RECAP: for the week ending November 25th

November 27, 2016

Stocks gained for the third week, bringing all of the major indexes to a series of new highs. Several news organizations reported that on Monday stock markets achieved a “superfecta” for the first time in 17 years with the Dow Jones Industrial Average, Standard & Poor’s 500 Index, Nasdaq Composite Index, and small-cap Russell 2000 Index all setting records. Exchanges were closed on Thursday for the Thanksgiving holiday, and trading ended at 1 p.m. on Friday, but trading volumes were solid early in the week.  Overall, the week’s economic data were generally favorable. The University of Michigan’s gauge of consumer sentiment rose more than expected in November, Markit’s flash reading of November manufacturing activity showed an increase, and October durable goods orders recorded a solid gain.

In Europe the pan-European Stoxx 600 equity benchmark rose for the third straight week, led by strong performances from energy and mining companies.  European stocks were supported by the rally in the U.S. and hopes that OPEC’s upcoming meeting will result in a production cutback. Italian banks were pressured by concerns about the impact of the country’s constitutional referendum on December 4. The euro traded at its lowest level versus the U.S. dollar since the end of 2015. Pressure on a unified Europe have increased which has contributed to the decline of the euro versus the dollar. The Brexit vote in June was a major driver in the process, but a series of elections over the next year—beginning with the Italian referendum and the Austrian presidential election in early December—have the potential to further weaken the European Union. France is also electing a new president in April 2017, and German federal elections are expected in the fall.

In Japan the yen continued to weaken and stood at about ¥113 per U.S. dollar on Friday, its lowest level since early June. The dollar has gained about 14% versus the yen from its lowest level of the year in mid-August. A depreciated yen is typically seen as positive for the Japanese economy because of their massive exports.

U.S. President-elect Donald Trump met with Prime Minister Shinzo Abe last week, which raised some hopes for a softening stand on trade relations with Japan on the part of the new administration. In a brief YouTube video statement this week, however, the future president announced that he would issue an executive order to withdraw the U.S. from the Trans-Pacific Partnership (TPP), which was a signature policy of current President Barack Obama. Trump said he would replace it with a “fair and bilateral” trade deal that brings jobs home. Japanese Prime Minister Shinzo said that without the U.S. the TPP agreement would be meaningless, and Trumps’ critics have argued that abandoning the agreement will allow China to increase its influence in Asia.

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