher inflation.
The other big investment news for the week was the end in the upward movement for the indices in the United States. The latest surge caused by the election of Donald Trump has now leveled off and is remaining just below 20,000. Markets in Asia and Europe had also been at or near new highs. Growth in these exchanges are slowing as well.
Additional news was the 18 month high, the price of crude reached on most exchanges. This was in response to investor expected lower inventories, as the agreed upon cuts negotiated by OPEC (Organization of the Petroleum Exporting Nations) and other major oil producers took effect on January 01, 2017. Energy analysts expect compliance will be close to 80%.
Bitcoin an internet currency, experienced an increase in valuation of 125% in 2016. The currency far outperformed, all other major central bank currencies. It started 2017 above $1,000,00 USD (United States Dollar) for the first time in three years.
This week Bitcoin suffered its biggest two day loss, in three years. It is now at $911.13 USD. Before the warning by the central bank in China, the digital currency had surged more than 40% in two weeks, hitting a new three year high on Wednesday at $1,139.89 USD.
The American stock market has seen the addition of near $1.6 trillion USD since the election of Mr. Trump. Subsequently, the Dow Jones Industrials (Dow) has climbed near 8% and the S&P 500 around 5%. The Russell 2000 has surged 23% since the Trump victory.
Investors have poured money into equities on the continuing belief that the President-elect Trump will push for a major deregulation of business, alongside a massive infrastructure spending program. There are also proposed major tax cuts on both individuals and corporations. The infrastructure portion of his economic renewal plan is likely to run into major resistance among Conservatives in Congress.
The American dollar continues its climb upward. Valuation has surged against the major world currencies and is experiencing a 4th consecutive year of advances. It is now a 14 year high due to an upturn in United States manufacturing.
Investors continue to question the health of European banks, especially those in Italy.
World stocks were up nearly 6% last year, despite investor concerns over slowing growth in China and the weakening Chinese yuan.
Equities in emerging markets rebounded in 2016, after 3 years in negative territory.
International Commodity News
OPEC output of crude in December fell from record high levels, due to attacks on the oil industry in Nigeria and the trimming of exports by Saudi Arabia.
The agreement among a number of the non-OPEC nations to reduce their oil output by 588,000 barrels a day in addition to the 1.2 million cut agreed upon by the 13 member nation OPEC, is explains the recent rise in oil prices. Production cuts began to take hold this week, with declining output being reported around the world.
Crude oil prices have climbed over 12% in the last two weeks, on the OPEC output agreement. Oil is ending this week below $54 USD in the United States and below $57 USD in Asia and Europe.
International oil is experiencing its biggest gain in price since 2009.
Palladium prices spiked 10% this week on investor calculations that increased government spending and tax cuts will provide a further boost to the automotive industry. Palladium is used as auto catalyst.
Another event is the price reversal in precious metals this week, after a slide in prices that took place over the last couple of months.
Gold had been slowly dropping in price, since reaching a high of $1,370.80 USD last August. Late last year it reached its lowest price level last week since February.
This week, gold reversed the price slump that had occurred for 7 consecutive weeks. It had been the longest downward streak for gold prices in 12 years.
Last week gold was being sold for $1,151.90 USD, this week the price increased to $1,171.90 USD a gain of 1.74% on top of the 1.65% from last week. The total decline since last summer, is now below 20% and is no longer in bear territory.
Gold prices were up +8% at the end of 2016.
The price for silver has dropped from $19.43 USD from a little more than 3 months ago, to $15.99 USD reported last week. This equates to a drop of 21.51% for the period, putting it in correction territory. This week is is listed for $16.47, indicating an increase of 3.00% and taking it back out of bear territory.
Silver is were up about +8% for 2016.
Declining world production of crude will cause an increase in global prices for oil. It is estimated that this will help increase American shale oil output by some 350,000 barrels a day.
Factory activity inside the United States spiked to a 2 year high in December, with a surge in new orders and rapidly rising raw material prices.
Car and truck sales in the United States hit a record number in 2016. This was attributed to lower energy prices and increased consumer confidence.
The United States trade deficit widened for a second consecutive month in November, as imports costs rose to their highest level in more than a year. This is largely due to higher oil prices. The increase was listed for 6.8% to $45.2 billion USD as of November. Trade results of this sort will be a drag on growth for the fourth quarter.
U.S. bond yields remain near 14 year records, as investors calculate that inflation and interest rates will be heading higher in 2017.
The Atlanta branch of the Federal Reserve is predicting GDP growth of 2.9% for the 4th quarter. The latest data suggests an uptick in business inventory, spending, investments and net exports.
The Federal Reserve (central bank of the United States) is predicting faster domestic growth because of government stimulus. This will force a more rapid increase for interest rates in the coming year, as the central bank moves to tap down higher rates of domestic inflation.
The rate that banks charge each other to borrow money for three months has risen above 1% for the first time, since May of 2009.
United States employment figures show there was a gain of 156,000 jobs in December, as compared to 178,000 that were created in November. Unemployment ticked up from 4.6% to 4.7% for the same period.
Official unemployment ends 2016, at the lowest overall rate since 2006. A total of 2.2 million jobs were created in 2016, after 75 consecutive months of low. but steady jobs growth.
Number of Americans applying for unemployment benefits are near a 43 year low, indicating a further tightening in the domestic labor market. Initial claims dipped 28,000 to a seasonally adjusted 235,000 for the week ending December 31st.
Wages in the United States are finally beginning to rebound, after years of stagnant growth. There was an increase of 2.9%, in hourly compensation last month.
The 10 year U.S. Treasury yield is at 2.435 from 2.48% last week.
The 115th Congress opened this week. The Republicans are in firm control of both legislative branches. Along with cabinet confirmations for the incoming President, there will be an agenda passed on tax cuts, regulatory roll backs and a repeal of Obamacare.
President-elect Trump has named Robert Lighthizer as his chief trade negotiator. He is known to be a harsh critic of unfair trade practices conducted by China.
President-elect Trump has nominated Walter Clayton to head the SEC (Security and Exchanges Commission). Clayton is a well known attorney, that advises clients on major Wall Street deals.
In response to harsh criticism by President-elect Trump the Ford Motor Company has canceled the $1.6 billion USD project to build a factory in Mexico. The automaker will instead invest $700 million USD, in a Michigan based site.
All 4 market exchanges in the United States (U.S.) increased this week. The Dow Jones Industrial Averages has remained near 19,900 from less than a point from 20,000 today. This is from near 18,000 two months ago. The Dow, the Standard & Poor 500,the NASDAQ and the Russell 2000 composites reached new life time highs today.
The highs on Friday were 19,999.63 for the Dow, 2,281.28 for the S&P 500, the tech heavy NASDAQ was at 5,534.11 and the Russell 2000 Index for firms with smaller capitalization, was at 1,375.06.
From last week, the Dow is up +0.76%, the S&P 500 is up +1.26%, the NASDAQ is up +1.65% and the Russell 2000 is up +0.64%.
Consumer confidence in the United States is at the highest level since 2001. It is partly due to better economic data and the election of business tycoon Donald Trump.
A court in the United Kingdom will decide whether Royal Dutch Shell will face trial over oil spill allegations in Nigeria.
This week European stock markets closed at new one year highs after more upbeat manufacturing news form both China and the United States.
Business activity in the Euro-zone was at the highest level, since May of 2011. The December PMI (Producers Manufacturing Index) climbed to 54.4.
Consumer prices in the Euro-zone reached a high not seen in four years, surging 1.1% last month. This is due to the spike in energy prices.
The British pound which hit 31 year lows after the Brexit vote, closed 2016, 16% lower against the American dollar. This can be recorded as the biggest yearly fall since 2008. This week the pound surged, as British manufacturing rose substantially.
Manufacturing in the United Kingdom reached a two and a half year last month. The movement was fueled by abundant new orders arriving from domestic sources and abroad.
The FTSE 100 in London the main stock exchange in the United Kingdom reached a new high this week. It surpassed 7,205.21 after a gain exceeding 1%.
The PMI in the United Kingdom rose at the fastest rate since July of 2015 in December at 56.2 from 55.2 the month before. Only 54.7 had been expected for the month.
The United Kingdom ambassador to the European Union who has sometimes clashed with the government in its approach to Europe has resigned, just three months before the start of Brexit negotiations.
Finland began an experimentation with a guaranteed income of 560 Euros monthly, regardless of work status. It will start with just 2,000 individuals. The hope is that the government payment will stimulate domestic economic growth.
The Prime Minister of Norway is warning of a hard Brexit. This she claims is what is likely to happen, since the United Kingdom lacks negotiating experience on the issue.
The Social Democrats in Romania won a vote of confidence in the legislature. The leftist government headed by P.M. Grindeanu is ahead by a comfortable margin.
President Putin is not responding to the expulsion of 35 Russian diplomats, as a result of American accusations of electoral hacking. His preference is to wait to deal with incoming President Trump.
As part of the OPEC deal to reduce the global glut in oil, Iraq has cut daily output by 200,000 barrels a day. This will leave production at 4.351 million barrels daily.
Iran is profiting from the OPEC brokered deal on production cuts close to 1.8 million barrels a day. It has been selling millions of additional barrels, for far higher prices. The country has reduced it inventory by some 50%, over the last few months.
The parliament in Turkey voted this week to extend the government’s state of emergency for an additional three months following the New Year’s nightclub attack.
President-elect Trump has criticized the government of China, for its failure to assist the United States and the world community in containing the intercontinental ballistic missile (ICBM) program of North Korea.
In related news, incoming U.S. President Trump has vowed that North Korea will not be allowed to further test an ICBM)
Factory activity in Japan expanded at the fastest pace in a year last month, in a hopeful sign that the domestic economy may be gaining some momentum.
China’s foreign exchange reserves are moving below the psychological crucial $3 trillion USD in the ongoing effort to support the Chinese yuan.
President Xi Jinping is remaining cautious about the 6.5% domestic growth objective. Rising debt and an uncertain global economic environment may hinder reaching the goal.
Chinese manufacturing expanded for the fifth month in December. It is the fastest rate of improvement since January 2013.
Growth in the Chinese services sector accelerated to a 17 month high in December.
Hundreds of companies and tens of thousand of vehicles, have received fines and punishments from the Chinese Ministry of Environmental Protection. There has been a renewed effort in fighting smog, as air pollution has worsened in numerous cities.
China is claiming that it plans to invest $361 billion USD in renewable fuels by 2020. This effort is part of the five year government plan to reduce pollution.
Mexico’s central bank is selling dollars at an accelerating rate in an effort to defend the peso. The currency hit a record low this week, largely due to the uncertainty of Mexican- American relations, after Donald Trump becomes President.
American West Texas Intermediate (WTI) last Friday was listed for $53.53 USD, this week oil is selling for $53.83 USD, an increase of 0.56% in addition to the 0.94% last week and the 2.18% from the week before. The overall price is up 9.36% in three weeks.
International Brent last Friday went for $56.66 USD. This week oil is being sold for $56.91 USD, an increase of 0.44%.
U.S. weekly oil inventories were down by 7.4 million barrels for the week.
American priced and Brent crude oil were both up about +45% in 2016.
The Investment Newsletter had 0 target fills to report this week, and 0 early stock target fills.