REPORT
By Ovunc Kutlu & Gulbin Yildirim
U.S. briefing, April 17

- What happened last week?

The most important development in the American economy last week was U.S. President Donald Trump’s remarks on the strength of the dollar on Wednesday.

Trump told the Wall Street Journal in an exclusive interview last week that the American dollar is “too strong” and “that it’s hurting” the economy.

During his campaign, Trump had also said the dollar should decline so American companies can better compete with their international counterparts in global markets.

During the interview, however, Trump backed down from one of his campaign promises.

Although he promised to label China as a “currency manipulator” during his campaign, Trump said Wednesday that China would not be labeled as such.

The turn of events suggests that Trump is trying to get China’s support in the crisis with North Korea, which recently conducted missile tests.

However, it is still unclear whether Trump will impose 45 percent tax on Chinese imports, as promised during his campaign.

He told the Wall Street Journal that he cannot continue to accept a large American trade deficit with China, and said last week “But if you [China] want to make a great deal? Solve the problem in North Korea.”

After Trump’s comments that the American dollar is too strong, the value of the greenback fell 0.6 percent on Wednesday against a basket of major currencies – euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc. The stock market also posted losses for the day and closed the week on a lower note.

With another major divergence from his campaign statement, Trump said he may keep the Federal Reserve Chair Janet Yellen in her post after her term expires in February next year.

During his campaign, the President criticized Yellen and the Fed for their monetary policy but said Wednesday in the interview “I do like a low-interest rate policy, I must be honest with you … “I like her [Yellen], I respect her.”

Last September, Trump said Yellen should be “ashamed of herself” and stated that the Fed Chair is doing a “political job” which has led to “a very false economy.”

 

- Yellen and the Fed

On Monday, Yellen said the Fed does not want to fall behind the inflation curve. “We want to be ahead of the curve and not behind it. We don’t want to be in a position where we have to raise rates rapidly, which could conceivably cause a recession,” she said.

The Fed raised rates in December and March, with 25 basis points each, and is expected to make two more rate hikes this year.

 

- Macroeconomic data

Some of the significant macroeconomic data announced in the U.S. last week were as follows:

The import price index fell 0.2 percent in March, in line with market expectations, marking the first decline in the last four months.

The export price index rose 0.2 percent in March, beating the market expectation of a 0.1 percent increase.

Producer Price Index fell 0.1 percent in March, marking its first decline since August last year. Furthermore, the Consumer Price Index decreased 0.3 percent in March, marking its first decline since February last year.

Retail sales fell for the second consecutive month by decreasing 0.2 percent in March to $470.8 billion.

Initial jobless claims came in at 234,000 last week to mark the lowest level in the past six weeks and beat the market expectation of 245,000.

 

- Oil market

With rising crude oil prices in the global market, the American oil industry continued its recovery.

The number of oil rigs in the U.S. reached the highest level in two years, according to oilfield services firm Baker Hughes' data on Thursday. The American oil industry added 11 oil rigs this week beginning April 10, Baker Hughes said, which marked the 13th consecutive weekly increase in the oil rig count. This increased the total number of oil rigs in the country to 683 -- a level that was last seen in April 2015.

In addition, oil production in the U.S. rose for the eighth sequential week by 36,000 barrels per day (bpd) to 9.23 million bpd for the week ending April 7, Energy Information Administration (EIA) data showed Wednesday. The EIA forecasts crude production in the country to average 9.2 million bpd this year, and 9.9 million bpd in 2018, according to its Short-Term Energy Outlook report for April.

 

- Earnings season begins

The earnings season has arrived. On Thursday American companies started announcing their net income and revenues for the first quarter of the year.

Citigroup’s net income increased 17.1 percent to $4.1 billion in the first three months of the year, from $3.5 billion during the same period last year. The bank's revenue rose nearly 2.8 percent to $18.1 billion from $17.6 billion.

JPMorgan Chase also saw its net income jump near 16.8 percent to $6.45 billion compared to $5.52 billion in the first quarter of 2016. Revenues rose 6.3 percent to $25.59 billion in the first quarter of 2017, from $24.08 billion. 

However, Wells Fargo had its first quarter revenue fell about 1 percent to $22 billion, from $22.2 billion from the first three months of last year. Net income remained unchanged at $5.5 billion. Wells Fargo’s earnings were released three days after the bank completed an internal investigation that clawed back $75 million from former CEO John Stumpf, and head of the Community Bank Carrie Tolstedt. 

 

- What to expect this week?

American firms will continue to announce their earnings. Some of the major companies to declare their quarterly results are as follows:

Global media streaming and on-demand video giant, Netflix Inc. will announce its net income and revenue on Monday.

On Tuesday, investment banking firms Bank of America and Goldman Sachs will declare their first quarter results, in addition to IBM and Yahoo.

On Wednesday, North America’s biggest energy infrastructure company Kinder Morgan, investment banking firm Morgan Stanley, and e-commerce company eBay will announce their net income and revenues.

American telecommunications giant Verizon will declare its earnings on Thursday, while energy giants General Electric and Schlumberger will announce their net income and revenues on Friday.

Macroeconomic data that will be announced this week includes housing starts and industry production on Tuesday, and the Fed’s Beige Book on Wednesday.

On Thursday, weekly initial jobless claims will be announced, while Manufacturing and Services PMI Indexes will be declared on Friday.

On Saturday, OPEC will hold a ministerial meeting, in which member countries and Russia are expected to discuss the current outlook for the global oil market and crude prices.

OPEC and Russia are also expected to extend their agreement on production limitations for another six months for the second half of this year, according to experts.

Meanwhile, oil prices continue to increase, which gives American producers more of an incentive to increase investments in the industry and to bring more oil rigs online.

The weekly change in the U.S.’ crude oil inventories and crude production will be announced Wednesday, while the weekly change in the oil rig count will be declared Friday. 

17 Apr,2017

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