By Övünç Kutlu
U.S. letter, week beginning Nov. 7


What happened last week?

Last week, the most important development in the American economy was the losses in Wall Street. The S&P 500 Index stretched its losing streak to nine consecutive days – the longest since December 1980 and the U.S. stock market extended its losing streak to six consecutive days. The losses are attributed to the political uncertainty of the upcoming U.S. presidential elections this Tuesday, and also to the disappointing macroeconomic data in the country, according to analysts. The Dow Jones lost 1.5 percent last week, while the S&P decreased 1.9 percent and the Nasdaq declined 2.8 percent.

The most important macroeconomic data last week was the non-farm payrolls in October, which was also closely watched by the Federal Reserve. The American economy added 161,000 jobs in October, below market expectations of 173,000. The unemployment rate, however, fell to 4.9 percent from 5 percent.

Despite the weak jobs data, Fed Vice President Stanley Fischer said Friday that he thinks the jobs market is close to full employment and has been strong against shocks.

As expected, the Fed kept its benchmark interest rate unchanged Wednesday after the conclusion of its two-day November meeting. This is the seventh time this year the Central Bank did not make a rate hike. The bank pointed to the strengthening job market and the inflation rate closing to its 2 percent target, but did not provide any signal whether it would make a rate hike at its last meeting this year in December.

Oil prices, meanwhile, fell around 10 percent last week, after the record build up in the U.S.’ crude oil inventories. Investors also perceive a reduced likelihood of OPEC’s plan to limit member states’ quotas being realized.

Crude oil inventories in the U.S. rose by 14.4 million barrels, or by 3.1 percent, marking the highest weekly increase since 1982, according to the country’s Energy Information Administration. This heightened worries of a glut of supply in the global market and pushed prices down.

After Iran, Libya and Nigeria had asked to be exempt from OPEC’s deal, due to previous sanctions and internal strife limiting their individual outputs, Iraq also requested an exemption from any possible agreement due to its ongoing fighting against Daesh militants.

With too much internal conflict within the cartel, the plan’s successful adoption and implementation seem less likely, according to experts.

Global investment bank Goldman Sachs also warned last week that oil prices could fall as low as $40 per barrel if OPEC’s deal does not succeed.

An important development for Turkey last week was the global credit rating agency Standard & Poor’s revising up of Turkey’s credit outlook to ‘stable’ from ‘negative’. The agency kept Turkey’s foreign currency rating at “BB” and its local currency rating at “BB+” but underlined the resilience of the Turkish economy against regional and domestic risks. 


What to expect this week?

The most important event that will be watched all around the world is the U.S. presidential elections on Tuesday.

But how will the next president lead the biggest economy in the world?

Democratic candidate Hillary Clinton is expected to have a more middle class focus, while Republican candidate Donald Trump argues that more radical changes should be made in the U.S. economy to “make America great again.”

Clinton supports a more “just” tax policy where the rich should pay more taxes. She believes that people with annual income of $5 million should pay taxes at the rate of 43.6 percent, instead of the current 39.6 percent. She also proposes that American companies that move overseas should pay an “exit tax.” The former first-lady wants to spend the extra income from taxes on investments in infrastructure, education, and clean energy. She also believes that her economic policies would create 10.4 million new jobs in the next 10 years.

Donald Trump, on the other hand, argues that lowering tax rates would revive the American economy. He wants to lower corporate tax by 15 percent, from the existing 35 percent to prevent American companies moving oversees and argues that this would incentivize those overseas to return home.

Clinton’s tax policies are said to increase government income $1.1 trillion in the next decade, while Trump’s tax reforms will cause a $9.6 trillion loss in government income during the same period, according to the recent joint report from Washington-based think tanks, Brookings and Urban Institute.

Former Secretary of State Clinton supports trade agreements that would provide job opportunities and higher wages. Trump, however, is against trade deals and says he might cancel all the U.S.’ trade agreements.

While Clinton defends preserving financial regulations, Trump argues that overregulation costs the country more than $2 trillion every year.

This week, the market and investors will also closely watch Fed officials’ statements to access whether the bank will decide a rate hike at its December meeting.

In the oil markets, investors will follow the change in the U.S.’ weekly crude oil inventories on Wednesday, the International Energy Agency’s monthly report on Thursday, and OPEC’s monthly oil market report on Friday. 

07 Nov,2016