Weekly Market Review 20.1.2017
The trading week for January 9 to January 13, 2017 is the trigger point for the preparation of the Q4 results, and more sentiments are to be expected for most industry and individual corporations. This week’s recap would focus on the 2017 outlook, particularly on the different factors to consider in pushing through with smarter investing tactics and moves.
The Q4 Reports Hold the Prospect of Continuity
For US-based companies, optimism holds up for the best component of a good outlook towards the year 2017 regardless of what the Q4 reports indicate. The upcoming president- elect pushed for a strong policy to lower tax rates and for more spending on infrastructure. This triggered a higher confidence among businesses and investors. However, during the latter part of the year where the US dollar was increasing its value over other currencies, the resulting value returns for foreign investments were significantly lower (i.e., Japan, Mexico, etc.). Not to hold back yet, uncertainty is still looming on how Donald Trump would enact his policies and how they would affect the global market economy as a whole. Trump assuming presidency means giving up control of his business interests to his sons in order to avoid conflict.
On the other hand, global interest rates are pushed to sustain market volatility. Nonetheless, the World Bank forecasts a 2.7% increase in global economic growth for the year 2017 compared to 2.3% last year. The lingering factors of volatility and uncertainty could factor in on how future US policies and restrictions could affect the global trade. The EU and other major economic players are all implementing economic stimulus to improve trade and economic activity. Small businesses are also eyeing an improvement, as economic growth inclusivity became a driving force. It means that these businesses would benefit from more movement in the trade and capital investment. It would help the group improve and provide a significant impact on the overall economic growth.
For the Organization for Economic Co-operation and Development (OECD), 3.3% would be the global economic growth for the year 2017 as compared to 2.9% of last year. The factors resulting in this predicted positive forecast would be an optimistic US economy and developed markets, which would improve economic activities and expected earnings. China is predicted to fall short on growth by 0.3% from 6.7% last year. The Europe area could be a different issue, as different parties would aim at targeting immigration and leaving the euro currency.
The US Dollar Trade-Off
Currently, the US dollar is enjoying great valuation due to rising interest rates, which is the highest among foreign economies. This means that higher interest rates could result in higher inflation rates. In this regard, the importing industry benefits from a higher value of the dollar due to lower cost. This low cost would simultaneously result in reducing inflation and striking lower prices in commodities. The downside would be for US-based companies with foreign investments, as their dollar earnings would be significantly lower. An example is the Yuan in China. The continuous rise in US dollar value would not be able to aid in any recovery for foreign international investment, but if the value keeps within the reasonable rate and the countries could cope with improving the stimulus, then a pay-off could be seen.
Dow Jones and S&P 500 slightly went down with 19,963.80 (-0.4%) and 2,276.98 (-0.1%), respectively. NASDAQ and Russell 2000 improved with 5,521.06 (+1.0%) and 1,367.15 (+0.4%), respectively. NASDAQ benefitted from positive trading on the technology sector.
Nikkei 225 slightly improved with 19,287.28 (+0.80%) and FTSE 100 with 7,337.81 (+0.62%).
The EUR/USD exchange rate closed at 1.0645, a 0.0033 change from last week.
Oil closed at $52.50 per barrel (-2.8%) while gold is at 1,197.30 down (-0.21%) compared to last week.
As always, stay diversified and keep up with tracking your long-term goals. As more reports are being released this Q4, uncertainty and volatility would be at play for every investment decision.