A Week to Remember

January 27, 2017

It’s been a memorable first week of the Trump presidency. He will be meeting today with British Prime Minister Theresa May, who hopes to make giant strides in securing a bilateral trade accord between the two countries. Mexican President Nieto cancelled his trip to Washington amid mounting tensions over immigration, trade, and who pays for the wall. Putin and Trump plan a phone conference tomorrow. There’s been no apparent progress among Republican lawmakers toward a repeal and replace plan on the Affordable Health Care law. Bold initiatives have been undertaken on social policy and to roll back EPA restrictions. U.S. stock prices hit record highs, with the Dow crossing 20K and the S&P penetrating through the 2300 level. One week is completed, 207 remain — a long time for so frenetic a pace.

The dollar advanced overnight by 0.4% against the yen, 0.2% versus sterling, and almost 1% against the Turkish lira. But the greenback also fell 0.3% against the kiwi, 0.2% relative to the euro and Aussie dollar, and 0.1% vis-a-vis the loonie and Aussie dollar.

The ten-year JGB yield, which the BOJ is targeting at around zero, remains elevated at 0.07% after touching 0.085% yesterday. The central bank board meets early next week in a scheduled policy review that will unveil revised forecasts.

Gold and oil sank 0.6% and 0.7% to $1,183.30 per ounce and $53.38 per barrel.

Many Asian stock markets were closed for the start of the Chinese Lunar New Year holiday. Japan’s Nikkei rose 0.3%, while equities in Australia and India gained 0.8% and 0.6%. But the direction in European bourses has been down, with losses so far of 2.8% in Greece, 0.6% in Italy, Spain and France, 0.4% in Switzerland and 0.2% in Germany. The British Ftse is flat.

Japanese CPI inflation remains lackluster. Core, which excludes fresh food and is targeted at 2.0%, posted an average drop in 2016 of 0.3%, the most deflation since 2011, and the December-over-December change was -0.2% despite a month-on-month energy price rise of 1.3%. Tokyo core consumer prices fell by 0.3% in the year to January.

A number of European countries reported sentiment indices:

  • Finnish consumer confidence climbed 1.5 points to a reading of 21.0 in January, most since¬†February 2011. Manufacturing confidence reached its best level in Finland since June of that year.
  • French consumer confidence in January rose to its long-term average for the first time since late 2007, but business sentiment in France settled back to a reading of 104¬†after spiking upward by 3 points to 105 in December.
  • Economic sentiment in Italy increased 2.3 points to a score of 102.5 in January, but consumer sentiment dropped 2.1 points to 108.8.
  • Swedish consumer confidence improved 1.6 points to 104.6 in January. However, manufacturing sector sentiment and the overall economic tendency index slid during the month.

Australian producer prices last quarter were 0.5% higher than in 3Q and 0.7% above their year-earlier level. That on-year pace was up from 0.5% in the third quarter but still well below 1.9% registered in the final quarter of 2015. In 4Q16, import prices fell 0.6% on quarter and 3.6% on year.

German import prices leaped 1.9% in the final month of 2016, producing the greatest on-year rise, 3.5%, since February 2013. As recently as July, import prices had been 3.8% below their year-earlier level, and the average 3.1% drop in full-2016 constituted a 7-year low. German export prices rose 0.4% in December and 1.1% from a year earlier.

M3 money in the euro area was 5.0% higher than a year earlier in December. There was a 4.8% increase between the final quarters of 2015 and 2016, down from a 5.0% increase in the previous year to 4Q15. One bright spot was an accelerated 2.3% on-year rise in bank lending to non-financial firms from 2.1% in both October and November and 0.3% in the year to December of 2015.

Swedish retail sales rose 0.6% on month and 0.9% on year in December versus a 3.3% average advance in calendar 2016. Finnish retail sales fell 0.6% in December.

The first estimate of U.S. fourth-quarter real GDP growth, just 1.9% at a seasonally adjusted annualized rate from 3Q, came in a bit below expectations and well below the 3.5% pace in the third quarter. That was the fourth sub-2.0% growth rate in the last five quarters and resulted in a 1.6% average growth rate for 2016, which was down from 2.6% in 2015 and 2.4% in 2014. Net exports exerted a 1.7 percentage point drag on the fourth-quarter growth rate. President Trump has made an improved trade balance a top economic policy goal of his administration.

U.S. durable goods orders sank 0.4% in December. After having plunged 4.8% in November, investors were anticipating a good-sized rebound.

Still to come: the Reuters/U. Michigan consumer sentiment index.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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