By Gülbin Yıldırım
U.S. letter, Feb. 6

- Fed leaves policy rate unchanged

The Federal Open Market Committee (FOMC) meeting and the January employment report were the major developments last week.

The FOMC members unanimously agreed to keep the benchmark rate steady between 0.50 percent and 0.75 percent at their first meeting of the year.

Following the two-day meeting, the FOMC announcement noted that consumer and business confidence in the country have recently improved while the near term risks remained “roughly balanced.”

However, the statement disappointed those investors looking for signals on the FOMC’s next meeting on March 14-15.


- Good payroll gain, bad details

According to the U.S. Department of Labor’s January employment report, non-farm payrolls grew 227K during the first month of the year, the highest in the last four months whereas the market expectation for job gains was about 175K.

On the other hand, the unemployment rate in the country increased to 4.8 percent in January from 4.7 percent the previous month. The increase in the unemployment rate, which was expected to remain constant at 4.7 percent, reflected an increase in the participation rate from 62.7 percent to 62.9 percent. The average hourly earnings, which are carefully watched by the Fed, went up by 0.1 percent, not meeting expectations of a 0.3 percent rise.

Personal income and outlays were also among the important data of the week. Personal expenditures continued its rise for a tenth month with an increase of 0.5 percent last December. Personal income rose by 0.3 percent in the same period, slightly below the expectation.

Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation indicator, rose 0.2 percent month-on-month in December, as expected. The annual PCE price index was slightly lower than expected at 1.6 percent. The core PCE price index for the same period was 0.1 percent monthly and 1.7 percent annualized.

According to the ISM Manufacturing Index, a rise of 56 was seen in January, continuing its rise for a fifth month and reaching its highest level in more than two years. However, non-manufacturing ISM index fell to 56.5 in January.


- Trump dismantles Obama's financial legacy

U.S. President Donald Trump brought other important developments of the week through his executive orders.

Trump signed an executive order to ease financial regulations put by his predecessor Barack Obama following the 2008-2009 financial crisis. Trump also rescinded regulations that required financial advisors to act in the interests of their customers.

The U.S. Congress, which has a Republican majority, also worked to erase Obama's political heritage.

On Friday, Congress passed a bill to rescind a 2010 rule brought by the Obama administration that required U.S. energy and mining companies to disclose payments made to foreign governments.

Democrats argue that eliminating the rule would open the way for big energy companies to make questionable deals with foreign countries.


- Dollar falls with comments from Navarro

In addition to Trump's executive order, remarks from his economic team influenced the markets.

Peter Navarro, Trump's director of the White House National Trade Council, suggested that the under-valued euro allows Germany to take advantage of other European countries and the United States.

"A big obstacle to viewing Transatlantic Trade and Investment Partnership (TTIP) as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the U.S. with an 'implicit Deutsche Mark' that is grossly undervalued," Navarro said in an exclusive interview with the Financial Times.

The EUR-USD parity, which completed Monday at around 1.0690, jumped over 1.08, following Navarro's comments. The euro closed the week at 1.0780 against the dollar, maintaining most of its gains.


First step to loosen sanctions on Russia

Other big news last week was a decision by Trump’s administration to ease restrictions against the Russian Federal Security Service (FSB), allowing some cyber-security transactions with the agency that was accused of meddling in U.S. elections last November.

The Treasury Department published a license that authorizes certain transactions between U.S. companies and the FSB, for the importation, distribution or use of “certain information technology products in the Russian Federation.” Such transactions had been prohibited under Obama administration sanctions imposed on Russia in late December.

Trump denied Thursday that he had eased sanctions on Russia.

"I haven't eased anything," Trump said.

A top State Department official said the move was made as a technical fix to the sanctions that were put in place to avoid "unintended consequences" of U.S. government business with Russia.

During his daily press briefing, White House press secretary Sean Spicer said that the move is a “fairly common practice” in which the Treasury Department looks for “specific carve-outs” for certain industries after sanctions are put in place. He said it is a “regular course of action that the Treasury does quite often.” 

Nevertheless, some Russian officials and media agencies applauded the move as signaling a thaw in relations with Washington. 

- New week

The economic agenda for the week of Feb. 6 to10 seems to be weaker than last week's busy agenda. The data flow will be relatively slow, and the headlines are likely to be come out of Fed official statements and the new economic administration.

06 Feb,2017