The major news for the week, was the ongoing rally in the global equity markets including the United States, following the news of a Donald Trump victory in the U.S. presidential elections. The main indices in the United States and in Germany hit new highs. The Dow peaked at just below 19,000, a new all time high. The German Dax reached a new high for the year, just below 11,000.
Meanwhile, it has been estimated that more than $1 trillion USD (United States Dollar) in valuation of global bonds, was wiped out following the election of Donald Trump to the presidency of the United States. It has been the worst decline in more than a year and a half.
Some analysts have determined that the Trump victory will now end, the more than 30 year bull run in bonds. Investors will henceforth favor stocks over bonds.
The concern among global investors remains that major central banks will hit the brakes on any further stimulus.
Some officials at the European Central Bank (ECB), are already suggesting the present stimulus efforts should be rolled back. They do acknowledge given the high volume of bonds and assets now being purchased, it will require a gradual winding down to maintain financial stability.
The global rout in the bond market continued this week. There is a full 35 out of 134 sovereign bonds, that currently have a negative rate. At 26% it is the largest proportion since late 2012.
The international credit rating agency Moody’s, has given a negative rating for global sovereign bonds going into 2018. The evaluation is based on expectations of low global economic growth and the over hang of high public sector debt.
Japan’s Prime Minister Shinzo Abe after meeting with President-elect Trump identifies him as a trustworthy leader.
The Chinese yuan slightly recovered from an 8 year low in valuation against USD.
The International Energy Agency (IEA) expects global oil consumption to peak around 2040. The agency leaves long term forecasts for world crude supplies and demand unchanged.
Despite the repeated agreements to freeze or reduce crude production within OPEC (Organization of the Petroleum Exporting Countries) output is still continuing to rise.
Iraq will have to pay compensation, to international oil companies for any limits placed by an OPEC deal on output cuts. This lessens the likelihood of a cartel wide production limit.
In related news the United States government is about to lift a more than 40 year ban on exports of American crude. Steps are being taken to permit the sales ultralight shale oil.
Crude oil prices spiked this week on the belief among investors, that an output agreement would be possible. Yet, oil remains below $46 USD again in the United States and below $47 USD in Asia and Europe.
Final levels of crude production for individual countries,are to be worked at the meeting of OPEC in Vienna, Austria at the end of the month. If an agreement is made, it will be the first time the cartel has been able to agree to output cuts since the financial crisis in 2008.
Another ongoing event is the drop in precious metals over the last few weeks. Gold had been slowly dipping in price, since reaching a high of $1,370.80 USD in August. A major set back took place a 7 weeks ago. The price dropped to $1256.90 from $1326.00, a decrease of $69.10 USD (5.50%) It was a drop of 9.06% from the recent high.
Last week gold was listed for $1221.40 from $1302.70 USD a decrease of 16.17%. Gold prices in 2016, are still up +14% in 2016. Today gold is being sold for $1209.20, an additional drop of of 1.01%.
The price for silver decreased to $16.56 USD from $19.43 USD over the past 7 weeks, a $2.87 USD dip which is an 17.33% decline for the period.
Silver is still up near 15% for the year.
Global trade is experiencing the weakest rate of growth since 2007.
Protectionist policies are on the rise and progress on two leading trade treaties have stalled. Political support for the TPPA and the Trans-Atlantic Trade and Investment Partnership (TTIP) is declining in both Europe and the United States. These trends are ominous signs for world equity and bond markets.
Manufacturing output in the United States was up for the second consecutive month in October. This was due to a rise in motor vehicles and a range of other goods, good news for a relatively sluggish domestic economy.
Retail sales were up an unexpectedly 0.8% in October.
The 10 year Treasury yields are at their highest rate this year at 2.3%.
U.S. bond yields set for biggest 2 week rise in 15 years. They are now at near 14 year records, as investors calculate that inflation and interest rates are heading higher.
All 3 market exchanges in the United States (U.S.) saw a slight rise for the week. The Dow Jones Industrial Averages is now near 18,900 from 18,000 two weeks ago. The Standard & Poor 500 and the NASDAQ composite had similar results with the latter hitting another life time high of 5,346.80
Year to date, the major indexes have advanced the following. The Dow Jones Industrial Averages is up about 10%, the Standard & Poor 500 has increased about 8% and the tech heavy NASDAQ has advanced about 6%.
There now has been five business quarters of declining corporate revenues and profits.
The United States Security and Exchange Commission (SEC) has finally approved a plan, that will introduce a vast surveillance system, that will oversee trading on the huge $23 trillion USD U.S. stock market.
A U.S. congressional panel has recommended that law makers should ban China’s state owned firms form acquiring American owned companies.
Another issue facing the incoming Trump Administration is the future insolvency of Social Security, the American retirement program. By 2034, the ratio of workers supporting the program will decline from 3:1 now to 2:1 then. Without reforms, the system will go bankrupt.
There are expectations that U.S. shale production will fall in December, to its lowest level since April 2014. Output for the month is estimated to fall to 4.5 million barrels a day.
In related news, a huge new formation was discovered in West Texas. It is the largest unconventional oil find ever. Known as the Wolf camp, it is said to contain at least 20 billion barrels of shale oil. It is 3 times larger than the Bakken field and is said to be worth $900 billion USD.
In South Africa, police report an investigation into alleged links between the country’s security minister and a Chinese rhino horn smuggler.
The army commander in Zimbabwe says the military will have no role in the succession of President Robert Mugabe who is 92 years old. Tensions are rising within the ruling party, as a political era draws to a close.
European Union foreign ministers have pledged to work with the incoming Trump Administration. However, they are standing by the nuclear deal with Iran and the Paris climate change deal negotiated on a world wide basis. They are also maintaining sanctions on Russia, as a result of the annexation of Crimea and the ongoing support of Russia for insurgents in Eastern Ukraine.
GDP growth was 0.3% in the Euro-zone at large in Quarter 3 at an 1.6% annual basis. The bloc expects growth at 1.7% for 2016 and 1.5% in 2017. Economic growth was 2% in 2015.
ECB head Mario Draghi, will extend the 1.7 trillion Euro ($1.8 billion USD) bond purchasing program next month. However, he is warning political leaders that the Euro-zone economy is too reliant on central bank stimulus. He also has stated there are many risks to stability of the European economy as a whole.
The European Commission is warning that 6 nations may well break European Union rules on keeping the primary budget deficit to 3% of GDP or lower. These are the nations of Belgium, Cyprus, Finland, Italy, Lithuania and Slovenia.
Bulgaria faces even more political uncertainty over the resignation of the Prime Minister. Polls indicate that the ruling party will now lose in the country’s presidential runoff.
In Italy, Prime Minister Matteo Renzi may need to resign after the December 04th referendum. He has staked his political future on constitutional reforms, that will reduce the power of the Senate and regional governments. Polls now show he will lose this vote.
The structural deficit of Italy has risen every year since 2014. It is expected to finish at 1.6% of GDP in 2016 and is projected to increase to 2.2% in 2017 and 2.4% in 2018.
The United Kingdom’s pound sterling stabilized in value, at a two month high against the Euro. This followed the release of data that showed an October surge in retails sales. The level is at the highest point in more than 14 years.
Also in the United Kingdom, inflation slowed unexpectedly in October to 0.9% on year. Prices were lower for clothing and university tuition fees.
The German central bank insists banks are solid inside the country, but are troubled by low profits. An additional concern, is the underestimating of the risk involved with the falling prices of assets.
Greece is warning Germany and other creditors that there is a pressing need, to agree on a debt restructuring plan. If the effort fails, the best chance to end a 7 year old financial crisis will have been missed.
Investigators in Russia have detained Economic Minister Ulyukayev in a bribery case, involving the equivalent of a $5 billion USD acquisition by the state oil giant Rosneft.
Regulators in Russia have ordered Internet providers to block access to the website of the social networking company LinkedIn.
In Colombia the government and the FARC rebels agree on a new peace pact that will end the 52 year insurgency. It is the longest one in Latin American history. The latest agreement comes just 6 weeks after the original deal. was narrowly rejected by voters in a referendum.
The Mexican central bank had developed a contingency plan in case of a Donald Trump victory in the U.S. elections. Financial authorities were expecting financial and economic repercussions, from a Trump Administration.
They were not disappointed. The Mexican peso plunged 13%, following the U.S. election, to life time lows.
The Mexican central bank originally resisted intervening in support of their currency. After a record low valuation in the value of the peso, there was support for a 50 basis point increase in interest rates. The rate is now at 5.25%, the highest level in more than 7 years.
In Brazil, protesters demanding a military coup forced their way into the country’s lower chamber of Congress.
Rising crude production in Libya, could cap global oil price gains. Output has doubled to around 600,000 barrels a day in recent weeks.
Prime Minster Narendra Modi of India took existing the 500 & 1000 rupee notes out of circulation in an effort to curb corruption last week. The results have been mixed as the government was not fully prepared for the consequences. The period of financial adjustment has now been extended from 50 days to 4 months.
In Japan, GDP grew at an annualized 2.2% which was ahead of expectations. Exports have mostly recovered, but there is still weak domestic consumer demand.
The Bank of Japan, went on the defensive this week. They formulated a policy where they will ratchet up the purchase of government bonds. This was in response to rising yields on U.S. treasury bonds.
Inflation in Japan may pick up more quickly than projected, if the Japanese yen remains at 110 versus USD for a few months.
The Philippines were the fastest growing economy in Asia last quarter at 7.1%. It will allow the GDP to expand 6% to 7% for the year.
The positive economic news for the Philippines, was an early boost for the new President Rodrigo Duterte. He has attempted to court investors and calm business fears, concerning his recent diplomatic tilt away from the United States and towards China.
The Philippines has also threatened to leave the ICC, in response to Western criticism of its efforts fighting the drug trade and insurgents.
A 7.8 rated earthquake hit central New Zealand this week. There were a number of causalities along with damaged buildings and roads. The country is still experiencing hundreds of strong aftershocks.
The President of China Xi Jinping has already told President-elect Trump, that further cooperation is the only real choice in the vital relationship that binds the two largest global economies.
In China, economic data shows retail sales increased 10% from the previous month. Industrial output expanded 6.1% which remained below expectations.
American West Texas Intermediate (WTI) has decreased in price from $49.39 USD three weeks ago to $43.91 USD two weeks ago, a decline of 12.48%. Last week, the price dipped to $43.17 International Brent during the same period went from $50.18 three weeks ago, to $45.45 USD two weeks ago. This was an overall decline in price of 10.41%. Last week, the price dipped further to $44.55 USD.
This week WTI came in at $45.16 USD and Brent at $46.35 USD. This was an increase of 4.61% and 4.04% respectively.
American priced and Brent crude oil are both up about +24% in 2016.
The Investment Newsletter had 4 target fills to report this week, and 0 early stock target fills.
Old Dominion $ODFL, bought long on 11/14/14 for $76.99. Medium Term Target Fill on 11/14/16 at $85.25, a 9.11% return for investors.
Netflix $NFLX,bought short at $127.56 on 10/24/16, Medium Term Target Fill on 11/14/16 at $110.92, a 15% return for investors.
Old Dominion $ODFL bought long on 11/14/14 for $76.99. Long Term Target Fill on 11/17/16 at $86.00, a 11.70% return for investors.
Noodles & Companies $NDLS bought short at 11/14 /16 for $4.59. Short Term Target Fill on 11/18/16 at $4.17, a 10.07% return for investors.