Weekly Economic Review — Upward Trends in The Stock Market, The Government Bond Market Declines

The stock markets around the world continue normally their upward trend.

Leading US stock indexes continue to stand out. European indexes rose 3%. The Emerging Markets fell on average by 1.3%.

YTD world index rose by 5.8%.

4Q/16 earnings season in the United States is approaching its end: so far, 487 companies have reported within the S&P500 with about 73% beat earnings estimates approximately 53% of the sales forecast.

Companies are expected to show growth of 4% in sales and 5.3% in net earnings growth compared year-on-year.

Government bonds went down this week. The yield on 10-year bonds of the US government this week increased from 2.31% to 2.48%. A similar trend was seen in the UK and Germany.

The economic indicators released this week in the world were involved and with no clear trend, however, US economic activity continues to be very positive. Economic activity in Europe and in the developing countries is stable and indicates a moderate expansion.

US economic growth last quarter was relatively moderate 1.9%, however, current economic data were very good, in real estate, employment, operating in various industries (ISM) and consumer confidence. The positive data and the Fed’s speech raised the chances of a rate hike already in March, and the odds of three rate hikes this year increasing.

Somewhat disappointing data released in Europe, a decline of 0.1% in retail sales across the continent and a corresponding reduction in Germany and the UK, however, the rate of inflation rose to 2%, mainly due to rising in the energy prices.

The price of oil went down this week at 1.2%, the index of commodity prices fell 0.6% this week. Per ounce of gold dropped 1.8% this week. The dollar traded rising 0.45% against a basket of currencies and rising 0.56% against the euro

Political

Trump moderate speech this week at the congress and reduced political and economic threats to different countries (Mexico, Iran, North Korea, the European Union, Germany, Japan, China, etc.) bring to uncertainty reduction in the markets.

Moreover, most of his ministers and advisers are moderate and level-headed in their economic and security approach. when only the personal adviser Bannon, remains as a radical.

Conclusions

Global stock markets mostly embody the current pricing of “good news”, among others, against the background of economic viability and companies. However, the number of challenges currently facing in 2017, including: pricing is not cheap, uncertainty around policy trump, elections in the Netherlands, France and Germany, possible deterioration in the political situation in Italy and the return of the Greek debt crisis headlines. This, combined with the effect of monetary tightening is expected in the US currency basket, the era of expansions in Japan and Europe, supported adopting a conservative approach

Consumer Discretionary (IYC, XLY)- In view of the increase in income disposable light of the planned reform of the individual income tax.

Energy (XLE) — In view of the removal of environmental regulation, and support activities Locally.

Finance (VFH, XLF, KBE) — In view of the credit growth, net interest income, operating expense structure and quality of credit portfolios that show consistent improvement. Easing regulation of the financial system, improving consumer sentiment, an expected reduction in corporate and income taxes, disposable income and the improvement in revenue funding as a result of the increase in interest rates, supports in investment in the financial sector to the near future.

Technology (QQQ, VGT, FDN, FTEC) — In light of conflicting effects on the bottom line of corporate tax reduction, on the one hand, and increasing regulatory supervision of the sector, on the other.

MSCI Europe / S & P Europe 350 (hedged) — In view of the positive effect of the expansionary monetary policy of the ECB on the profits of multinational companies (HEDJ).

Germany (hedged) — In view of the increase in revenues of export-oriented light of the weakness of the euro against the dollar (DXGE).

UK (hedged) — In view of the interest rate cut and positive growth and postponement of exit from the block will benefit private spending of leisure (DXPS).

Nikkei2225 (hedged) — In view of the monetary and fiscal expansion parallel to support the weak currency profits of exporters (DXJ).

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Originally published at investegies.co on March 6, 2017.

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