REPORT
By Övünç Kutlu
U.S. letter, Jan. 30

What happened last week?

The U.S. President Donald Trump began to rapidly initiate his economy and energy policies during his first week in the White House, by signing executive orders and meeting with business leaders.

Trump received executives from major American companies on Monday morning -- Lockheed Martin, U.S. Steel, Tesla Motors, Dell and Whirlpool. The president said he wants to remove at least 75 percent of regulations on American businesses and substantially lower taxes on the middle-class.

On Tuesday, he met with major automakers General Motors, Ford and Fiat Chrysler, and reiterated his promise to lower corporate taxes in order to accelerate their growth.

During his campaign, Trump also promised that he would withdraw or renegotiate the international trade agreements that the U.S. is a part of, claiming that they are “unfair” for the country.

On Monday, he signed an executive order withdrawing the U.S. from the 12-member Trans-Pacific Partnership (TPP) trade agreement, which took his predecessor President Barack Obama two years to sign. Trump also said that the North American Free Trade Agreement (NAFTA) would be renegotiated.

On Tuesday, Trump signed another executive order allowing the progression of the controversial North Dakota and Keystone XL pipeline projects. For environmental reasons, Obama vetoed the latter three times. The former has been protested for months across the country.

The research and consulting firm Wood Mackenzie said Friday that Trump's energy policies are unlikely to change U.S. crude oil, natural gas and coal production.

"The U.S.' oil and gas renaissance started in the shales a decade ago," Andy Roberts, research director for Global Thermal Coal Markets at Wood Mackenzie, said in a company report. 

"Keeping pace with that oil and gas growth and spurring a rebound in coal production could be challenging, regardless of policy," he added.

Meanwhile, some experts and foreign officials criticize Trump for withdrawing the U.S. from the TPP, and argue that the president’s policy is “protectionist.”

The European Union Trade Commissioner Cecilia Malmstro      m aimed at Trump on Tuesday and said “Those who in the 21st century think that we can become great again by rebuilding borders, reimposing trade barriers and restricting people’s freedom to move, they are doomed to fail.”

However, as Trump’s promises are expected to increase economic growth, the U.S. stock market opened at a record high level on Wednesday, and the indexes closed the day at an all-time highest level. The Dow Jones finished Wednesday at 20,068, the S&P 500 closed at 2,298 and the Nasdaq ended the day at 5,656 – all reaching record levels. The Dow finally broke through the critical threshold of 20,000 points.

On Wednesday, Trump signed another executive order pushing forward his proposal to build a wall between the U.S. and Mexico. Although Trump claimed the wall would cost $8 billion during his campaign, independent studies show otherwise. Nonpartisan Migration Policy Institute estimates the cost to be between $15 and $25 billion, with an annual maintenance cost of $700 million.

After Trump insisted that the cost of the wall would be paid by Mexico Wednesday, a diplomatic crisis emerged between the two countries. Mexican President Enrique Pena Nieto said Thursday he canceled a meeting with Trump that was scheduled for the end of this month. Later Thursday, White House spokesperson Sean Spicer said Trump is planning to put a 20 percent tax on goods that the U.S. imports from Mexico, and the revenue from those taxes will be diverted towards building the controversial wall. After Spicer’s statements, the U.S. stock market fell to negative and ended the day with losses.

Wall Street also focused on major American companies 2016 fourth quarter financial results. Yahoo, Lockheed Martin, Fiat Chrysler, Google and its parent company Alphabet, Intel, Microsoft, and Chevron saw their net income and revenues increase in 2016 fourth quarter. Halliburton, Verizon, AT&T, Ford and Baker Hughes had their income and revenues decline year-over-year.

The U.S.-based global rating agencies Standard & Poor’s (S&P) and Fitch Ratings announced their rating revisions for Turkey on Friday.

S&P kept Turkey's credit rating unchanged on Friday but lowered its outlook to "negative" from "stable."

Turkey's foreign currency credit rating was held steady at "BB", while its local currency credit rating was also preserved at "BB+". The response of the central bank to increasing currency and inflationary pressures in Turkey "may prove insufficient”, the agency said in a statement. Such inflationary and currency pressures could weaken the financial strength of Turkish companies and banks, and undermine economic growth, the agency warned. The agency said domestic banks remain "well regulated and amply capitalized", but warned if assets deteriorate and economic growth becomes weaker than anticipated, S&P would lower Turkey’s credit ratings.

Fitch Ratings lowered Turkey's credit rating to "BB+", from "BBB-" with a stable outlook on Friday.

"Political and security developments have undermined economic performance and institutional independence," Fitch said in a statement.

"High-profile terrorist attacks have continued, damaging consumer confidence and the tourism sector.” 

Although the political environment "may stabilize," security challenges remain, it said. Domestic demand is expected to remain weak in the near term due to political and security conditions, the agency said, and it expects economic growth to average 2.3 percent between 2016 and 2018 -- significantly lower than the 7.1 average growth between 2010 and 2015. The agency warned investment would not recover "unless structural reform is pursued more aggressively than in recent years".

It was a busy week for macroeconomic data in the U.S. as well.

The American economy grew by only 1.9 percent in the fourth quarter of 2016, the Department of Commerce announced Friday. The market expectation was a 2.2 percent growth, while the economy expanded by 3.5 percent in the third quarter of last year.

Existing home sales in the country fell by 2.8 percent in December from the previous month. The market expected existing home sales to fall by 1.1 percent.

New home sales also decreased by 10.4 percent in December to their lowest level in the past 10 months. The market expected new home sales to decline by 0.7 percent.

Crude oil inventories rose by 2.8 million barrels, or 0.6 percent, to 488.3 million barrels for the week ending Jan. 20, according to the U.S.’ Energy Information Administration. While the market expectation for the crude oil stocks was a rise of 2.8 million barrels, crude inventories increased by 2.3 million barrels during the previous week.

The U.S.’ Department of Energy also announced that it will sell some of the country’s strategic petroleum reserves in order to modernize the infrastructure for their storage. Two companies, Shell Trading and Phillips 66, won the bid to buy a total of 6.4 million barrels from strategic reserves. If calculated based on $53 per barrel, the sale is estimated to generate $340 million.

 

What to expect this week?

Investors will continue to closely watch Trump’s moves on the economy and possibly new executive orders. The stock market may reach new record levels if Trump continues to move rapidly in his economic and energy promises.

American companies’ 2016 fourth quarter net incomes and revenues will also closely affect the stock market. Apple and ExxonMobil will announce their financial results on Tuesday. While Facebook will release its earnings on Wednesday, ConocoPhillips and Amazon will announce results on Thursday.

The Federal Reserve will announce its interest rate decision on Wednesday, but it is not expected to make a rate hike.

Nonfarm payrolls for the private sector will be announced Wednesday, and for the public sector on Friday. This data will be for January, and refers to President Obama’s last weeks in the White House. For the first nonfarm data referring to Trump’s first month in office, investors and the market will have to wait until the first week of March. 

30 Jan,2017

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