Week Ahead: Will Trump's Travels Steady Markets, Boost USD?
Investing.com | May 21, 2017 09:21AM ET
by Pinchas Cohenh2 The Week That Was/h2
Trump's Agenda Obscured by Leaks, Scandals; Dollar Slides
Last week delivered a painful lesson to investors who forgot that the market is a beast that cannot be timed. After opening with a bang—the S&P 500 registered a record-high close on Monday of 2402.32 and yet another all-time high of 2405.77 on Tuesday—the report of U.S. President Donald Trump leaking classified intelligence to the Russians at an Oval Office meeting led to a lower close of 2400.67.
While traders still held on above 2400.00, the following day’s report of Trump’s possible obstruction of justice, as he asked former FBI director James Comey to “lay off” of investigating Michael Flynn’s involvement with the Russians (which may or may not have led to Trump’s Russian involvement though he continues to deny there was any involvement) caused a decline of 1.8% on Wednesday, the worst plunge for the Index since September.
On Wednesday and Thursday, dip-hunters led to an upmove that pared 1.18% of the loss, but the week's close, of 2381.73, is still the lowest for the index since April 24.
The most powerful driver currently for investors remains the hope that Trump’s proposed stimulus via tax cuts and infrastructure projects will be implemented, at some point. These initiatives are expected to have the potential to reflate the economy.
Unfortunately his more recent scandals, followed by the appointment of a special counsel into what's increasingly being referred to as Kremlingate is expected to distract the president and divert his attention from his fiscal agenda to his survival in office. While Treasury Secretary Steve Mnuchin did provide dip buyers with impetus as he stuck to the Treasury's goal of 3% growth and reiterated that the president’s agenda is still on track, markets failed to return to their pre-scandal highs seen at the beginning of the week.
Financial stocks saw the worst of the action, as they are the most sensitive to regulation and interest rates. JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), HSBC, Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS) closed sharply lower on the week, as the Financial Selector Sector SPDR ETF ((NYSE:XLF)) plunged by 3.2%.
It should be noted that the recent rallies were not supported by market breadth and the averages were rising simply on FANG stocks—Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOGL). Hopefully, a correction can balance value in the market, especially for the Trump-sensitive financial sector.
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An additional reason the financials declined was the recent scaling back of the amount of rate hikes projected for this year, on lower-than-expected inflation, which is why the market hasn't been able to take another step up since the beginning of March. Some are calling this the “Trump Fade,” a reduced rate forecast.
However, the Fed specifically did not price in Trump in its last statement though they did note that Q1 was noticeably slower. However, they also said that in itself was not enough to derail future hike plans. Based on recent statements, the Fed appears to be single-minded regarding their goal of gradually raising rates, and not merely data-dependent, suggesting a June hike is still in the cards. It seems too that after two hikes they want to focus attention on the balance sheet.
Colgate-Palmolive (NYSE:CL) shares surged on reports CEO Ian Cook is contemplating a sale of the company. Cook reportedly told institutional investors that a potential deal could put Colgate at $100 a share, increasing its total value to $88 billion.
Urban Outfitters (NASDAQ:URBN) declined after disappointing quarterly sales, as revenue edged down 2%, falling short of expectations, along with net income.
Advanced Micro Devices (NASDAQ:AMD) declined following weak earnings guidance. The chip-maker's shares had surged a day earlier on a rumored licensing deal with rival Intel (NASDAQ:INTC).
The ongoing sell-off in the US dollar started on Friday the 12th, after the disappointing inflation report and political uncertainty that week helped initiate the slide. The dollar index plunged an additional 2.13% last week, closing only 66 pips from its low, in a sign that traders were of one mind on the value of the index, which closed below its 50 and 100 week moving averages for the first time since October.
The euro closed above its 50 and 100 week moving averages, close to the top of its weekly trading range, after rising 1.9% and closing at 1.1206.
WTI closed on Friday above the psychologically important $50 mark at $50.33, cutting through the 50 and 100 dma like a hot knife through butter. It was the highest close for the commodity in over a month.
h2 The Week Ahead/h2Trump Changes Focus with G-7, Nato; Fed Notes; OPEC
President Trump will try to leave his troubles at home, as he embarks on his first overseas trip as US president. His travels began on Saturday in Saudi Arabia. He continues to Israel on Monday, then, on Wednesday to the Vatican, followed by Belgium on Thursday where, among a variety of other meetings, he's expected to reaffirm the U.S.'s commitment to NATO. The final leg of the trip, from May 26-27, will be a G7 meeting in Sicily.
Investors will have another opportunity to guess the Fed’s plans when it releases the minutes of this month’s policy making meeting, after it kept interest rates unchanged in May, while suggesting it was still on track for two more hikes this year.
After last November’s dramatic production freeze deal announcement, OPEC meets again, this time in Vienna where discussions on extending the deal are expected to be finalized.
Forecasts call for home sales in the US to have remained robust in April, suggesting that residential investment will continue to benefit the economy. Also on tap, the second estimate of first-quarter GDP and durable goods orders for April.
Tiffany, Costco, Intuit and Toll Brothers are all scheduled to report earnings this coming week.
h3 Monday/h3A confident showing by Trump at both his Sunday summit, organized by Saudi Arabia's King Salman, followed by his Monday trip to Israel, may impart some confidence to traders.
The second day of a 2-day meeting of Asia-Pacific trade ministers takes place. US Trade Representative Robert Lightzhizer will attend. An anti-protectionism statement is expected at the end of the gathering, in-line with China’s initiative to become the champion of globalization, which started with Chinese President Xi's historic attendance at January's World Economic Forum in Davos, where he delivered a speech to that effect. Currency traders may have a bit of a field day, since this diplomatic battle of the titans could cause a ripple effect in the foreign exchange marketplace.
The pound is likely to move as UK Prime Minister Theresa May will be interviewed on the BBC. She's attempting to increase her Conservative Party's majority in the June 8 general election. This past Friday, the pound reached its highest close since September, closing at 1.3036, only 12 pips lower than the high of the day, a sign of strength.
Hints, suggestions and innuendo regarding potential rate hikes could be on offer during this week’s episodes of Fedspeak, among the events: Federal Reserve Bank of Minneapolis President Neel Kashkari delivers the welcoming address at the Opportunity and Inclusive Growth Institute conference in Minneapolis at 10:30 EDT. The dinner keynote address will be given by Federal Reserve System Governor Lael Brainard at 19:00 EDT.
Philadelphia Fed President Patrick Harker gives a speech at the Jefferson College of Health Professions and Jefferson College of Pharmacy. His topic will be the link between physical and economic well-being. In Philadelphia at 10:00 EDT.
In its annual meeting, shareholders of Twitter (NYSE:TWTR)—a company which now has the greatest divergence between use and profit—vote whether to turn the company into a user-owned cooperative. The board hopes the vote will be “no.” A “yes” vote may send the stock stumbling while a “no” vote could send the stock higher.
The euro is likely to see some action, as investors await to hear finance ministers of the euro-area discuss Greece’s bailout program, 9:00 EDT.
Tuesday
President Donald Trump meets Italian President Sergio Mattarella and Prime Minister Paolo Gentiloni in Rome. On Wednesday, he meets with Pope Francis as the Vatican. A presidential Donald Trump may steady traders’ shaky hands. Any further gaffes from the US President are likely to spur a resumption of the anti-Trump selloff.
Economists expect sales of US new homes in April to remain at a nine-year high, confirming steady progress in the housing market.
Fedspeak brought the USD back to life during the week before last. Will it revive the greenback after last week’s devastation? Stay tuned to Minneapolis Fed President Neel Kashkari, as he speaks at a CICD Roundable on building economic well-being for native communities through homeownership, in Minneapolis, at 15:00 EDT.
At 17:00 EDT, Federal Reserve Bank of Philadelphia President Patrick Harker delivers his economic outlook speech before the MNI Connect Roundtable at the Harvard Club in New York City.
The API releases its weekly oil inventory report. Prices slipped last week after API reported a build of 882,000 barrels; expectations were that markets would see a draw of 2.3 million barrels. Last week’s build ended a run of five drawdowns over the previous six weeks.
Oil traders are in a precarious situation, between a rock and a hard place, between a potential deal extension and a rising US production. Technically, last week’s price rally of 5.20% and the 9.00% gain seen over the past two weeks, as the price rises toward the top of a falling channel, encourages traders to take profits and sell off. News needs to be good to support the current price.
European shares could move as EU finance ministers discuss double-taxation dispute-resolution mechanisms, the common corporate tax base at 4:00 EDT.
Earnings: US software firm Intuit Inc (NASDAQ:INTU) is expected to be on track to improve its online subscriber base 45% since the end of fiscal 2016, to 2.2 million by the end of 2017. They report earnings after the close.
Toll Brothers (NYSE:TOL) reports earnings before the market opens. The homebuilder has been using its large liquidity cache to purchase high demand urban locations throughout the country, such as in the New York City market which includes Northern New Jersey, Washington DC and Philadelphia. The company’s solid position vis a vis land ownership in these areas makes it well placed to meet growing demand in the northeast, affording it a competitive edge over peers who are presently facing land availability constraints.
Wednesday
The U.S. Federal Reserve releases minutes from the May 2-3 Federal Open Market Committee meeting, where Fed officials voted to keep rates on hold. By definition, the decision should have no impact on the dollar, since it's already priced in. However, traders and investors will read into real or imaginary suggestions based on the language of the minutes, with regard to future hikes. Currencies may move accordingly.
Economists project sales of previously owned U.S. homes in April probably eased from the strongest pace in a decade.
The euro is as susceptible to ECB speak as the dollar is to Fedspeak. ECB President Mario Draghi will speak midday in Europe.
Traders of the quintessential safe-haven currency, (and sometimes, asset) the yen, are sure to tune in when Bank of Japan Governor Haruhiko Kuroda and former Federal Reserve Chairman Ben Bernanke speak in Tokyo at a central bank conference entitled “Policy Lessons Learned and Challenges Ahead.” 09:00 local time (5/23 20:00 EDT).
Both central Banks of Canada and Thailand are expected to keep their interest rates unchanged, at 0.50% and 1.50%, respectively.
US luxury jeweler Tiffany & Co (NYSE:TIF) releases earnings before the market opens. The company is expected to confirm expectations that its New York flagship store remains under pressure from its proximity to Trump Tower as well as a strong dollar and fewer overseas tourists.
Will the EIA weekly crude oil inventory report indicate that US inventories declined for a seventh consecutive week? If so, oil traders are likely to push up the price. If not, nervous traders, still fearful from recent oil setbacks that saw price go down to a low of $43.76 in the first week of the month may be scared into dumping the commodity.
Thursday
President Donald Trump participated in a NATO summit. He and German Chancellor Angela Merkel have been at a standoff on Germany’s contributions to the organization. Russia will be a touchy—but most likely central theme. Once again, how strong Trump looks during these talks may very likely have a direct impact how US currency strength, even though Trump wants a weaker USD.
OPEC and NOPEC meet in Vienna. Central to the conversations will be extensions to last November's production cuts. Anything murmurings from this group, even from minor delegates under the condition of anonymity, sends the price of oil on wild swings.
Costco Wholesale Corporation (NASDAQ:COST) releases third quarter earnings after the close. While the company managed to navigate the changing tides of retail, from physical to virtual stores, the share price is near all time highs and some investors may be worried that it could be now be especially vulnerable to the massive growth of e-commerce, which might lure some shoppers away, especially after its membership price was increased.
US initial jobless claims are expected to rise from 232K to 238K; continuing claims are expected to rise from 1898k to 1925k.
Friday
President Trump, UK Prime Minister Theresa May and newly elected French President Emmanuel Macron join German Chancellor Angela Merkel and other leaders for the G7 summit. Meetings in Taormina, Sicily, take place on Friday morning, before the actual summit begins with a working lunch. Closing press conferences take place on Saturday afternoon.
The U.S. economy probably expanded at close to a 1% annualized rate in the first quarter, up from an initial estimate of 0.7 percent, the Commerce Department’s second reading of gross domestic product is projected to show. 08:30 EDT in Washington.
Federal Reserve Bank of St. Louis James Bullard speaks on the U.S. economy and monetary policy at Keio University in Tokyo at 10:45 local time (05/25, 21:45 EDT).
US Durable Goods Orders are expected to fall from 0.9% to -1.5%.
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