Could these new rules in European Union have the potential to complicate the markets? And what might the White House’s potential trade crackdown mean for the global markets? Get our thoughts on these questions and more in this week’s edition of Steady Investor’s Week:
Soft Patch in U.S. Economic Data – Is it Temporary? December saw a soft patch in some key U.S. economic data. According to the Bureau of Labor Statistics, employers added a fewer-than-expected 148,000 workers in December, led by a decline retail positions as brick-and-mortar stores shuttered in favor of online sales. In another batch of data released by the Institute for Supply Management’s index of service industries – which represents most of the economy – the index fell to a four-month low amid a slowdown in orders. We believe that the slowdown in services coupled with a widening trade deficit may make a 3% or higher target for GDP growth difficult to achieve, particularly given the US economy is operating at close to full capacity. The mixed data may give the Federal Reserve some pause in their telegraphed plans to raise interest rates steadily this year, especially if the weaker data persists. Q1 may be telling.
The United States Becomes a Net Exporter of Natural Gas – for the first time in at least 60 years, the United States has become a net exporter of natural gas on an annual basis. According to data from the Energy Information Administration, net exports averaged about 0.4B cubic feet per day last year, which marks a substantial reversal from the 1.8B cubic feet of net inflows in 2016.
Sweeping Rule Changes in the European Union – in what represents some of the largest scale financial reforms since Dodd-Frank, the European Union put into force this week the so-called “MiFID II.” MiFID II is designed, amongst other things, to shine a spotlight on transactions, offer greater protection to investors and inject more competition into the trading of all asset class. While noble in intent, the nearly 7,000 pages of new rules have the potential to complicate the markets and, in a worst-case scenario, discourage banks from engaging in risky practices. One might say, “isn’t preventing banks from engaging in risky practices a good thing?” In some cases yes, but risk-taking can lead banks to loan capital and spur economic activity. We believe that if banks decide to leave markets or slow activity, it could ripple into the economy. This comes at a time when the European Central Bank has halved its quantitative easing programs, and as inflation continues to trudge along below the 2% target.
Is a Trade Crackdown Coming? – murmurs are starting to emerge from the White House that the administration is preparing to unveil an aggressive trade crackdown that could include new tariffs targeted at China and other countries thought to be engaging in unfair trade practices. If taxes were a front-and-center policy issue in 2017, it could be that trade takes center stage in 2018. NAFTA negotiations also continue tensely between the U.S., Canada, and Mexico, and we may see a change in policy there in the next few months. Meantime, China appears to be taking some proactive measures to prepare from what comes next, as they have been actively increasing foreign exchange reserves in order to safeguard their value. It was also reported this week by Bloomberg that China was planning to halt purchases of U.S. Treasury bonds, also perhaps as a result of rising U.S.-China trade tensions.
While we may not know how these stories will pan out, or how they could affect the market in the long-term, knowing your net worth can be critical to your financial well-being.
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