Newsletter: In the Markets – Week-Ending November 18th
Crystal Brook Advisors
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United States: President-elect Donald Trump has pledged a $1 trillion infrastructure spending program to help jump-start an economy that he said during the campaign was in terrible shape. Speaking on Capitol Hill Thursday, Federal Reserve Board Chair Janet Yellen warned lawmakers that as they consider such spending, they should keep an eye on the national debt. Yellen also said that while the economy needed a big boost with fiscal stimulus after the financial crisis, that’s not the case now. “The economy is operating relatively close to full employment at this point,” she said, “so in contrast to where the economy was after the financial crisis when a large demand boost was needed to lower unemployment, we’re no longer in that state.” (2) U.S. Treasury yields have risen sharply in the days since the U.S. election, defying market expectations. Industrial production was unchanged in October, but weakness was confined to the utilities sector. Output in mining and manufacturing rose over the month and point to modest improvement in the industrial sector. (3)
Europe: Speaking in Berlin, Mr Obama said he hoped the US president-elect would “not simply take a realpolitik approach” to dealing with Russia. He also warned against a cyber arms race, saying there was clear proof Russia had engaged in cyber attacks. Mr Obama was speaking after talks with the German Chancellor Angela Merkel. (4) Italy’s prime minister has given the clearest indication yet that he will resign if he loses a Dec 4 vote on constitutional reform, in what would be the next challenge to the political establishment following Brexit and the election of Donald Trump as US President. (5)
Asia: The world will go cashless and India will move quite rapidly to a digital payments economy, said billionaire philanthropist Bill Gates, co-chair of the Bill & Melinda Gates Foundation. Gates, who co-runs the world’s largest private foundation, believes digital transactions will be a game changer, reducing inflation, interest rates and transaction fees. (1) Japanese Prime Minister Shinzo Abe said he had a “very candid discussion” Thursday with US President-elect Donald Trump. The pair met in New York in an “unofficial” capacity, Abe told reporters, as Trump has not yet assumed the presidency. Abe stressed that he emerged feeling that the US and Japan will be able to maintain a “relationship of trust” with Trump as president. (6)
Latin America: Since November 8, free traders around the world have been in a lather, not least in Latin America. After all, U.S. president-elect Donald Trump had stumped to scrap regional trade deals, build a wall on the border with Mexico and deport undocumented immigrants, up to 3 million of them right away. “Trump’s election is an unmitigated disaster for the region,” commented Jorge Castaneda, a former Mexican foreign minister. (7) Most Latin American leaders publicly reacted with caution to Republican presidential candidate Donald Trump’s victory in last week’s US elections, but reactions will sharpen quickly if Mr. Trump tries to convert his campaign rhetoric about the region and Latino immigrants into policy.
Mexico and Central America showed clear anxiety over the implications for their economies and regional migration pressures. Some South American presidents expressed mild enthusiasm and voiced hope for a positive relationship with the new administration, although Trump’s avowed opposition to the Trans-Pacific Partnership trade accord – under discussion at the Asia-Pacific Economic Cooperation summit in Lima this week – has fueled concerns about the future of free trade. (8)
- The Dow gained about 20 points higher, completing a six-day winning streak and closing at a record high, with Goldman Sachs and United Health Group contributing the most gains. The S&P 500 closed around breakeven, with a 1.7% fall in information technology offsetting a 2% gain in financials. The Nasdaq composite lagged, slipping about 0.4% as Apple and the so-called FANG stocks (Facebook, Amazon, Netflix and Google’s parent firm Alphabet) all fell. (9)
- Treasuries rose as investors questioned how much extra spending President-elect Donald Trump will be able to implement, halting a selloff that put global bonds on track for their worst month in 13 years. (7)
- Oil rose almost 6% as investors once again grew hopeful that the OPEC cartel will agree to cut fuel production in a few weeks. Companies such as utilities and telecom service providers climbed as bond yields fell slightly after a week of large gains. Airlines rose after Warren E. Buffett made a surprise investment in three carriers. (10)
- European stocks finished at a nearly three-week high Thursday, with oil shares pulled up alongside a surge in oil prices, while the market found support on indications the European Central Bank still stands ready to inject further stimulus into the Eurozone economy. (11)
- U.S. stocks were lower on Friday afternoon, with health stocks leading the declines, as investors cashed in on a post-election rally and waited for clarity on the next administration’s policies. (12) .
U.S. stocks closed lower on Friday, as a strong rally in the dollar stalled a multi-day advance for equities. The main indexes posted modest weekly gains, however. The S&P 500 closed 5.21 points, or 0.2%, lower at 2,181.91 and booked a 0.8% gain for the week. The Dow Jones Industrial Average declined 35.82 points, or 0.2%, to 18,868.00 and gained 0.2% over the past five sessions. The Nasdaq Composite rose to an intraday record at 5,346.80 in morning trade, but ended the session down 12.46 points, or 0.2%, at 5,321.51 and recorded a 1.6% weekly gain. (13) The U.S. dollar climbed on Friday to its highest level since 2003 on continued bets on faster inflation and higher interest rates, while Treasuries resumed a selloff that left benchmark yields on track for their steepest two-week increase in 13 years. (12)
Contributor: Matthew Scheivert
Sources: (1), NPR (2), Wells Fargo Securities Economic Group (3), BBC (4), The Telegraph (5), CNN (6), Bloomberg (7), The Christian Science Monitor (8) CNBC (9), The New York Times (10), NASDAQ (11), Reuters (12), Marketwatch (13)