REPORT
By Ovunc Kutlu & Gulbin Yildirim
U.S. letter, week beginning Jan. 16

What happened last week?

The most important development last week in the U.S. was President-elect Donald Trump’s press conference on Wednesday.

In his first speech to the American media in six months, Trump turned to his lawyer, Sheri Dillon, to outline how he would deal with his multi-billion dollar organization once he assumes office on Jan. 20. Dillon said the Trump organization would not pursue foreign deals, but would continue to seek new ventures domestically. These will have to be vetted with an ethics advisor, Dillon said.

Trump will have no ties to his sprawling organization once he takes office. It will be run instead by his sons, Don and Eric, and Trump executive Allen Weisselberg while any business assets that Trump owns will be placed in a trust. 

Referring to ExxonMobil CEO Rex Tillerson's appointment as Secretary of State in his Cabinet, the president-elect emphasized that he preferred bringing in individuals with business backgrounds to the new government in order to improve the U.S.' international bargaining prowess. 

"We need smart and successful people to make good trade deals. We don't make good deals any more. We lose hundreds and billions of dollars to China, Japan and Mexico," he said. 

Trump reiterated his stance about bringing jobs, investment and manufacturing back to the U.S., and stressed that producers who relocate abroad would have to pay higher import tariffs to bring their goods to U.S. shores.

"You can move from South Carolina to Michigan. It is still competitive. I don't care as long as it is among the borders of the U.S.," he said.

However, Trump’s proposed plan to impose border tax on Mexico, and his lack of sharing details of other economic plans were not perceived well by investors and the market. The U.S. stock market posted losses on Thursday and Friday, while the American dollar declined around 1 percent against advanced economies’ currencies over these past two days.

On a weekly basis, the Dow Jones and the S&P 500 decreased 0.4 percent and 0.1 percent, respectively.

Since winning the presidential election on Nov. 8, Wall Street and the American dollar posted massive gains. But, with losses on Thursday and Friday, the so-called “Trump-rally” might be over, according to some experts.

Now, the market and investors will focus on Trump’s first 100 days in the White House, and see how quickly he can fulfill his promises.

During his campaign, Trump proposed increasing infrastructure spending in the U.S., making cuts in corporate taxes, and introducing deregulation in the financial and energy sectors.

If Trump’s promises are not implemented quickly, or the American economy does not see much growth in the first quarter of the year in response to his policies, the stock market and the U.S. dollar may post massive losses in April, according to analysts.

Last week, the quarterly results season also kicked off. Major American companies began announcing their net income and revenues for 2016’s fourth quarter.

American investment banking giants JP Morgan Chase and Bank of America saw their net income and revenues increase in the fourth quarter of last year, while Wells Fargo net income declined and revenue remained unchanged year-over-year, according to the banks’ figures revealed on Friday.

A number of the U.S. Federal Reserve officials also made statements last week about the Central Bank’s number of rate hikes this year.

Boston Fed President Eric Rosengren said economic improvements in the U.S. would allow gradual rate hikes this year, and Philadelphia Fed President Patrick Harker stated that there could be three rate rises in 2017 if the economy progresses as expected. St. Louis Fed President James Bullard, however, said interest rates should remain low for a while, and the Fed should be patient, adding a single rate hike this year would be appropriate.

Macroeconomic data last week were generally positive.

Consumer credit for November 2016 rose $24.5 billion, beating the market expectation of $18.5 billion, and marking the highest increase in the last three months. The increase in credits shows improvement in the American economy, of which 70 percent is based on consumer spending, experts said.

Wholesale inventories rose 1 percent in November 2016, marking the strongest monthly gain in the past two years.

Producers’ Price Index increased 0.3 percent in December 2016, in line with market expectations.

 

- What to expect this week?

The most important event the markets will watch this week is Donald Trump’s inauguration on Friday and his speech afterwards.

Trump is expected to talk about a variety of topics, but his statements about the economy and his plans will be watched carefully by investors.

Major American companies will continue to announce their 2016 fourth quarter earnings, which is expected to affect the stock market and the direction of their own share prices.

Investment banking giant Morgan Stanley will announce its net income and revenue on Tuesday, while Citigroup and Goldman Sachs earnings will come out on Wednesday.

North America’s biggest energy infrastructure company Kinder Morgan, and media provider Netflix earnings will be released on Wednesday and computer giant IBM will announce earnings on Thursday.

The stock market, private companies and government offices will be closed on Monday due to observing Martin Luther King Jr. Day.

A number of Fed officials will make statements this week, which will be closely watched by investors to get indicators about the number of rate hikes the Fed will likely make this year.

New York Fed President William Dudley, Fed Governor Lael Brainard, San Francisco Fed President John Williams, Dallas Fed President Rob Kaplan, Minneapolis Fed President Neel Kashkari will speak on Tuesday. Fed President Janet Yellen will speak on both Wednesday and Thursday.

It will be a lively week for macroeconomic data.

Consumers’ Price Index for December, which the Fed watches closely for its 2 percent inflation target, will be announced on Wednesday. The Fed’s Beige Book, which explains the bank’s view on the outlook of American economy, will be revealed on Wednesday.

The U.S. weekly crude oil and gasoline inventories will be announced on Thursday.

Donald Trump’s inauguration and speech will come on Friday at 17.00 GMT.

 

16 Jan,2017

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