Week In Review: Politics Drives USD, EUR, GBP
Investing.com | Jan 22, 2017 07:06AM ET
by Eli Wright
Last week, politics as well as economics were jointly influential market drivers. Early in the week Theresa May provided some needed clarity on the the nature of UK’s Brexit procedures; later, key central banks weighed in with Fed Chair Janet Yellen maintaining a hawkish tone twice during the week, the European Central Bank's Mario Draghi announcing that the ECB had decided to hold rates steady. The week ended with the inauguration of Donald Trump as the US's 45th President.
Oil finished the week higher on a weaker US dollar and news that global supplies were tightening. OPEC members meet today in Vienna; Saudi Arabia's oil minister said yesterday that the cartel's member countries were showing "very good" adherence to previously agreed upon restrictions put in place to limit production. The US dollar ended the week lower, but stocks rebounded to close the week on an upleg.
h3 USD falls, stocks rise as Trump takes office/h3Major US indices ticked higher on Friday, but remained within their recent, choppy ranges, as President Trump took office—the Dow rose 0.48%; the S&P gained 0.34%; and the NASDAQ pushed 0.28% higher. Markets remain cautious as the dollar slipped against virtually all of the currency majors. The greenback tried to mount a comeback on positive economic data on Thursday including lower Crude Oil Inventories and a better than expected Philadelphia Fed Manufacturing Index, but the dollar slipped nevertheless.
During both of her speeches last week, Fed Chair Yellen her hawkish stance regarding at least three rate hikes during the course of the year.
Fed monetary policy is obviously not the only thing driving the dollar at the moment. Trump’s fiscal and trade policies will greatly impact trader sentiment. And if Trump’s speech at the inauguration was any indication, he remains decidedly protectionist:
h3 ECB holds rates steady/h3“Every decision on trade, taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families.”
The ECB rate decision and follow-up press conference by Mario Draghi went exactly as expected: interest rates were held at zero and no changes were made to the QE bond-buying program. The euro is up 0.36% versus the dollar, at $1.07.
h3 Britain’s Theresa May outlines her Brexit plan/h3
Get The News You Want
UK Prime Minister Theresa May softened her 'Hard Brexit' rhetoric this past Tuesday, committing to a Brexit vote in parliament and repeatedly stating that she wants free trade with the EU as well as new, beneficial, global trade agreements. In response, the pound rose nearly three percent on the week.
h3 OPEC meets in Vienna/h3OPEC and non-OPEC signatories to the recent production cut agreement began their meeting in Vienna yesterday with sessions continuing today. The overall intention is to prove to oil markets they're serious about limiting supplies and raising prices.
Saudi Arabia, Algeria and Kuwait have already made deeper cuts than required, while Russian Energy Minister Alexander Novak told reporters:
“We are ahead of schedule and we will continue. We are doing our best to maximize participation in the fulfillment of the agreement.”
Crude at $53.19 and Brent at $55.45. Additional positive headlines out of Austria will likely continue to boost prices.
h3 Last Week’s Biggest Stock Market Gainers/h3It was a lackluster week for US equities, with the S&P gaining just 0.09% in the shortened, four-day trading week. The index has been trading at a near standstill for eleven straight days now, neither rising or falling by even 0.4%.
Individual stocks, however, saw some larger fluctuations, with company earnings driving much of the price action.
The S&P's biggest gainer last week was CSX Transportation (NASDAQ:CSX), which rose 14.25% on the week. CSX reported Q4 2016 earnings on January 18, with EPS of $0.49 on $2.86B in revenue, better than the expected $0.42 EPS on $$2.8B in revenue. The real bump for CSX, however, came two days later, when rival Canadian Pacific's (NYSE:CP) CEO E. Hunter Harrison retired, six months ahead of schedule. He forfeited $86 million in benefits and equity awards in the process, leading to speculation that the hasty departure could signal he may be eyeing CSX as his next landing spot. CSX shares jumped 23% as a result – their best performance since Nov. 3, 1980.
Another railroad, Kansas City Southern (NYSE:KSU) also made the top ten list of S&P gainers; it rose 4.79% on Q4 2016 EPS of $1.21, which beat expectations of $1.17. Still, a lot of KCS business involves transport across the Mexico-U.S. border. The weaker peso could hurt its outlook. The freight hauler will also be affected by the new administration's debates about prospective changes to NAFTA.
Semiconductor company Skyworks (NASDAQ:SWKS) spiked 13.20% after it reported Q1 2017 EPS of $1.61, quite a bit better than the expected $1.40. Revenue came in less than forecast, but increased 9.4% sequentially.
NRG Energy Corp (NYSE:NRG) surged 9% last Tuesday and 10.34% overall on the week, after hedge fund titan Paul Singer's Elliott Management said it partnered with Bluescape Energy to push for changes at the power company. The two organizations own a combined 9.4% stake in NRG. In their 13D filing they said:
“The Group believes the securities of the Issuer are deeply undervalued and that there exist numerous opportunities to significantly increase shareholder value, including operational and financial improvements as well as strategic initiatives,”
Shares of Noble Energy (NYSE:NBL) rose 7.54% on the week, after the company announced plans to buy Clayton Williams Energy (NYSE:CWEI) for $2.7B and take control of more than 4,200 drilling locations in a coveted corner of the West Texas Permian Basin.
Industrial distributor company Fastenal (NASDAQ:FAST) gained 6.64% on the week, after it reported Q4 2016 EPS of $0.40, just beating analyst expectations of $0.38.
Infant formula manufacturer Mead Johnson Nutrition (NYSE:MJN) rose 6.32% on rumors that Nestle (OTC:NSRGY) is considering a takeover bid. MJN reports earnings later this week.
Skyworks’ strong earnings report was seen as a read-through to the rest of chip sector. Broadcom (NASDAQ:AVGO) rose 5.89% on the week, to an all-time high of $191.08, while Qorvo (NASDAQ:QRVO) fell just outside the top ten S&P gainers.
Two tobacco companies wrap up last week’s top ten S&P stocks. Reynolds American (NYSE:RAI) jumped 4.9% after it was announced that British American Tobacco (NYSE:BTI) had tendered a $49.4 billion offer to take full control of the RAI. Perhaps as a knock-on effect, Philip Morris International (NYSE:PM) rose 4.61%, and was upgraded by Zack’s from a “sell” to a “hold.”
h3 Last Week’s Biggest Losers/h3Three pharma stocks were among the biggest losers on the S&P last week.
Bristol-Myers Squibb (NYSE:BMY) sank 12.43%, after announcing it wouldn’t pursue accelerated approval for its lung cancer combination treatment. Mallinckrodt (NYSE:MNK) fell 9% after it agreed to pay $100 million to regulators to settle a drug-pricing probe. And Endo International (NASDAQ:ENDP) lost 6.44% and was downgraded by JP Morgan from “overweight” to “neutral.”
Banks had a tough week as well, with three landing on the bottom-ten list. Northern Trust (NASDAQ:NTRS) sank 7.57% despite posting strong earnings, as many traders bought the rumor of solid earnings, then sold the news. Two other banks, however, fell on account of lower than expected earnings: Bank of New York Mellon (NYSE:BK) fell 6.66%, and Citigroup (NYSE:C) fell 5.90%.
Chip maker Qualcomm (NASDAQ:QCOM) was hit with a $1 billion lawsuit from Apple (NASDAQ:AAPL), alleging unfair royalty charges. The stock fell 5.98% on the week.
Transdigm (NYSE:TDG), which develops and manufactures commercial and military aerospace components, was accused by Andrew Left, of noted short-seller group Citron Research, of inflating prices. Shares plummeted 10.05% on the week.
Target (NYSE:TGT) fell 8.68% last week after lowering its profit forecast and reporting that comparable sales over November and December dropped 1.3%.
Rounding out the bottom ten: Southwestern Energy (NYSE:SWN), which fell 6.27%.
h3 What to expect in the week ahead/h3With a relatively light week on the economic calendar, markets this week will likely once again be dominated by politics, as Trump tackles Obamacare, immigration, and trade, among other things. Indeed, there's talk that as many as 200 executive orders targeting Obama policies could be announced on Monday.
Among the headline announcements later this week will be housing and US Q4 GDP:
- Existing Home Sales on Tuesday
- New Home Sales on Thursday
- Core Durable Goods Orders on Friday
- Q4 GDP on Friday
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.