Trend Reversal or a Secondary Correction

Weekly Economic Review – Trend Reversal or a Secondary Correction?


The leading global stock indices were traded this week with a moderate negative trend. US indexes fell by 1.4% on average, European indices fell by 0.1%, the emerging markets rose by 0.4%.

Government bonds were moderately positive, US government bonds rose ease, 10-year US government bond yields fell from 2.5% to 2.41%, and the UK and German government bonds also traded slightly higher.

President Trump’s failure to pass an alternative health reform to that of Obama has led to falls in the US market, due to the fear that tax reform will also fall or be implemented on a limited scale (budget deficit problem).

The failure to dismiss “ObamaCare” casts doubt on President Trump’s ability to implement many reforms in the planning, which have concentrated quite a bit of focus in the market recently.

This element of uncertainty may increase short-term volatility in the US. The sectors that experienced increases in view of the expectations for reforms were realized last week at a considerable rate, such as the financial sector in the US.

The TRUMP TRADES (trading tactics according to Trump’s expected policy) are expected to continue to concentrate interest in accordance with the President’s ability to realize his economic doctrine.

Bottom line: After the failure with the Obamacare, uncertainty about the implementation of the fiscal programs of the administration increased. The tax reform is expected to be more limited and has a smaller impact on the economy and markets. Volatility in markets is expected to increase.

The real economic indicators published this week in the developed countries were as usual positive.

The Purchasing Managers Index of the Eurozone production showed impressive expansion, including Germany and France, a similar trend was seen in the US.

Mixed data was seen in the US in durable goods (0.4%, expected to 0.5%).

The OECD has issued negative reviews on China, concerns over excess production in heavy industries, and bubbles in real estate and credit.

Britain has begun the process of Brexit, which will last up to two years. England will be charged £ 50 billion in payments to the European Union, and some financial institutions are likely to move from Britain to Europe.

The price of a barrel of oil fell by 1.7% this week, the commodity price index fell 0.6% this week, the price of an ounce of gold rose 1.5% this week, the dollar was trading at 0.7%

Political

Total confusion and inconsistency in US foreign and defense policy in all areas, in its relations with the EU, China, Syria, Russia, Mexico, Canada, and others

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 (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) – 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) – 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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