RECAP: for the week ending February 10th

February 12, 2017

Stocks were on the rise this week as most major indexes reached new all time highs. The Wall Street Journal reported on Monday that the large-cap Standard & Poor’s 500 Index had gone 34 trading days without a daily swing of over 1%, the longest run of its kind in over two decades. On Wednesday, the index established an all-time record for such a streak, which was extended to 39 days by Friday. The largest surge was on Thursday, possibly due to the Trump administration seeming to cooperate with the Republicans in congress pushing for reductions in entitlement spending. A leader of the House Freedom Caucus was confident from discussions with Trump that the president would back entitlement cuts as long as current beneficiaries were not affected. Additionally, on Thursday, Trump announced ‘something phenomenal in terms of tax’ to a group of aviation executives.

Major European stock indexes ended the week higher, with earnings results from key companies helping to fuel gains. After a fairly quiet start to the week, the pan-European Stoxx 600 kept climbing as the week progressed, despite building political uncertainty surrounding the upcoming French presidential election. Government statistics showing retail growth in France and stronger factory orders in Germany also helped to support markets. ECB President Mario Draghi is worrying that Donald Trump’s current review of regulation in the banking industry, which would almost certainly result in deregulation,  could lead to the next global financial crisis. “The last thing we need at this point in time is the relaxation of regulation,” Draghi said this week in Brussels.

The Japanese stock market benchmarks posted strong gains for the week. The widely watched Nikkei 225 Stock Average advanced 2.44% (461 points) and closed at 19,378.93. For the year to date, all of the major equity market yardsticks are in positive territory. The Nikkei is up 1.4%, the broad-based TOPIX Index gained 1.8%, and the TOPIX Small Index is up 2.0%. The yen strengthened early in the week and subsequently reversed course, closing Japanese trading a bit weaker at ¥113.5 per U.S. dollar, about 3.0% stronger than ¥117 per U.S. dollar at the end of 2016.

Prime Minister Shinzo Abe and President Donald Trump began a two-day summit at the end of the week. According to sources familiar with the agenda,the leaders were to talk about Japanese companies investing in U.S. infrastructure projects, Japan’s willingness to increase its U.S. energy imports (oil and natural gas), and solutions to Japan’s trade surplus with the U.S. ($184 billion in 2016). Japan has recently reemerged as the second-largest contributor to the U.S. trade deficit (after China), and it is the largest holder of U.S. Treasury securities (slightly greater than China).

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