Last week’s top five stories …
- The Trump administration insists it favors a strong-dollar policy in the wake of Treasury Secretary Steve Mnuchin’s comments to the contrary. On Wednesday, Mnuchin told reporters at the World Economic Forum in Davos, Switzerland that a weak dollar was good for U.S. trade, causing the U.S. Dollar Index (DXY) to drop precipitously (the index fell 1.6% last week). However, in his speech at Davos, President Trump appeared to contradict Mnuchin (and his own past comments) indicating he favors continuing the strong-dollar policy. Mnuchin himself walked back his comments, claiming they were misinterpreted.
- The Department of Commerce announced that U.S. GDP growth slowed in Q4 of last year due to a surge in imports, putting annual GDP growth last year at 2.6%. Economists attribute the rate of increase in imports – which surged to a seven-year high – to an increased pace of consumer spending. The 2.6% growth rate fell slightly below expectations of a 3% growth rate, but economists indicate that the strong economic growth in 2017 bodes well for the economy heading into 2018.
- Wynn Resorts CEO Steve Wynn resigned from his position as Republican National Committee finance chairman after a bombshell Wall Street Journal report detailing numerous instances of sexual misconduct by Wynn. Wynn continues to deny the allegations, claiming, “The idea that I ever assaulted any woman is preposterous.” The Wynn Resorts board of directors has launched an investigation into the allegations, and Wynn Resorts stock (NASDAQ: WYNN) plummeted following the publication of the report, falling over 10% on Friday.
- Robinhood, the mobile brokerage platform offering commission-free stock trades, says it will begin allowing bitcoin and Ethereum trading beginning in February. The company also announced that transactions in cryptocurrencies will be commission-free, posing a major threat to other crypto trading platforms like Coinbase, which charge high transactions fees.
- The Senate voted on Tuesday to confirm Trump’s Federal Reserve chairman nominee Jerome Powell, on a vote of 84-13. Trump had nominated Powell for the position in November of 2017. Powell has said he supports every decision current chair Janet Yellen has made, drawing praise from Democrats who have supported Yellen’s positions on regulation and monetary policy. Irrespective of the change in leadership, the Fed will most likely raise interest rates in March, and the Fed remains committed to three interest rate hikes in 2018.
Last week in markets …
- Major U.S. benchmarks closed at record highs once again last week given the strong earnings and economic data from Q4. The Dow Jones Industrial Average (DJIA) finished up 2.1% for the week, the Nasdaq Composite (COMP) closed up 2.3%, and the S&P 500 (SPX) finished up 2.2%.
- European benchmarks finished slightly down last week as a result of Treasury Secretary Steve Mnuchin’s comments on the U.S. dollar. The UK’s FTSE 100 Index (FTSE) finished down 0.8%, and the German DAX Index (DAX) closed down 0.7%.
- Asian markets had a mixed week, with some benchmarks up and others down. Japan’s Nikkei 225 finished down 0.7%, while India’s BSE Sensex finished up 1.8% and Hong Kong’s Hang Seng closed up 2.6%.
Three key takeaways from last week …
- Trump and members of his administration cannot seem to get on the same page about their plans for the economy. The contradiction between Mnuchin and Trump’s comments on the dollar are only one aspect of this. In September of 2016, Trump seemed to take exception to Yellen’s dovish stance on interest rates, claiming the market was being propped up by artificially low interest rates. Then, on Mnuchin’s advice, he reversed course, nominating Jerome Powell, who largely falls in line with Yellen’s stance on interest rates, for chairmanship of the Fed. He has also repeatedly called for a border adjustment tax, which Commerce Secretary Wilbur Ross failed to endorse, but no such provisions were included in the recent tax bill. Although the media has mostly focused on Trump’s clashes with Secretary of State Rex Tillerson and Secretary of Defense Jim Mattis, his clashes with Mnuchin and Ross have prevented the administration from communicating clear policy positions on the economy.
- Financial markets continue to shrug off news about the Mueller probe and its implications. Even with news that Trump ordered the firing of Special Counsel Robert Mueller last June – only to back off when White House counsel Don McGahn threatened to resign – the expansion of the Mueller probe to include Russian billionaire Oleg Deripaska, and increasing speculation of impeachment in the media, financial markets continue to churn out all-time highs. While markets have historically tended to drop on news of political turmoil in Washington, due to strong corporate earnings and economic data, markets have mostly brushed such news aside as of late.
- Bitcoin and other cryptocurrencies still defy rampant speculation from both ends of the spectrum. Predictions for Bitcoin in 2018, after a meteoric rise in 2017, vary from a fivefold increase in value to a complete collapse of the currency. Critics have pointed to South Korea’s consideration of a ban on Bitcoin trading and the use of Bitcoin as a speculative instrument rather than an actual currency as reasons for the impending collapse. On the other hand, proponents say that volatility will eventually subside, and point to the fact that the currency is slowly expanding its user base. The currency itself, however, continues its rollercoaster of a ride, finishing slightly up this week. Every time critics have declared the bubble to have popped, it seems to rebound, and every time proponents claim the currency is set for an explosive rise, it seems to drop 10% in intraday trading. While practical usage of the currency in everyday life is still significantly limited, only the future will tell where Bitcoin, and the underlying blockchain technology, is headed.
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