Friday December 2, 2016 - 23:09:56 GMT
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Watch Out!: Trump Is On The Scene
John M. Bland, MBA
Trump Arrival Boosts Confidence
The arrival of Donald Trump as President-Elect has not been a subdued event for the financial markets. Investors have been pricing in great things for the economy, perhaps some are unrealistic and it may be that they have gotten ahead of themselves. One of the first things a new President learns is how little power he has when it comes to pushing his legislation through the Congress. Fortunately for Trump, the U.S. economy was already starting to build forward momentum before the election ad that has continued. Keep in mind, he still will not be installed as President for another fifty days or so. Markets have been giving him credit for economic data for which he cannot claim credit. However, he can claim credit for the change in consumer sentiment.
Trump has not been the only game in town, dealers also have been waiting for the Italian Constitutional Referendum on Sunday, December 4. This remains a very high profile event for Europe and the EU. Some are touting this vote as an indirect referendum on the Euro. If these reforms are defeated soundly, the Renzi government could fall. The ECB has assured markets that it has the capacity to buy ample Italian government bonds if required to calm investors. The quiet period for Italian polls started several week agos, when they last were published, they showed a clear advantage for the "no" vote. However, after Brexit and the Trump victories, few have any faith in election polls. At this point, any outcome would not surprise us. In theory, a "no" vote SHOULD be a negative for the Euro, but it was not trading as weak as we normally might have expected before such a momentous event. We will be playing the outcome of the vote late Sunday by ear.
The U.S. Presidential final vote is another unexpected uncertainty. Green Party candidate Jill Stein, with some help from the Clinton campaign, is attempting vote recounts in Wisconsin, Michigan and Pennsylvania. The odds in favor of a reversal of the Trump victory are slim indeed. Some feel Stein is doing this mostly for personal reasons, but until the Electoral College vote is completed on December 19, anything is (remotely) possible.
OPEC surprised the markets with a decision reduce production by 1.4mn BPD to 32.5mn bpd. Their hope is this will support the price of crude at $50 to $60 a barrel. Oil traders tell us the Ministers had deftly engineered a squeeze on oil shorts. Conventional wisdom is that excess supply will be worked down due to increased demand and and put support for crude prices. Keep in mid that WTI at current levels will draw out more supply from U.S. producers. The U.S. is gradually taking over the role as "swing" oil producer.
U.S. November employment data came in roughly in line with street estimates. The unemployment rate fell to 4.60% from 4.90%, but average HOurky Earnings unexpectedly fell. The data should not impact Fed intentions to raise rates at its upcoming meeting . Monthly Job statistics and inflation are the top items on which the FOMC monetary bases its policy decisions. Markets have placed 100% odds on a 25bp Fed Funds target increase on December 14.
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The week ahead features final Service PMI data for November and monetary policy decisions from the RBA, BOC and ECB.
WEEKLY HIGH IMPACT NEWS:
All Day- final Service PMIs
04:30 AU- RBA Policy Decision
10:00 EZ- GDP
13:30 US- Productivity
00:30 AU- GDP
15:00 CA- BOC Policy Decision
15:30 US- EIA Crude
23:50 JP- GDP
02:00 CN- Trade
12:45 EZ- ECB Policy Decision
13:30 US- Weekly Jobless
02:00 CN- CPI
09:30 GB- Trade
15:00 US- University of Michigan Survey
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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