RECAP: For the week ending February 3rd 2017

February 5, 2017

a Friday rally compensated for a poor start to the week. Smaller-cap stocks recorded a gain and performed somewhat better than large-caps, but all of the major benchmarks remained below their recent record highs. Sentiment was driven during the beginning of the week by President Trump’s recent immigration ban. The move provoked complaints from a number of companies, particularly technology firms that rely heavily on overseas talent. President Trump followed this up on Tuesday by firing the acting Attorney General for challenging his immigration order, which may have weighed on sentiment Tuesday. A rally from drug companies staved off this sentiment however, as President Trump met with industry executives and promised expedited approvals. later in the week that even earnings reports that solidly outpaced expectations seemed unable to result in significant stock gains. Apple’s earnings beat on Wednesday was a significant exception, with shares in the heavily weighted stock rallying over 6% on the news.

In Europe: Brexit gained momentum and equities pushed higher  towards the end of the week amid expectations of looser financial regulation. The Pan European stoxx 600 still finished the week slightly lower. UK government bonds rallied this week as Parliament voted in favour of a bill that gives Prime Minister Theresa May the power to invoke Article 50 of the Lisbon Treaty in March, which will begin the formal process of the country’s exit from the European Union. The Bank of England’s (BoE) Monetary Policy Committee voted unanimously to keep the policy rate unchanged at a historic low of 0.25% but upgraded its growth forecasts. The BoE said in a statement that the change in the growth outlook “reflects the fiscal stimulus announced in the Chancellor’s Autumn Statement, firmer momentum in global activity, higher global equity prices, and more supportive credit conditions, particularly for households.” The yield on the 10-year gilt dipped below 1.4% at the end of the week.

In Asia: The Nikkei fell nearly 3% and the Yen is continuing to rally against the USD. The yen has risen from its 117Y/USD at the close of 2016 to 113, and during Friday reached 112Y/USD. This pushed the 10 year JPY bond to 0.15%, above the CB stated target of 0.00%. This prompted Japanese government intervention, affirming their commitment to controlling the yield curve. The BoJ wrapped up a two-day central bank board meeting earlier this week and decided not to change its current monetary policy—keeping interest rates on deposits at -0.1%, buying JGBs at ¥80 trillion per year, and capping the 10-year JGB yield at about 0.0%. The BoJ also forecast an era of stronger economic growth—above its long-term trend to March 2019—based on its program of easy monetary policy, fiscal stimulus efforts, and an increase in global economic growth. BoJ Governor Haruhiko Kuroda said that he had renewed optimism following a generation of on-and-off deflation.

Other news: As tensions between the U.S. and Mexico remain high, the Mexican government said it would begin a 90-day period to consult with the country’s private sector and prepare a negotiating position on NAFTA. At the same time, President Trump has been trying to win support from key legislators to move quickly on revamping the 23-year-old trade agreement. Despite the increasingly heated rhetoric, Mexico’s currency has risen. The peso was up 1.7% for the week and was almost 5% higher since President Trump’s inauguration.

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