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Stocks defensive on Trump's protectionism
-- The S&P 500 was on track for its worst day this year as President Donald Trump's protectionist stance on trade sent investors scurrying for safe-haven assets on Monday. In his latest executive order, Trump signed to formally withdraw the United States from the 12-nation Trans-Pacific partnership trade deal. Earlier in the day, Trump met with a dozen prominent American manufacturers at the White House and said he would slash regulations and cut corporate taxes to boost the economy.
"The markets are less enthusiastic about protectionism than they are about pro-growth policies such as cutting taxes and decreasing regulation," said Art Hogan, chief market strategist at Wunderlich Equity Capital Markets. The Trump rally, which led Wall Street to repeated highs since the election, has stalled in recent weeks as investors fretted about the potential impact of his isolationist stance on world trade and the lack of clarity on his policies. Trump has also vowed to renegotiate the North American Free Trade Agreement (NAFTA) with leaders of Canada and Mexico. See full story.
Fears of economic 'race to bottom' in Davos
-- A strengthening dollar and a "race to the bottom" on taxes, deregulation and trade policy are the major risks to an otherwise brightening global economy, financial leaders said on the final day of the World Economic Forum in Davos. Asked about "black swans", or unexpected, disruptive events, that could derail the outlook in 2017, International Monetary Fund (IMF) chief Christine Lagarde touched on risks stemming from the policy promises of incoming U.S. president Donald Trump. "If the disruptions we are expecting for 2017 as a result of what has happened in 2016 prove to be all negative and we are to end up in a race to the bottom on the tax front, on the trade front, on the financial regulation front, then that for me would be a really big 'black swan' that would have devastating effects," she said.
Business leaders and policymakers rounding off four days of discussions in Davos applauded the anticipated economic stimulus from a new Trump administration determined to ramp up infrastructure investments reduce taxes. But there are plenty of worries and uncertainties. The head of BlackRock the world's largest money manager, said that while such measures should support U.S. markets for at least the first 100 days of the new presidency, it was unclear how they would be paid for. Larry Fink also warned of looming dangers from a stronger dollar as the Federal Reserve hikes interest rates, putting the White House on a potential collision course with the central bank. See full story.
U.S. economy showing strength
-- U.S. homebuilding rebounded sharply in December as a firming economy boosts demand for rental housing, while an unexpected drop in the number of Americans filing for unemployment benefits last week pointed to a further tightening in the labor market. The economy's brightening prospects were underscored by other data on Thursday showing factory activity in the mid-Atlantic region accelerating to a two-year high this month, amid jumps in new orders, employment and inventories. In addition, manufacturers reported paying more for raw materials and asking for higher prices for their goods, mirroring other recent factory surveys. This suggests that a broad increase in inflation could be on the way.
The reports came as Republican Donald Trump prepared to be sworn in as president on Friday, taking over from President Barack Obama, whose administration's policies have been credited with pulling the economy from the 2007-09 recession. "The economy is doing great, whichever way you look at it," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York. "The labor market is close to full employment and the housing market continues to heal. Trump is inheriting a strong economy." See full story.
Inflation climbs at fastest pace in 5 years
-- Inflation rose in 2016 at the fastest pace in five years, as rising rents and medical care and higher gas prices put a squeeze on consumers. The consumer price index jumped 0.3% in December, the government said Wednesday. That matched the MarketWatch forecast. Excluding the volatile food and energy categories, consumer prices rose 0.2% in December. A string of sharp gains since late summer helped drive up inflation by 2.1% for the full year, marking the biggest increase since a 3% gain in 2011. Americans are pay more for fuel, housing and doctor visits, countering the biggest decline in grocery prices since the tail end of the Great Recession. The spike in inflation has also partly offset a steady uptick in how much workers earn. Real or inflation-adjusted wages rose a modest 0.8% in 2016, and an even smaller 0.5% for most employees not in management positions.
For now it doesn’t look like inflation will wane soon. Gas prices rose again in January and many economists predict that aggressive stimulative measures by the new Trump administration could lead to even higher inflation. Inflation was held to extremely low levels in 2014 and 2015 largely because of a plunge in gasoline prices. Yet somewhat higher gas prices and a sharp acceleration in what consumers pay for rent — they rose last year at the fastest clip since 2007 — have put more upward pressure on inflation. The cost of gas surged 9.1% last year and rents increased 3.7%, the largest advance since mid-2007. Those are two of biggest expenses for American households. See full story.
Trump, Brexit hit stocks and dollar
-- U.S. stocks and the dollar fell while gold rose on Tuesday as investors looked for safety after President-elect Donald Trump said the U.S. currency was too strong, while sterling jumped as Prime Minister Theresa May said Britain would quit the European Union single market when the country leaves the EU. Wall Street was weighed down by the financial sector, and U.S. Treasury prices gained on concerns about Trump's planned protectionist trade policies.
Ahead of his Jan. 20 inauguration, investors were beginning to question whether Trump would be able to follow through on pro-business pledges such as corporate tax cuts, infrastructure spending and lighter regulation. Investors fled the dollar after Trump said U.S. companies could not compete with China "because our currency is too strong. And it's killing us," in remarks published on the Wall Street Journal's website on Monday. See full story.
Investors turn wary on Brexit, Trump
-- Investors sold sterling and stocks on Monday, seeking shelter in gold and the Japanese yen as uncertainty over Britain's departure from the European Union and the policies of U.S. President-elect Donald Trump curbed appetite for risky assets. U.S. markets were closed for the Martin Luther King Day holiday, crimping market activity and potentially exacerbating price moves. The dollar rose, except against the yen, rebounding after suffering its worst week since November last week, when it was hit by a lack of clarity over what Trump, whose inauguration is on Friday, will do once he assumes office.
The price of gold, a frequently sought haven for investors in uncertain times, hit its highest level since November. "The market is taking a reality check from Trump euphoria, equity markets are moving sideways, the dollar has steadied and bond yields are down, allowing gold to recover," Julius Baer commodities analyst Carsten Menke said. Yields on low-risk German government bonds fell, but those on Italian equivalents edged up after rating agency DBRS cut Italy's credit rating late on Friday, a move that could raise borrowing costs for the country's banks. But the eye-catching mover was Britain's pound, a day before a speech by British Prime Minister Theresa May. Media reported that she would lay out an exit from the EU that would see Britain lose access to the bloc's single market. See full story.
China export fall by most since 2009
-- China's massive export engine sputtered for the second year in a row in 2016, with shipments falling in the face of persistently weak global demand and officials voicing fears of a trade war with the United States that is clouding the outlook for 2017. In one week, China's leaders will see if President-elect Donald Trump makes good on a campaign pledge to brand Beijing a currency manipulator on his first day in office, and starts to follow up on a threat to slap high tariffs on Chinese goods. Even if the Trump administration takes no concrete action immediately, analysts say the specter of deteriorating U.S.-China trade and political ties is likely to weigh on the confidence of exporters and investors worldwide.
The world's largest trading nation posted gloomy data on Friday, with 2016 exports falling 7.7 percent and imports down 5.5 percent. The export drop was the second annual decline in a row and the worst since the depths of the global crisis in 2009. It will be tough for foreign trade to improve this year, especially if the inauguration of Trump and other major political changes limit the growth of China's exports due to greater protectionist measures, the country's customs agency said on Friday. "The trend of anti-globalization is becoming increasingly evident, and China is the biggest victim of this trend," customs spokesman Huang Songping told reporters. See full story.
Stocks getting crushed by gold in 2017
-- Perhaps one of the clearest signs that a rally inspired by President-elect Donald Trump is starting to stall is shiny and yellow and is outperforming other assets by a healthy margin. Gold futures are trading near $1,200 an ounce and are up 4.3% so far in 2017, compared with a tepid gain of 1% for the Dow Jones Industrial Average and a 1.6% advance by the S&P 500 index. Not even the standout Nasdaq Composite Index COMP, which racked up its fifth straight record close on Wednesday for a year-to-date climb of 3.4%, has managed to outstrip gold’s returns. Of course, the market is only about eight trading days into 2017 and things could pivot quickly. After all, stocks began 2016 with the worst start to a new year in history before regaining their footing and scooting to new records.
But what appears to be a stall out for equities—though not an outright reversal—highlights investors’ apparent reassessment of some of the factors that had accelerated a rally in equities after Trump won the U.S. presidential election on Nov. 8. “I am not surprised by the reversal we have seen in relative performance between gold and US stocks so far in 2017. The big rally at the end of last year was partly driven by speculation on what Donald Trump could do for the economy as president and part due to a scramble by fund managers to get cash off the sidelines and into the market by year-end which is now over,” said Colin Cieszynski, chief market strategist at CMC Markets. But, the ebullience that lifted stocks to fresh highs, bolstered by the notion of fiscal stimulus, tax cuts and a loosening of regulations, has been replaced by a demand for details and doubts that the president-elect can deliver the fiscal goods. See full story.
Treasuries rise, dollar falls on Trump
-- U.S. Treasuries rallied across the board on Wednesday, while the dollar fell after trading higher for most of the session as President-elect Donald Trump did not provide much clarity on his future policies. U.S. stocks also weakened initially after Trump took aim at the pharmaceutical industry for charging high prices. He said pharmaceutical companies are "getting away with murder." "U.S. Treasuries rose because stocks caved in with Trump's pharmaceutical comments," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco. "Overall Trump did not really say anything new. As a result, we're still in wait-and-see mode with respect to his policies."
In his first press briefing as U.S. president-elect, Trump presided over a wide-ranging session that touched on topics such as allegations of Russia spying, Mexico, his business interests, and drug pricing. But the briefing, which lasted longer than people expected, did not break new ground, analysts said. Traders were hoping that after making generally broad statement for the last two months on what he intended to do as president, Trump would give more specific details about key policy reforms. See full story.
Dollar rally may have run its course
-- The dollar’s epic postelection rally appears to have stalled — for now, at least. In the week ended last Tuesday, speculators increased their long-dollar bets only marginally. On Friday, the U.S. currency notched its third straight weekly drop against the euro, its longest stretch of declines since the election. The ICE U.S. Dollar Index DXY, a widely watched gauge of the dollar’s valuation against six of its rivals, has shed about 1.25% of its value since peaking at nearly 104 on Jan. 3. On Tuesday, it was trading around 101.79. Doug Borthwick, managing director at Chapdelaine FX, a unit of Tullett Prebon, who’s known for his contrarian views on currency trading, used a research note last week to stress his view that the dollar will weaken during the Trump administration.
And he’s not the only one: Across Wall Street, analysts are growing increasingly wary of the notion that a bet on the dollar, which has gained on prospects for higher U.S. interest rates, could be one of the most-lucrative trades of 2017. Borthwick believes that the Trump administration will ultimately abandon the view that a strong dollar is in the U.S.’s best interest, which has largely guided U.S. fiscal and monetary policy since Treasury Secretary Robert Rubin uttered the phrase in 1995—that includes through both Democrat- and Republican-held presidencies. “The strong dollar policy will likely fade as quickly as Obamacare. When it comes to the U.S. dollar, this time around politics will trump interest-rate differentials,” he said. Because many of the U.S.’s largest economic partners—the eurozone, Japan and the U.K.—are relying on softer currencies to bolster growth, a weakening dollar will give the U.S. an additional advantage on the trade scales. Historically, shifts in exchange rates have closely tracked changes in their interest-rate spreads. See full story.
Pound drops on fresh Brexit worries
-- The British pound, triggered by fresh worries of a “hard Brexit,” tumbled to lows not seen since October on Monday.
British Prime Minister Theresa May denied that the government’s approach to Brexit is “muddled” in a Sunday interview with Sky News. May said she was confident the U.K. could get a good deal on both trade and immigration, but added that the country couldn’t just keep “bits of EU membership.”
The remarks were taken as a sign that the U.K. was headed for an exit from the EU that severs business access to the bloc’s single market.
Meanwhile, the dollar resumed its consolidation, weakening against most major rivals. The ICE Dollar Index DXY, fell 0.3% Monday in New York, from 102.26 on Friday. See full story.
U.S. wage growth surges to 7-year high
-- The U.S. added 156,000 new jobs in the final month of 2016 and worker pay rose at the fastest pace since the Great Recession, reflecting a surge in employment over the past six years that’s left many companies complaining about a shortage of skilled labor. The increase in hiring last month was spearheaded by health-care providers, financial firms, manufacturers, restaurants and shipping companies, the government said. The unemployment rate, meanwhile, edged up to 4.7% from 4.6% as more people entered the labor force in search of work. That’s a good sign.
The steady gains in employment have finally started to push worker pay higher over the past year and a half. Average hourly wages jumped 0.4% in December to push the annual gain in 2016 to 2.9%, marking the fastest increase since a recovery that began in mid-2009. Yet despite strong job growth, the number of Americans who would like a full-time job but can’t find one remains elevated. The so-called real rate of unemployment tallied 9.2% in December, down a tick from the prior month. See full story.
Dollar tumbles to one-month low
-- The dollar tumbled to the lowest level a month against major rivals on Thursday, extending weakness from the prior session after minutes of the Federal Reserve’s December meeting pointed to a number of risks that could change the path for interest rates. Minutes from the latest Federal Reserve meeting showed policy makers were uncertain about the impact of the fiscal stimulus measures proposed by President-elect Donald Trump and expressed some concerns about the strength of the dollar. The ICE Dollar Index DXY, slumped 1.3% to 101.33, the biggest one-day drop since June 2016, as the greenback retreated against most major currencies.
The dollar remained weaker after weekly jobless claims and private-sector hiring data. The number of Americans who applied for unemployment benefits after Christmas sank to 235,000, close to a 43-year low. Meanwhile, ADP Inc. said private-sector hiring slowed in December, adding 153,000 jobs after a revised 215,000 in November. The data is used by economists and investors to get a feel for the Labor Department’s employment report, set for release Friday, which covers government jobs in addition to the private sector. The U.S. currency started to come under heavy selling pressure on Wednesday after minutes from the Fed’s Dec. 13-14 meeting showed central bankers grappling with “considerable uncertainty” about the new U.S. administration’s possible impact on the economy. The officials “pointed to a number of risks that, if realized, might call for a different path of policy than the currently expected,” the minutes read.
Dollar retreats after FOMC minutes
-- The U.S. dollar fell on Wednesday, pulling back from a 14-year high following the release of commentary from the Federal Reserve. While the dollar had already been weaker against its major rivals, it extended its decline following the release of minutes from the Fed’s December meeting, with a key currency index dropping to its lows of the session. The minutes showed some conflict over the central bank’s pace of raising interest rates at the meeting. The Fed last month raised interest rates for only the second time in the past decade. The Fed has said the pace of hikes would be “gradual,” though the minutes indicated that many Fed officials thought a measured pace of increases was under threat. The officials “pointed to a number of risks that, if realized, might call for a different path of policy than the currently expected,” the minutes read.
Although there weren’t big surprises in the minutes “some investors may have gotten ahead of themselves in terms of” their predictions for the pace of future rate increases, said Colin Cieszynski, chief market strategist at CMC Markets. The Fed has penciled in three rate hikes in 2017, according to a plot of Fed members’ forecasts for rates. In September, that so-called dot plot showed that the central bank was looking at two rate hikes this year. The ICE dollar index DXY, which measures the dollar against a half-dozen rivals, dropped 0.7% to 102.46, its low of the session. In recent days, the gauge has been touching levels last seen in 2002, with the dollar particular strong in the fourth quarter of 2016, following the U.S. election and the December Fed meeting. “The upward momentum is slowing a bit here. I expect we’ll trade in this range until the next Fed meeting,” Cieszynski said. See full story.
Dollar rallies after strong data
-- The U.S. dollar extended robust gains after stronger-than-expected manufacturing data on Tuesday, lifting a key dollar index to its highest level in more than 14 years. The ICE dollar index DXY jumped 1.4% to 103.69 as the greenback rose against most other major currencies. The gauge is touching levels last seen in December 2002, according to FactSet data. The ISM manufacturing index rose to 54.7% in December. A reading of 50 or greater points to expansion. Meanwhile, construction spending rose 0.9%, with both reports coming in stronger than forecast by economists polled by MarketWatch. Even before the data, the greenback was higher on Tuesday with analysts suggesting that the dollar strengths was a continuation of the momentum seen in the last quarter of 2016.
The dollar has risen 4.6% over the last quarter on prospects of inflation growing and higher interest rates. Indeed, the dollar index ended 3.6% higher in 2016, its fourth straight year of gains. “The last two weeks in December were clearly a pause in the dollar rally and investors continue to bet on a stronger dollar in 2017,” said Neil Mellor, chief currency strategist at BNY Mellon. The dollar traded sideways late December, but gained 4.6% over the fourth quarter on expectations that the Federal Reserve would raise interest rates at a more rapid clip than had previously been expected. The market is pricing in two rate increases in 2017, according to CME Group data, while the Fed’s projection of rate increases this year, its so-called dot plot, implies three moves, an increase from its earlier projection in September of two rate increases this year. See full story.
Dollar pulls back after recent rally
-- The U.S. dollar weakened against its major rivals on Thursday, retreating in thin trade as investors took profits following a rally that has taken the currency to multiyear highs. The greenback has rallied since August, gaining nearly 10% over that period. The dollar’s march upward has been especially pronounced since last month’s U.S. presidential election, with optimism over the policies President-elect Donald Trump is expected to support sparking a rally that has taken the buck to levels last seen in 2002. The size and speed of the dollar’s gain has some concerned, especially with the buck trading at multimonth highs against the yen and the euro within striking distance of parity for the first time in more than a decade. That could lead to some near-term consolidation, even as the currency’s longer-term uptrend is viewed as intact.
“Sentiment remains firmly bullish towards the dollar with the cocktail of positive U.S. domestic data, hawkish Fed comments and heightened expectations of an improvement in U.S. economic growth magnetizing investors to the currency,” Lukman Otunuga, a research analyst for FXTM wrote in a note to clients. “With speculations heightened over the Fed raising U.S. interest rates further in 2017, the dollar should remain king in the beginning of 2017.” The final week of the year is typically a quiet one for currencies, with trading volumes light. However, that lower liquidity can lead to higher levels of volatility. The U.S. dollar index DXY, which measures the currency against a half-dozen rivals, fell 0.6% to 102.73, slightly above its low of the day. See full story.
Dollar index continues march higher,
-- The U.S. dollar strengthened against its major rivals on Wednesday, advancing for a second straight day as investors continued to bet that a strengthening economy and higher inflation would support the currency. The greenback has been in a pronounced uptrend since August, gaining nearly 10% over that period. The dollar’s march upward has been especially pronounced since last month’s U.S. presidential election, with optimism over the policies President-elect Donald Trump is expected to support sparking a rally that has taken the buck to levels last seen in 2002. On Tuesday, which was marked by some of the lightest trading this year, the dollar was supported by data showing U.S. consumer confidence climbed to its highest level in 15 years.
The U.S. dollar index DXY, which measures the currency against a half-dozen rivals, rose 0.4% to 103.45 on Wednesday. “The path of least resistance is for the dollar to keep moving higher,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott, who said he wouldn’t be worried about the level of the dollar index until it hit 110. In the latest economic data, pending home sales in the U.S. fell 2.5% in November, dropping to their lowest level in nearly a year. See full story.
Oil jumps 1.7% ahead of OPEC cuts
-- Oil jumped 1.7 percent Tuesday, continuing its year-end rally with support from expectations of tighter supply once the first output cut deal between OPEC and non-OPEC producers in 15 years takes effect on Sunday. U.S. crude prices have surged 25 percent since mid-November, helped by expectations for OPEC's supply cut and generally solid U.S. economic figures that have also bolstered equity prices. Trading was thin on Tuesday, with less than one-third of the usual volume in futures contracts in West Texas Intermediate crude oil. With oil near $54 a barrel, U.S. crude futures are not far from the year's high of $54.51 high reached on December 12. "Some of the doubts (in OPEC) people are showing are going to have to be put to rest," said Phil Flynn, analyst at Price Futures Group in Chicago. "There's a strong possibility that we're going to rally into the end of the year."
Jan. 1 is the official start of the deal agreed by the Organization of Petroleum Exporting Countries and several non-OPEC producers to lower production by almost 1.8 million barrels per day (bpd).U.S. crude CLc1 was up 90 cents, or 1.7 percent, to $53.92 a barrel. Brent crude LCOc1 rose 94 cents, or 1.7 percent, to $56.10 a barrel as of 1153 a.m. ET. The global benchmark hit $57.89 on Dec. 12, highest since July 2015. The members of an OPEC and non-OPEC committee formed to monitor the market may meet on Jan. 13, two sources said. Oil rallied further after news of the meeting, which may give an early indication of compliance with the deal. "From January, we'll start to have a better idea about the level of OPEC production," said Olivier Jakob, oil analyst at Petromatrix. See full story.