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. Mr. Trump was inaugurated as the 45th President on the United States on January 20th.
The feeling among investors is that President Trump will begin the roll back on business regulations almost immediately upon assuming office. However, the lack of specifics has kept American indices and the United States dollar (USD) trading in a narrow range.
Eurasia Group, the world’s largest political risk consultancy, says the Trump Presidency will mark the end of a globalized America.
The second major news event occurred at the Davos, Switzerland World Economic Forum. The sentiment is that definitive retreat in globalization, will be detrimental to economic growth in the least developed nations and some emerging markets.
In other investment news is the ongoing 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 3 years.
Officials at the IMF (International Monetary Fund) remain concerned that the protectionist policies being formulated by the new Trump Administration, will have a negative impact impact on the global economy. The supposed retreat in global trade, will negate the gains that are expected from more American stimulus spending.
The IMF has increased the forecast for economic growth in the United States, as a result of the likely outcome that will occur under President Trump. Growth is now projected to be 2.3% in 2017 and 2.5% in 2018.
Open markets and global trade are being blamed by many politicians in the developed world, as the root cause for job losses in manufacturing over the last decade. However, global CEO’s insist it has more to do with increasing automation and the surge in the development of robotics.
The global trade is now projecting a slight economic rebound in 2017. Global GDP (Gross Domestic Product) 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 expect compliance to agreed upon output cuts would be close to 80%, but now may be far lower.
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.
The American dollar is now leveling off. Valuation had surged against the major world currencies and was experiencing a 4th consecutive year of advances. It is still near a 14 year high, due to an upturn in United States manufacturing.
Many financial analysts continue to predict that the American dollar and the Euro will regularly reach parity in 2017. This will be driven by higher interest rates in the United States and lower ones in the Euro-zone. The Euro is now at $1.07 USD.
Equities in emerging markets rebounded in 2016, after 3 years in negative territory.
International Commodity News
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, explained the recent rise in oil prices. OPEC wants to reduce output from their cartel to just 32.5 million barrels a day.
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%.
Speaking in Venezuela, OPEC’s Secretary General insists, that world oil markets will begin to stabilize this year. Doubts still remain among investors, as bountiful supplies of crude remain.
OPEC asserts that to balance oil markets, global supplies need to decline by another 270 million barrels, to reach a five year average.
There has been record crude exports from Iraq and American production is already beginning to rise once again. This week for example, saw the largest upswing in the oil rig count in the United States since 2013.
Crude oil prices are still up over 10% in the last four weeks, on the OPEC output agreement. Oil is ending this week below $54 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 major 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.
Two weeks ago, 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.
Three weeks ago gold was being sold for $1,151.90 USD, two weeks ago the price increased to $1,171.90 USD and last week ended at $1,197.60. This equates to a gain of 3.97% gain for the period. It is no longer in bear territory. The price of gold this week ended at $1211.00, a gain of 1.12% for the week and 5.09% for 2017.
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 two weeks ago. This equated to a drop of 17.97% for the period. Last week silver listed for $16.87, indicating an increase of 2.43%. This week the price is $17.16 USD. This indicates a gain of 1.72% for the week and 4.15% for 2017.
Silver was up about +8% for 2016.
The American dollar remained wobbly this week, since President Donald Trump, has still failed to provide clarity on future fiscal policies. Trump has already stated that at least in the short term, the dollar is overvalued.
This is the first time in more than 50 years, that a new American President, witnessed a rising equity market on their first day in office.
United States Federal Reserve (central bank of the United States) chair Janet Yellen, has stated that her intention is to raise interest rates slowly. This will prevent harm to the slow, but steady economic recovery. Her concern is that too much fiscal stimulus, will bring a return of inflation. This will force a more rapid upward movement in interest rates, which could well lead to a recession.
The concern among the central bank analysts, is that the fiscal and tax plans advocated by the new administration, may provide a economic boost, but that it will be short-lived.
Mr. Trump is expected to sign some 200 executive orders, within days of his inauguration. These will impact government actions in climate policy, energy, healthcare, immigration and numerous other components.
President Trump is pledging to provide access to health care insurance for all citizens, as his administration moves to repeal and replace Obama Care.
The Trump stimulus may well boost demand for skilled workers, in already tightening labor markets. This will increase pressure for higher wages, which can lead to increased inflation. This will force the Fed to nudge up interest rates more quickly, causing the economy to tip into recession.
The number of Americans filing for unemployment benefits unexpectedly fell last week, to a near 43 year low, as the domestic labor markets continues to tighten.
Home-building in the United States rebounded more than expected in December, as a strengthening economy boosted demand for rental housing.
Consumer prices in the United States surged higher in December at 2.5%, with the largest gains seen in energy and rental housing. It was the largest year to year increase in 30 months and may well be signaling the return of domestic inflation.
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.
The 10 year U.S. Treasury yield is now at 2.5% from 2.35% last week.
American based companies now must contend with the additional burden and risk of being labeled anti-American by incoming President Trump.
The niece of former governor and Presidential candidate Mitt Romney, will replace Reince Priebus as the head of the RNC (Republican National Committee).
All 4 market exchanges in the United States (U.S.) are flat this week. The Dow Jones Industrial Averages has remained between 19,800 and 19,900. This is from near 18,000 from little more than two month and a half months ago. The Dow, the Standard & Poor 500,the NASDAQ and the Russell 2000 composites all reached new life time highs just two weeks ago.
The highs on Friday were 19,843.94 from 19,999.63 for the Dow last week, 2,276.96 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 5,574.35 and the Russell 2000 Index for firms with smaller capitalization, was at 1,355.96
From last weeks high, the Dow is down -0.3%, the S&P 500 is down -0.23%, the NASDAQ is down -0.32% and the Russell 2000 is down -1.72%.
The ECB (European Central Bank) announced this week, that it will maintain the ultra loose monetary policy, even as economic growth is expected to pick up in 2017. Germany, the leading economy in the Euro-zone, would like the central bank to curtail these easy monetary policies.
In the United Kingdom, Prime Minister May says her country will step up to a new leadership role, as the strongest and most forceful advocate for free markets.
Prime Minister May still insists however, that the United Kingdom will still be leaving the European Union single market, in what has been termed a hard Brexit. Her view is the British people have already spoken, that they wish a return to full national sovereignty.
Germany’s GDP grew by 1.9% in 2016, which was above the projected growth rate. It is expanding at 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.
The Italian Economic Minister is holding to the claim that the support of the European Stability Mechanism (Euro-zone bailout fund), will not be needed to help Italy’s troubled banks.
Global shipping insurers are now finding ways to ensure nearly full insurance coverage for exports of crude from Iran, without using American re-insurers.
Both the United States and regional neighbors of North Korea, remain concerned about the nuclearization of the Korean peninsula. There is evidence that the country is preparing a long range missile test soon. It is an upgraded prototype of an ICBM (Intercontinental Ballistic Missile). It will be the first major challenge to the new American President in Northeast Asia.
President Xi Jinping of China spoke in defense of free trade at the World Economic Forum in Davos. He is calling for China to have a far greater role in the present global order.
China’s retail sales are up 10.9%, industrial production has risen 6% and fixed asset investment has increased 8.1%.
Higher government spending and record bank lending, helped the Chinese economy to grow by 6.8% in the 4th quarter of 2016.
Chinese GDP expanded 6.7% in 2016, the slowest pace of growth since 1990.
China is still 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.
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 earlier this month.
Argentina sold $7 billion USD this week in 5 and 10 year bonds. The goal of the Macri government is to sell a total of $10 billion USD in 2017.
The depreciation of the Mexican 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.
The Mexican peso has declined in valuation by 20%, since the election of Donald Trump and remains the worst performing major currency for 2016.
American West Texas Intermediate (WTI) two weeks ago was listed for $53.53 USD, last week oil is selling for $52.37 USD. This registered as a 2.22% decline for the period. This week oil ended at $53.22 an increase in price of 1.62%. Oil is up 0.6% for 2017.
International Brent two weeks ago went for $56.91 USD. Last week oil is being sold for $55.45 USD, a decrease of 2.63%. This week crude is selling for $55.49 a negligible change.
U.S. weekly oil inventories were up by 2.3 million barrels for the week.
American priced and Brent crude oil were both up about +45% in 2016.
The Investment Newsletter had 1 target fill to report this week, and 0 early stock target fills.
Kirkland (KIRK), was bought short at $17.31 on 12/19/16. Longest Term Target Fill on 01/18/16 at $13.84, a 25.07% return for investors.