By Övünç Kutlu
U.S. letter, March 6

What happened last week?

The most important developments in the American economy last week were the U.S. President Donald Trump’s speech to a joint session at the U.S. Congress. This is set to have a positive impact on the stock market, while the Federal Reserve officials’ signal in favour of raising interest rates this month are also significant.

In his speech to the Congress on Tuesday, Trump reiterated his economic plans of increasing infrastructure spending, decreasing regulations on finance and energy, and lowering taxes on corporations and the middle-class.

Trump’s speech, unfortunately, failed to shed much light on how he would accomplish these plans.

Although Trump did not provide many details about realizing his economic goals, his tone during his congressional speech was regarded as more positive, compared to that during his election campaign, experts concur.

With a positive tone and focus on lowering corporate taxes, investors took a buying position in the U.S. stock market, and Wall Street shattered many records on Wednesday as a result.

The S&P 500 reached 2,400 points and the Nasdaq climbed above 5,900 points – both a first in the indexes’ history. The Dow Jones Index passed 21,000 points, which was also a first. It also took the Dow only 24 trading days to reach 21,000 points, from 20,000 points. This was last seen on May 1999 when the Dow climbed 1,000 points, again in 24 trading days.

Since Trump’s election, the Dow rose 15.5 percent, the S&P increased 12.2 percent and the Nasdaq jumped 13.8 percent between Nov.8 and March 1, according to data compiled by Anadolu Agency.

The Wednesday rally in Wall Street ended after the Fed officials signalled a stronger possibility of a rate hike this month.

Dallas Fed President Robert Kaplan, New York Fed President William Dudley, San Francisco Fed President John Williams and Fed Board of Governors member Lael Brainard all spoke of the increased likelihood that the central bank would increase its benchmark interest rate at the conclusion of its two-day meeting on March 15.

But, the most important signals came from the Fed’s no.1 and no.2 officials on Friday.

Fed Vice Chair Stanley Fischer said that recent macroeconomic data has been positive, adding, “There is almost no economic indicator that has come in badly in the last three months.” He said that he would support a rate hike decision if the Federal Open Market Committee (FOMC) members would also consider this.

Fed Chair Janet Yellen also said Friday that the bank is likely to raise its benchmark interest rate this month.

"We currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect," she said in an address in Chicago.

"At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," she added.


- Some of the important macroeconomic data last week were as follows: -

Durable goods orders rose $4 billion, or 1.8 percent, in January, from the previous month, and marked the first monthly increase in the past three months.

Pending home sales fell 2.8 percent in January to the lowest level since January 2016.

The American economy grew 1.9 percent in the fourth quarter last year.

Consumer confidence rose to 114.8 in February – its highest level since July 2001 when it was 116.3.

Personal spending increased 0.2 percent in January, while personal income rose 0.4 percent – both extended their gains for the eleventh consecutive month.

ISM Manufacturing PMI rose to 57.7 percent in February – its highest level since August 2014.

ISM Non-Manufacturing PMI increased to 57.6 percent in February – its highest level since October 2015.

On the energy front, former Texas Gov. Rick Perry was confirmed Thursday to lead the U.S. Energy Department. He bashed global warming in 2011 and argued it served scientists who are manipulating data for financial gains. He also proposed the elimination of the Energy Department in 2012.


What to expect from this week?

Investors will continue to closely watch Trump’s moves on the economy and speeches from Fed officials this week. The stock market may reach new record levels if Trump continues to move rapidly in his economic and energy promises.

On Monday, factory orders for January will be announced, and trade balance for January will be revealed on Tuesday.

On Wednesday, ADP nonfarm employment, and weekly change in the U.S.’ crude oil and gasoline inventories will be released.

All eyes will be on Friday’s non-farm payrolls and unemployment rate data.

Non-farm payrolls rose 227,000 in January and it is expected to increase by 190,000 for February. The unemployment rate, which was 4.8 percent in January, is anticipated to fall to 4.7 percent for February.

On the energy front, the IHS CERAWeek 2017 energy conference will take place in Houston, Texas from Monday through Friday.

Oil and energy ministers from OPEC and non-OPEC countries will participate and take the podium in the conference until Friday to shed light on their position and world energy markets in general.

The International Energy Agency (IEA) Executive Director Dr. Fatih Birol, OPEC Secretary General Mohammad Barkindo and Saudi Arabia's Energy Minister Khalid Al-Falih are among the keynote speakers.

Turkey's Energy and Natural Resources Minister Berat Albayrak is expected to deliver a speech on Tuesday afternoon.

The United Arab Emirates (UAE) Energy Minister Suhail Mohamed Al Mazrouei, Russia’s Energy Minister Alexander Novak, as well as chief executive officers from American energy giants ExxonMobil, Chevron and ConocoPhillips will join them.

Vice Chairman of IHS Markit Daniel Yergin will moderate the plenary discussions.

06 Mar,2017