REPORT
By Övünç Kutlu
U.S. letter, April 3

What happened last week?

 

A significant development in the U.S. last week was the revision up of 2017 growth projections for Turkey by two major American investment banks, Goldman Sachs and JPMorgan Chase.

Their decision came after the Turkish Statistical Institute released GDP figures earlier Friday that showed a 3.5 percent increase in the fourth quarter and 2.9 percent in 2016.

Goldman Sachs expects the economy to grow 2.3 percent, while JPMorgan Chase estimates a 2.6 percent expansion. The banks previously projected 1.8 percent growth.

The bank said that growth in consumption was a surprise while exports saw the strongest recovery. Consumption increased 5.7 percent in the fourth quarter after contracting 1.7 percent in the previous quarter. Similarly, after exports shrunk 1.9 percent and 9.3 percent in the second and third quarter, respectively, they expanded 2.3 percent in the fourth quarter.

JPMorgan Chase said the recent growth figures, despite political uncertainty, are positive for the economy, which could better perform after the April 16 referendum on constitutional changes.

Another major development last week was growth in the American economy by 2.1 percent in the fourth quarter last year, beating market expectations of a 2 percent growth rate.

With positive growth data, the U.S. stock market increased, and the majority of Federal Reserve officials bolstered their hawkish remarks towards raising interest rates.

Friday marked the last trading day of the week, the end of March, and the close of the first quarter of this year.

The Dow fell 0.3 percent this week and lost 0.7 percent in March, but rose 4.6 percent in the first quarter. 

The S&P 500 finished up at 0.8 percent for the week, lost 0.1 percent this month, but finished the quarter with a 5.5 percent gain. 

The Nasdaq added 1.4 percent this week, rose 1.5 percent in March, and increased almost 10 percent in the January-March period.

At the White House, President Donald Trump signed two executive orders Friday that targeted trade abuses he promised to address during his campaign. 

"Jobs and wealth have been stripped from our country,” he said. “Thousands of factories have been stolen from our country," he added while referring to American manufacturing jobs that have moved overseas since the 1970s.

"But, these voiceless Americans now have a voice in the White House. We will create a level playing field for the American worker, finally," he said.

One order directs the Commerce Department and the U.S. Trade Representative to examine trade abuses that contribute to the country’s trade deficit, White House spokesman Sean Spicer told reporters.

The two entities have 90 days to produce a report “on the causes of our unduly large trade deficit,” Spicer said.

A second order calls on Customs and Border Protection to impose “countervailing duties” on goods that have been subsidized by foreign governments.

The orders come ahead of a meeting next week with Chinese President Xi Jinping in Florida that “will be a very difficult one in that we can no longer have massive trade deficits and job losses,” Trump said via Twitter on Thursday, “American companies must be prepared to look at other alternatives,” he added.

On the energy front, the U.S.’ Energy Information Administration (EIA) said Friday that total energy output in the U.S. fell in 2016 after six consecutive years of increase.

Energy production decreased 4 percent in 2016, from the previous year, marking the first annual decline since 2009, mostly coming from fossil fuel reduction, especially coal output, the EIA said. 

Coal production in the U.S. decreased 18 percent last year, from the year before, to reach its lowest level since 1978, according to the EIA. Oil output in the U.S. decreased 5 percent, while gas production declined 2 percent last year in the U.S., from the previous year. 

Renewables marked an increase year-over-year. However, this rise was not enough to offset the decline in coal, oil and gas outputs. Renewable energy production rose 7 percent in 2016 from the year before, half of which came from wind and a quarter was generated through solar energy.

 

What to expect this week?

One of the most important events this week will be Trump’s hosting of the Chinese president in Florida on Thursday and Friday.

During his campaign, Trump promised to increase border tax on Chinese imports by 45 percent. This has not yet happened but Trump withdrew the U.S. from Trans-Pacific Partnership (TPP) Treaty, which was signed by previous President Barack Obama to balance China in Asia.

China has so far made every signal supporting their intention to continue close trade and economic relations with the U.S.

The U.S.’ trade balance will be announced on Tuesday, which may provide some indication about the country’s latest trade deficit numbers.

A number of Fed officials will also make statements this week.

New York Fed Chair William Dudley will speak on Monday and Friday, while Richmond Fed head Jeffrey Lacker and Philadelphia Fed head Patrick Harker will speak on Monday. San Francisco Fed Chair John Williams will speak on Thursday.

The Fed minutes from the bank’s March 15 meeting, when a rate hike was made, will be released on Wednesday.

Markets and investors will also closely watch ADP private sector employment on Wednesday, while nonfarm employment and unemployment figures for February will be announced Friday.

The weekly report on the U.S.’ crude oil and gasoline inventories will be released on Wednesday. 

03 Apr,2017

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