REPORT
By Övünç Kutlu
U.S. briefing, May 15

What happened last week?

The U.S. President Donald Trump’s firing of the Federal Bureau of Investigation (FBI) Director James Comey on Tuesday afternoon and its repercussions on the markets took center stage as one of the most important developments in the American economy last week.

During the presidential race last year, Comey had opened an investigation against Democratic candidate Hillary Clinton, who lost to Trump.

Some experts believe that Comey’s investigation had partially helped Trump win the race and move to the White House.

Comey, however, had been preparing to open an investigation against Trump’s election campaign and his staff to determine whether officials close to the President have had ties with Russia during and after the election.

Comey’s firing sent shocks through the U.S. stock market as investors viewed this as another unpredictable move by the President.

Investors are also further worried about whether Trump’s much-awaited promise to lower corporate taxes in the country will materialize since stability has become an issue in a political environment that currently lacks predictability from the White House.

After opening lower on Wednesday morning, the U.S. stock market did not perform well for the entire week. The Dow Jones and the S&P 500 lost 0.5 percent and 0.4 percent, respectively. As investors shifted their focus towards tech stocks, the Nasdaq posted a weekly gain of 0.3 percent.

Apple, the company with the highest market capitalization in the world, broke a record on Monday. It became the first company in history to have a market value of above $800 billion.

 

- Statements from Fed officials

Another important development last week was the Federal Reserve officials’ statements.

Cleveland Fed President Loretta Mester said Monday that if the Fed delays rate hikes, a recession in the economy could arise.

St. Louis Fed President James Bullard, however, said Monday that he does not expect interest rates to increase much in the near term.

Boston Fed President Eric Rosengren said Tuesday that the low unemployment level in the U.S. may lead to an increase in interest rates, which could cause the economy to overheat. Overall, this may force the Fed to make faster rate hikes, he warned.

None of the three officials have voting rights this year in the Federal Open Market Committee (FOMC), but voting members of the Committee will take their views into account.

Some members signaled this week that the Fed may make two more rate hikes this year.

Dallas Fed President Robert Kaplan said Tuesday that the Fed’s rate hikes might come soon if the American economy performs better than expected.

Philadelphia Fed President Patrick Harker said Friday that the economic outlook is strong and the Fed could make two more rate hikes this year.

Chicago Fed President Charles Evans also said Friday that the Fed might make one rate hike in 2017 if the economic outlook deteriorates. But, if the economy performs well, he said he would support two rate hikes in the remainder of the year.

Kaplan, Harker and Evans have voting powers in the FOMC this year.

The Fed last raised rates in March by 25 basis points. Its next meeting will be held in Washington, D.C. on June 13-14.

 

- Macroeconomic data

Some of the important macroeconomic data released last week are as follows:

Import price index rose 0.5 percent in April to beat market expectations of a 0.1 percent increase. The index fell 0.2 percent in March.

Export price index increased 0.2 percent in April, in parallel with market expectations. The index also rose 0.2 percent in March.

Producer price index rose 0.5 percent in April, to beat the market expectation of 0.2 percent. The index fell 0.1 percent in the month before.

Consumer price index increased 0.2 percent last month, in line with market expectations. The index decreased 0.3 percent in March.

Retail sales rose 0.4 percent to $474.9 billion in April, from the month before, but fell short of the market expectation of a 0.6 percent increase.

 

- Crude oil prices revised down

The U.S.’ Energy Information Administration (EIA) lowered its price forecast for crude oil by $1 per barrel, according to its Short-term Energy Outlook for May that was released Tuesday.

The administration now expects the American benchmark West Texas Intermediate to average $51 a barrel, and estimates that Brent crude will average $53 per barrel this year.

The EIA revised up its forecast for the U.S.’ domestic crude oil production by 0.1 million barrels per day (mbpd) for 2017 and 2018. The country’s crude output is now anticipated to average 9.3 mbpd this year, and 10 mbpd next year.

The U.S.’ oil production has increased for the twelfth week in a row last week to 9.3 million barrels, according to EIA data announced Wednesday.

The number of oil rigs in the country reached 712 last week, marking the 17th consecutive week for rig count rises, according to oilfield services company Baker Hughes on Friday.

 

What to expect from this week?

The Turkish President will arrive in Washington, D.C. on Monday, and is expected to hold talks with his counterpart Trump and with investors in the U.S. on Tuesday.

It will be a weak week for U.S. macroeconomic data.

Housing starts for April will be announced on Tuesday.

Weekly change in the U.S.’ crude oil and gasoline inventories, as well as crude production and imports, will be revealed on Wednesday.

On Friday, the change in the U.S. oil rig count will be announced.

Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard will speak on Thursday and Friday, respectively.

The global oil market, on the other hand, has begun the new week with a surprise.

It was reported early Monday that Saudi Arabia and Russia agreed to extend their agreement for a limitation in their crude oil production until March next year.

After the reports, American benchmark West Texas Intermediate jumped 1.6 percent to $48.68 a barrel, and Brent crude soared 1.5 percent to $51.69 per barrel.

Investors, however, remain cautious.

After Saudi-led OPEC and Russia decided to trim their production on Nov. 30, oil prices gained around 10 percent in the first quarter of this year.

As oil prices increased, this gave more incentives for American producers to raise investment in the industry, and bring more oil rigs back online.

While the U.S.’ oil production rose about 6 percent since the deal, oil prices lost 7 percent two weeks ago, erasing all the price gains since Nov. 30.

If the Saudis and Russia continue to limit their output, American shale oil producers may continue to ramp up their investments and production.

This may cause the Kingdom and Russia to lose some market share in the global oil market, while the U.S. would benefit from the deal. 

15 May,2017

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