RECAP: for the week ending December 2nd

December 4, 2016

Stocks broke a string of three consecutive weekly gains. The narrowly focused Dow Jones Industrial Average outperformed the broader market, helped by strong performance from “blue chip” bank, energy, and health care stocks. Conversely, the technology-heavy Nasdaq Composite Index underperformed. On Wednesday, investors got news of one of those key developments, when OPEC agreed to production cuts in order to boost oil prices. The fact that oil producers had managed to come to an agreement surprised many and sent oil prices up nearly 9% for the day. Trading volumes also spiked Wednesday, fed in part by repositioning by institutional investors at month-end.

Eurozone stocks ended the week largely flat to lower, as the rally in certain sectors that followed the U.S. presidential election of Donald Trump cooled significantly. Italian banks were a drag on financial stocks, pressured by investors’ concern that Italian voters would reject a planned December 4 constitutional reform referendum vote that could help troubled, debt-ridden Italian banks.

Japanese stocks posted another weekly gain. Four consecutive weeks of rising Japanese stock prices contributed to a 5.5% gain in yen terms for the broad-based TOPIX Index in November. However, the yen was concurrently weakening and stood at about ¥114 per U.S. dollar on Friday, its lowest level since early 2016.

China stepped up its efforts to restrain money from leaving the country, a sign that regulators are growing more worried about currency weakness resulting from capital flight.

China’s State Administration of Foreign Exchange (SAFE) has begun vetting overseas money transfers of $5 million or more, down from a previous $50 million threshold, according to published reports.
Rising capital outflows have pressured the yuan, as many wealthy and middle-class Chinese have resorted to legal and illegal means to convert their yuan into dollars to protect themselves against depreciation. The yuan fell to an eight-year low against the U.S. dollar in November and has lost nearly 6% against the dollar so far this year.

In recent months, China’s central bank has sold dollars from its foreign currency war chest to prop up the yuan. But stabilizing the currency has come at a steep cost: China’s foreign reserves fell in October for the fourth straight month to $3.1 trillion, its lowest level since 2011. The latest moves to stem capital flight suggest that preserving foreign reserves is a greater priority for China’s government than targeting a specific yuan exchange rate.

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