Weekly reviews

Acceleration of rate hikes still in Fed plans

Today, European markets are trading in the green, led by  automakers and bank sectors. European banks are back under demand as investors expect promising financial results from some US major financial companies. US futures indices are in the green zone as well.

The index of wholesale prices in Germany rose by 1.2% in December compared to the previous month, higher than the growth forecast of 0.3%.

The consumer price index in Spain rose 0.6% in December compared to the previous month, in line with economists’ expectations.

Yesterday, US markets recovered some losses and moved away from session lows. Nevertheless, the indices closed negatively, - investor fixated the profits, before the season of corporate earnings start. In addition, there is still pressure on the market, from negative assessment on the first official President-elect Donald Trump press-conference.

Investors, increasingly, are beginning to question the validity of current markets levels, after the Trump's victory in presidential election. Yesterday, oil prices continued to gain amid reports from Saudi Arabia and the production cut to the level of 10 million barrels per day.

Market reaction to the data on weekly jobless claims and the level of import prices was positive, as the data indicate a further increase in the labor market and a surge in inflation due to high oil prices.

Philadelphia Fed President Patrick Harker, speaking in Malvern, Pennsylvania, said that the US economy shows good growth rate and three interest rate increases in 2017 are likely if the economy maintains to grow.

Asian stock markets closed mixed. Investors ignored the data on China trade volumes. The December data showed, that exports fell more than expected: to -6.1% compared to a year earlier, while imports gained more than expected, by 3.1% compared to a year earlier.

As the largest country in the world in terms of trade, China may be under pressure from protectionist measures in this year if Trump will raise tariffs on China imports.

Yesterday, we received confirmation that US financial authorities are demonstrating confidence in the US economy straight and the Fed officials continued rhetoric about rate hikes amid good inflation dynamics and labor market. All of this adds some confusion in the market sentiment. We can see two opposing factors affecting the US currency. Nevertheless, we expect that US dollar index decline will stop before 100 points levels (DXY). Today, we are already seeing some profit-taking on US dollar "shorts" and gold "long". As for the stock markets, there is likely to be a short time during which the investors are going to be confused and will reevaluate their expectations. The corporate reporting season in the US now will affect the game, and will setup the player's mood for next week. Next Monday, United States celebrate Martin Luther King Day and most of American instruments will be closed for the rest of the day.

chart 01.2017

chart 01.2017