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Financial and Economic Brief - Jan. 24, 2017

by © Liberty Publishing, Inc.

Economic Growth Expected in Q4

This week a picture of the U.S. economy is expected to show moderate growth, a secure housing recovery, and an emerging rebound in business investment. Existing home sales have risen three months in a row reflecting homeowners who want to lock into low borrowing costs before interest rates rise, according to Nomura economist Lewis Alexander. In addition, last year's rise in oil prices started a rebound for the oil industry and capital orders for non-defense big-ticket items rose 0.9% in November and is up two straight months. The rebound in business capital spending helped the economy grow at a 3.5% annual rate in Q3, its biggest gain in two years.
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U.S. Stocks Fall

U.S. stocks fell along with the dollar, while Treasuries grew as the Trump administration targeted reworking trade relationships. The S&P 500 Index fell 0.5%, the lowest level since January 3. The Dow Jones Industrial Average erased its gain in 2017. The Bloomberg Dollar Spot Index fell 0.6% for the fourth straight week, its longest “retreat” since February. Crude oil was down 1.4% at $52.48 a barrel after the amount of drilling rigs in the U.S. increased. The yield on the 10-year Treasury declined two basis points to 2.44%. Investors are looking for the particulars on President Trump’s campaign-trail promises to boost growth and government spending.
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Aetna and Humana Merger Blocked

A Federal judge blocked the proposed $37 billion merger between Aetna and Humana, ruling that the transaction would reduce competition for consumers. “In this case, the government alleged that the merger of Aetna and Humana would be likely to substantially lessen competition in markets for individual Medicare Advantage plans and health insurance sold on the public exchanges,” U.S. District Court Judge John Bates wrote in his ruling. The head-to-head competition between Aetna and Humana would be eliminated if the deal was allowed to go forward.
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Financial and Economic Brief - Jan. 17, 2017

by © Liberty Publishing, Inc.

Hyundai to Increase U.S. Investment

Hyundai Motor, South Korea's largest carmaker, is planning to increase its investment in the U.S. by 50% over the next five years, to $3.1 billion, as it seeks to take advantage of the promises by President-elect Donald Trump to boost the American economy. Hyundai adds that their investment is a reflection of the importance of the U.S. market. “We expect a boost in the U.S. economy and increased demand for various models as president-elect Trump follows through on his promise to create 1 million jobs in five years,” Chung Jin-haeng, president of Hyundai Motor, told reporters. Between 30-40% of the investment would be devoted to R&D.
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Dollar Falls on Trump’s Comments

The U.S. dollar fell 1.2%, according to the Bloomberg Dollar Spot Index, after the president-elect called the U.S. currency “too strong” and the British pound rallied 2.8% on Prime Minister Theresa May’s Brexit plans. This was the pound’s biggest gain on the dollar since the global financial crisis in 2008. “The dollar is the guiding light at this point, and all eyes are on the shape U.S. policy will take. I would put today’s dollar weakness down to noise rather than a structural shift,” said Fredrik Nerbrand, global head of asset allocation at HSBC Holdings Plc.
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U.S. Stocks Fall

On Tuesday, U.S. stocks fell as investors considered President-elect Donald's Trump's comments on the dollar and drug costs. In fact, the dollar index fell nearly 0.8% after Trump cautioned that the dollar was too strong which hurts the competitiveness of U.S. companies. Furthermore, healthcare stocks were hit after Trump told reporters that he would target pharmaceutical companies because of their drug pricing. U.S. stocks and the dollar have rallied since Trump's election on hopes that he would create an era of economic growth through fiscal stimulus. However, the rally has slowed as Trump has provided very few specifics on his policies.
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Financial and Economic Brief - Jan. 10, 2017

by © Liberty Publishing, Inc.

U.S. Jobs Miss Mark but Wages Grow

According to a report on Friday from the Bureau of Labor Statistics, nonfarm payrolls grew by 156,000 jobs in December. This number missed expectations by 22,000 but was minimized by a sharp gain in wages. Average hourly wages jumped 10 cents to $26, representing a 2.9% annualized gain. “The most important thing is the growth in average hourly earnings, the best since 2009,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman. “It provides further evidence… the Fed needs to conclude the labor market has recovered, mission accomplished, giving them the green light to accelerate interest rate increases.”
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Venezuela Hiked Minimum Wage 50%

President Nicolas Maduro increased the minimum wage another 50% on Sunday, the fifth time over the last 12 months. This increase “pales in comparison” with the increases in prices that have made food too expensive for many Venezuelans. Inflation is expected to surge to 1,660% this year and 2,880% next year, according to forecasts by the International Monetary Fund. The country's falling currency and growing inflation have made its banknotes almost valueless. Maduro said Sunday that the minimum wage increase was an effort to protect the incomes of the citizens. It follows a hike of 40% less than three months ago.
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Stocks and Oil Fall

U.S. equities fell, with the Dow Jones Industrial Average falling toward 19,900 amid concern stocks rose “too far too fast” on speculation Donald Trump’s policies will stimulate growth. Sterling fell to a 10-week low. The yield on 10-year Treasury notes fell below 2.40% and gold declared the first two-day gain since early November. Also, oil fell for the first time in four days. Treasury yields are lower than where they were before the Fed raised interest rates in December, while the dollar remained near a 14-year high. Overseas currencies have become the way for investors to convey “displeasure” with political developments.
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Financial and Economic Brief - Jan. 3, 2017

by © Liberty Publishing, Inc.

Pending Home Sales Fall

According to a recent report by the National Association of Realtors, the Pending Home Sales Index was down 2.5% in November. Apparently higher mortgage rates and the low supply of available homes affected home sales. “Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract,” said Lawrence Yun, NAR's chief economist. Only home sales in the Northeast saw a gain, up 0.6% in November and the West saw the largest decline, down 6.7% for the month.
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Argentina’s New Tax Law

Argentina’s exiting finance minister, Alfonso Prat-Gay, recently announced that about $90 billion of assets have been declared by Argentines in the wake of a new tax amnesty law. Furthermore, Argentina has already collected $5.2 billion in fees related to registering the previously undisclosed assets. “It's good news and a great step forward,” Claudio Zuchovicki, an Argentine economist noted. Argentina needs the money as it is in a recession, but experts say that the new tax revenues alone won't get Argentina out of recession or change its long term financial outlook.
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Factory Activity Hits High

According to the Institute for Supply Management (ISM), its index of national factory activity rose 1.5 percentage points to a reading of 54.7 last month, the highest since December 2014. A reading above 50 indicates an expansion in manufacturing. The report indicates that there was a surge in new orders and employment suggesting some of the oil-related drag on manufacturing, since the collapse in oil prices in 2015, was fading. In fact, a gauge of new orders jumped 7.2 percentage points, to the highest level since November 2014 and a measure of factory employment rose 0.8 percentage point, to the highest level since June 2015.
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Financial and Economic Brief - Dec. 28th, 2016

by © Liberty Publishing, Inc.

Consumer Sentiment on the Rise

According to a University of Michigan report, the Index of Consumer Sentiment rose to 98.2 in December, the highest level since January 2004, up from 93.8 in November. Richard Curtin, the Surveys of Consumers chief economist, reported that 18% of consumers mentioned the expected favorable impact of Trump's policies on the economy as a factor on the numbers. “Compared with the rapid gains made in late November and early December, the Sentiment Index was barely higher than at mid month and barely higher than the January 2015 peak,… but that small difference was enough to establish a twelve year peak,” said Richard Curtin.
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Strong Third Quarter for U.S. Economy

The Commerce Department recently reported that the U.S. economy grew 3.5% in the third quarter, compared to the same quarter in 2015. However, overall the U.S. economy grew at a “sluggish pace” in the first half of 2016, averaging 1.1%, and the forecast for the entire year is around 2%. In fact, the Federal Reserve sees the economy growing around 2% for the next few years. Consumer spending made up most of the activity and rose 3% in the quarter and government spending also picked up.
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SEIU Budget Cut

In an internal memo that was reviewed by Bloomberg Businessweek, labor unions are “bracing for lean times” under the presidency of Donald Trump. The Service Employees International Union (SEIU) the nation’s largest union, is planning for a 30% budget cut over the next year. SEIU President Mary Kay Henry cited the need to “dramatically re-think” how to implement the union’s strategy and noted that the SEIU “must plan for a 30% reduction” in the international union's budget by January 1, 2018, including a 10% cut effective at the start of 2017.
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Financial and Economic Brief - Dec. 21st, 2016

by © Liberty Publishing, Inc.

Survey Says another 6 Months

According to a survey of 31 Wall Street economists, the Federal Reserve will wait six months before raising interest rates again suggesting a more cautious approach to tightening until they see the economic package president-elect Trump has promised. The survey results come a few days after the Fed pushed its official rate higher by 0.25% for only the second time since 2008 and upset bond markets by projecting three further moves next year. “Global growth will improve next year but remain under its long term trend,” said Gregory Daco, an economist with Oxford Economics. “Mr. Trump’s policies, …will be pivotal to global developments.”
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EU Sanctions on Russia Continue

Europe has extended economic sanctions on Russia for another six months. European Council President Donald Tusk said, “Some of our colleagues would prefer maybe 12 months. But it was clear from the very beginning that what was possible is to maintain our current format ... for six months.” The U.S. and EU both imposed sanctions on Russia after it seized Crimea from Ukraine in 2014. The EU limited travel and froze the assets of nearly 150 people over the conflict. It also imposed restrictions on sectors of Russia's economy: banks, energy firms and defense contractors. Ukrainian President Petro Poroshenko thanked Europe for its action.
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China’s Capital Outflows Gather Speed

According to Goldman Sachs economists, China’s capital outflows are accelerating and the central bank is selling larger amounts of foreign exchange. In fact, a net $69.2 billion exited China in November, compared with a monthly pace of around $50 billion since June. “Capital outflows and yuan depreciation will continue or even worsen by the end of this year and the first quarter of 2017, as investors are getting increasingly concerned about a stronger dollar and China’s economic conditions,” said Banny Lam, head of research at CEB International Investment.
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