The big investment news for the week is the end in the upward movement for the indices in the United States. The surge caused by the election of Donald Trump has now leveled off and remains 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.
The other investment news is the beginning of reporting for the 4th quarter corporate sector in the United States. The financial sector has surged near 17%, since the presidential election of 2016. Projections are that the Standard and Poor 500 index will see profit gains of 5.8%. If this pans out it will be the largest quarterly increase in three years.
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.
United States intelligence is warning that as global economic growth slows further, the risks of conflict both within nations and internationally,will increase to levels not seen since the Cold War.
In contrast, the World Bank is predicting that global growth will increase slightly, as oil and commodity price increases help emerging markets. The end of painful recessions in both Brazil and Russia are two prime examples.
The World Bank is now projecting a slight rebound in 2017. Global GDP is expected at 2.7% this year. 2016 growth came in at 2.3%, a post financial crisis low.
The institution expects GDP growth in the advanced economies to edge up to 1.8% in 2017, up from 1.6% last year.
In the emerging and developing markets the World Bank sees GDP growth of 4.2% this year, in contrast of 3.4% in 2016
Additional news was the retreat from the 18 month high, as the price of crude reached and then retreated in price 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 expected compliance would be close to 80% but now may be as low as 50%.
The American stock market has seen the addition of near $1.6 trillion USD (United States dollar) 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.
Many financial analysts continue to predict that the American dollar and the Euro will regularly reach parity in 2017. The Euro is now in the $1.04 to $1.06 USD range. This will be driven by higher interest rates in the United States and lower ones in the Euro-zone.
World stocks were up nearly 6% last year, despite investor concerns over slowing growth in China and the weakening Chinese yuan.
Equities in emerging in markets rebounded in 2016, after 3 years in negative territory.
International Commodity News
The agreement among a number of the non-OPEC (Organization of the Petroleum Exporting Nations) 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, explained the recent rise in oil prices.
However production cuts that began to take hold last week, do not indicate the rapid decline in output that was forecast by a number of energy analysts. OPEC officials are hoping for an 80% compliance, but admit it may end up being as low as 50%.
Individual country non compliance to the overall oil output agreement, will make the plan to reducing OPEC output to 32.5 million barrels a day harder to achieve. Levels will be reevaluated in May 2017.
There has been record crude exports from Iraq and American production is already beginning to rise once again.
Crude oil prices are still up over 10% in the last three weeks, on the OPEC output agreement. Oil is ending this week below $53 USD in the United States and below $56 USD in Asia and Europe.
International oil was experiencing its biggest gain in price since 2009 at the end of 2016 and in the beginning of 2017.
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.
Last 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.
Two weeks ago gold was being sold for $1,151.90 USD, last week the price increased to $1,171.90 USD and this week ended at $1,197.60. This equates to a gain of 2.19% for the week and 3.97% for the period. The total decline since last summer, is now well 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 $16.47 USD reported last week. This equates to a drop of 17.97% for the period. This week is is listed for $16.87, indicating an increase of 2.43%.
Silver was up about +8% for 2016.
On Thursday of this week President Obama rescinded the decades long policy of granting automatic residency to virtually ever Cuban who arrives in the United States.
President-elect Trump is vowing to label China a currency manipulator and has threatened to slap higher tariffs on Chinese imports. If enacted, this can easily lead to an all out trade war between the two largest economies in the world.
The American dollar took a hit this week, after the long awaited press conference held by incoming President Donald Trump, failed to provide clarity on future fiscal policies.
Secretary of State nominee Tillerson says China should be denied access to islands, that are being built in the contested South China Sea.
United States Federal Reserve (central bank of the United States) chair Janet Yellen fears that growing income inequality, weak growth in labor productivity, and the likely roll back in some of the provisions of Dodd-Frank will provide new financial challenges in 2017.
The concern among the central bank analysts, is that the fiscal and tax plans advocated by the incoming administration, may provide a economic boost, but that it will be short-lived.
According to Fitch ratings, United States banks many find the Republican plans to ease restrictions on them, will not be worth the extra reserve capital they will be expected to have on hand for financial emergencies.
U.S. bond yields remain near 14 year records, as investors calculate that inflation and interest rates will be heading higher in 2017.
In related news, bond experts warn about spikes in the 10 year Treasury Notes. The range of 2.6% to 3.0% are pointed to by various analysts as tipping points for the equity markets.
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.
The 10 year U.S. Treasury yield is at 2.35%, from last weeks 2.48% and 2.54% from the week before.
United States government posted a $28 billion USD budget deficit for December. Both receipts and outlays are lower than a year ago.
The American FBI (Federal Bureau of Investigation) arrested the Volkswagen regulatory compliance executive, Oliver Schmidt. He is facing conspiracy charges, related to what is now being referred to as Dieselgate.
U.S. business lobbies are warning that quickly repealing Obamacare without an immediate replacement may end up being a mistake.
American based companies now must contend with the additional burden and risk of being labeled anti-American by incoming President Trump.
All 4 market exchanges in the United States (U.S.) are flat this week. The Dow Jones Industrial Averages has remained near 19,900. This is from near 18,000 from little more than two months ago. The Dow, the Standard & Poor 500,the NASDAQ and the Russell 2000 composites reached new life time highs last week.
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.
The highs on Friday were 19,952.03 for the Dow, 2,278.68 for the S&P 500, the tech heavy NASDAQ was at 5,574.12 and the Russell 2000 Index for firms with smaller capitalization, was at 1,376.17
The NASDAQ closed at another record high earlier this week.
From last weeks high, the Dow is down -0.24%, the S&P 500 is down -0.29%, the NASDAQ is up +0.72% and the Russell 2000 is up +0.08%.
Euro-zone industrial output moved up by 1.5%. Year to year the sector witnessed an increase of 3.2% as firms increased production for Christmas.
In the United Kingdom, the Bank of England governor Carney stated that Brexit alone, is no longer the biggest single risk to the country’s financial stability.
In the United Kingdom, the government is no longer the top shareholder in Lloyds Banking Group, with the stake now dropping below 6%, in the ongoing effort to return the institution to private shareholders.
Germany’s GDP grew by 1.9% in 2016, which was above the projected growth rate. It is the fastest pace since 2011. Growth for 2015 was listed at 1.7%. The acceleration is being attributed to falling unemployment and increased spending, due to record low interest rates.
Europe and the United States agreed this week to reduce capital and legal barriers to transatlantic insurance and reinsurance market. Industry analysts hope this will boost the already $3 billion USD industry.
Portugal is hoping to broaden the level of investment for it’s debt this year. The calculation is that as the domestic economy recovers, there will be a renewed interest in Portuguese government bonds.
The Italian Economic Minister is now claiming that the support of the European Stability Mechanism (Euro-zone bailout fund), will not be needed to help Italy’s troubled banks.
European based Airbus had a record delivery of 688 planes in 2016. This still falls short of their main rival Boeing. The American based manufacturer sold 748 planes to buyers.
To help spur demand for electric cars, European automakers are now wanting to build a network of ultra-fast charging stations across the continent.
Iceland has finally installed a new government. The new coalition will now debate whether to hold a referendum on joining the European Union.
The Turkish lira hit a new record low against the American dollar this week. This was the result of new economic and political fears, inside of Turkey and the Middle East.
A United States Navy ship fired warning shots at Iranian vessels in the Persian Gulf. Tensions continue to mount in the region, as the American presidential inauguration nears.
Saudi Arabia set a record in 2016 for developing countries, with the first sovereign bond sale. The kingdom received a total of $67 billion USD in bids, for a $17.5 billion USD issue.
Saudi Arabia is now considering a new Islamic bond in 2017, to help finance its growing budget deficit.
Thailand’s military backed parliament votes to make a number of amendments to the Constitution. The action is likely to delay the general election, scheduled for later this year.
Taiwan was forced to scramble its jets and navy ships in response to the arrival of Chinese warships in the Taiwan Strait. The flotilla from China, was being led by their sole aircraft carrier.
The Head of the Samsung Group in South Korea is being investigated for bribery.
South Korean prosecutors have indicted seven current and former employees of Volkswagen operations in the country. The charges are based on the fabrication of official documents.
For 2016, exports from China fell 7.7 % ,while imports declined 5.5%. These are the worst statistics since 2009.
The 2016 annual trade surplus for China came in at $510 billion USD. This is somewhat lower than the reported $594 billion USD surplus reported in 2015.
Chinese PPI (Producer Price Index) surged 5.5% last month. This is the fastest increase since September of 2011.
China is dealing with excessively higher levels of corporate debt and ongoing overcapacity in the coal and steel sectors.
China’s foreign exchange reserves are close to moving below the psychological crucial $3 trillion USD, in the ongoing effort to support the Chinese yuan. It dropped an additional $41.08 billion USD last month, to $3.01 trillion. It has now dropped for six consecutive months and is at the lowest levels since March 2011.
The Obama Administration has launched a formal complaint to the WTO (World Trade Organization), over subsidies that the Chinese government provides to its domestic producers of aluminum.
China is continuing to warn the United States that if a Trump Administration abandons the one China policy, there will be serious consequences. The admonishment coincided with the arrival of the Taiwanese President in the United States, on her way to Latin America.
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.
The Mexican peso was the worst performing major currency last year. It has declined in valuation by 20%, since the election of Donald Trump.
The depreciation of the peso has accelerated in 2017. This was after Trump told automakers to expect high tariffs for cars, that will be produced in Mexico, but later sold in the United States.
American West Texas Intermediate (WTI) last Friday was listed for $53.53 USD, this week oil is selling for $52.37 USD. This registers as a 2.22% decline for the week.
International Brent last Friday went for $56.91 USD. This week oil is being sold for $55.45 USD, a decrease of 2.63%.
U.S. weekly oil inventories were up by 1.5 million barrels for the week.
American priced and Brent crude oil were both up about +45% in 2016.
The Investment Newsletter had 2 target fill to report this week, and 0 early stock target fills.
Kirkland (KIRK), was bought short at $17.31 on 12/19/16. Long Term Target Fill on 01/09/16 at $14.42, a 20.04% return for investors.
Bob Evans (BOBE), was bought short at $53.99 on 12/27/16, Short Term Target Fill at $49.04 on 01/11/17, a 10% return for investors.