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US indices: Time for retracement?

US DJIA index fell around 150 pips last week. The Bank of America Merrill Lynch downgraded its outlook on GDP and FED was worried that a recent lack of inflation was a sign the U.S. central bank would struggle to get price pressures back to its 2 percent objective.
Despite strong earnings and record levels of cash on balance sheets, big U.S. companies are spending less money on share repurchases. There were hopes that the slowdown in buybacks that began last year would pick up with the prospect of a tax overhaul in 2017. For the 12-month period ending March 2017, S&P 500 companies spent $508.1 billion on buybacks, down 13.8% from $589.4 billion for the prior 12-month period, which was all-time high.

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Bank of America lowers US GDP outlook

Bank of America Merrill Lynch downgraded its outlook on U.S. gross domestic product in 2018 to 2.1 percent from an earlier forecast of 2.5 percent, according to the fading prospects on tax reform, policy uncertainty in Washington and weaker auto production. "Hopes for a big fiscal stimulus have faded, prompting us to remove most of the fiscal impulse from our forecast for growth next year," said Michelle Meyer, the firm's head of U.S. economics.
Growth remains stuck at 2 percent. It remains unlikely that the economic proposals of the Trump administration will raise that anytime soon, said St. Louis Fed President James Bullard. According to him, the policy proposals that survive Congress and have the potential to raise growth won't have an impact perhaps until 2019.
Chicago Federal Reserve Bank President Charles Evans on Tuesday became the latest to express worries on that front, saying he is concerned that a recent softness in inflation is a sign the U.S. central bank will struggle to get price pressures back to its 2 percent objective.

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Gold prices fell on Fed’s dovish expectations

The precious metal fell more than 300 pips last week. The market is anxious to see if the Fed becomes more dovish in its outlook. According to Fed fund futures data compiled by Bloomberg, most of traders are pricing in a 96 percent chance that the Federal Reserve may raise interest rates this week.
Gold futures August delivery declined 0.8 percent to settle at $1,268.40 an ounce on the Comex in New York, after slipping as much as 1 percent earlier. Higher interest rates tend to boost the dollar and bond yields, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

June 5 page 001

How much will the US economy grow?

The S&P 500 Index rose at the end of the last week, based on the economic US data. Nonfarm payrolls increased 138,000 last month as the manufacturing, government and retail sectors lost jobs, the Labor Department said on Friday. However, the economy created 66,000 fewer jobs than previously reported in March and April. The U.S. manufacturing index inched slightly higher, hitting 54.9 in May.
Private employers added 253.000 jobs
U.S. companies in May hired more workers than anticipated by a wide margin to rebound from a six-month low in the prior month, while a tightening labor market should point to increasing wage growth. U.S. private employers added 253.000 jobs in May, above economists' expectations, a report by a payrolls processor showed on Thursday.
FED reported moderate US economic growth
The U.S. economy continued to grow moderately in nearly all regions in recent weeks, a Federal Reserve survey showed. The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through May 22, said several sectors from manufacturing to housing continued to expand slowly. Consumer spending softened, however, with many districts reporting little or no change in non-auto retail sales.

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Can OPEC stop slow oil demand?

Oil prices fell more than 4 percent as the market had been hoping oil producers could reach a last-minute deal to deepen the cuts or extend them further. The cuts pushed oil prices back above $50 a barrel this year.

 9-month oil output cut extension

OPEC and non-members decided last week to extend cuts in oil output to March 2018. They battle a global glut of crude after seeing revenues drop sharply in the past three years. "We considered various scenarios, from six to nine to 12 months, and we even considered options for a higher cut. But all indications discovered that a nine-month extension is the optimum," Saudi Energy Minister Khalid al-Falih said.

Key highlights from the EIA's report's summary of weekly petroleum data for the week ending May 19, 2017:

-U.S. crude oil refinery inputs averaged 17.3 million barrels per day during the week ending May 19, 2017, 159,000 barrels per day more than the previous week’s average;

-Refineries operated at 93.5% of their operable capacity last week;

-U.S. crude oil imports averaged 8.3 million barrels per day last week, down by 296,000 barrels per day from the previous week;

-U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.4 million barrels from the previous week;

-Total products supplied over the last four-week period averaged 20.2 million barrels per day, down by 0.8% from the same period last year.

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Will the European economic recovery continue to accelerate?

The Eurozone economy grew 0.5% in the first quarter of 2017. The economy expanded by 1.7% on a year-over-year basis. The euro zone increased its trade surplus with the rest of the world in March with both exports and imports rising.The European Union statistics office Eurostat said on Tuesday the 19-country currency area recorded a 30.9 billion euro (26.4 billion pounds) surplus in March in its goods trade balance with states outside the bloc.

Consumer confidence: the highest level in nearly a decade 

The consumer confidence strengthened for a third consecutive month in May to its highest level in nearly a decade, according to the preliminary data from the European Commission.The flash consumer confidence index climbed to -3.3 from April's -3.6. Economists had forecast a score of -3.The latest reading was the highest since July 2007, when the score was -1.9. The corresponding index for the EU edged up to -3.3 from -3.4. The reading was the highest since April 2015, when it was -2.4.

Eurozone inflation accelerated

On a monthly basis, overall consumer prices climbed 0.4 percent in April. Eurozone inflation accelerated as estimated in April, showed the final data from Eurostat. Headline inflation climbed to 1.9 percent from 1.5 percent in March. Inflation has returned to the the European Central Bank's target of 'below, but close to 2 percent.' Core inflation that excludes energy, food, alcohol & tobacco accelerated to 1.2 percent from 0.7 percent in March. The latest level was the highest since September 2013.

May 15 page 001

Mario Draghi: No rush to raise interest rates

The EUR/CAD currency pair fell last week based on the economic data released. Euro zone unemployment is higher than official data suggest, continuing to keep wage growth muted, according to European Central Bank. Eurozone industrial production dropped for a second straight month in March and industrial output slid unexpectedly by 0.1 percent.
Wage growth has been unexpectedly weak and the ECB has argued that better wage dynamics are needed for the inflation rebound to become sustainable, a key condition for cutting back stimulus. ECB President Mario Draghi said confirmed he is in no rush to raise interest rates or wind down the ECB's 2.3 billion euro (£1.9 billion) bond-buying programme despite insistence from countries as the Netherlands and Germany. However, Euro zone economic growth should grow a bit faster this year and the unemployment rate could be the lowest in a decade, the European Commission said last week.
Canada: Prices for new housing rose
Prices for new housing in Canada rose by 0.2 percent in March from February on gains in Toronto and Vancouver, Statistics Canada data indicated on Thursday. Compared with March 2016, prices climbed by 3.3 percent.

May 8 page 001

ECB is following a different path than RBA?

The EUR/AUD price rose by more than 400 pips, after the release of european and australian data last week.

Eurozone economic growth rate remained stable in the first quarter, according to  Eurostat. Gross domestic product expanded 0.5 percent sequentially, in line with expectations. The EU28 grew 0.4 percent from the prior quarter, when it advanced 0.6 percent. The annual growth rate remained stable at 1.9 percent. The European Union's statistics agency said the number of unemployed workers fell by just 5,000 during the month. This drop left the unemployment rate unchanged at 9.5%, down from 10.2% a year earlier.

Germany: Unemployment rate, at record-low

German unemployment extended its four-year decline last month, suggesting companies are confident that momentum in Europe’s largest economy remains strong. Joblessness slipped 15,000 in April vs estimated 11,000 drop. Unemployment rate remained unchanged in Germany, at record-low 5.8%.

Draghi’s remarks stayed clear of the monetary policy outlook

European Central Bank President Mario Draghi on Thursday said that the European Union is "being wrongly held responsible" for decisions that belong to individual countries. Mario Draghi's prepared remarks stayed clear of the monetary policy outlook. Monetary union "is sometimes claimed to be the cause of low growth in parts of the euro area. Yet we have seen that for countries that implemented structural reforms and ran sound fiscal policies, the single currency has been no barrier to success”, Draghi added in Lausanne, where he was accepting an award from the Jean Monnet Foundation for Europe.

RBA: Low expectations for economy

Australian increase in household debt relative to the income has made the economy less resilient to future shocks, according to the Governor of the Reserve Bank of Australia, Philip Lowe.

Australia posted a seasonally adjusted merchandise trade surplus of A$3.107 billion in March, the Australian Bureau of Statistics said on Thursday. That was shy of forecasts for A$3.250 billion and down from A$3.574 in February.It was also down A$550 million or 15 percent on year.Exports gained A$776 million or 2 percent on month to A$33.343 billion.

Non-monetary gold surged A$443 million (32 percent), rural goods climbed A$271 million (7 percent) and non-rural goods added A$19 million. Net exports of goods under merchanting fell A$1 million (2 percent). Services credits added A$45 million (1 percent). Imports were up A$1.325 billion or 5 percent on month to A$30.235 billion.

May 1 page 001

What's behind the drop in oil prices?

Oil prices extended losses last week because of oil stock pile and woldwide demand. Prices fall more after news that two key oilfields in Libya had restarted.

Libya's Sharara oilfield, with a production capacity of almost 300,000 barrels per day (bpd), has restarted after the end of protests that had blocked pipelines there, according to a Libyan oil source. The source said El Feel oilfield, with a capacity of about 90,000 bpd, had also restarted.

North Sea oil is flooding into Asia like never before thanks to the most competitive crude prices in seven years. North Sea tankers sailing to Asia soared to a record this month, hauling at least 540,000 barrels a day. OPEC, along with Russia and other non-OPEC producers, pledged to cut output by 1.8 million barrels per day (bpd) in the first half of 2017.That deal expires at the end of June.

Global inventories rose in the first quarter
OPEC Secretary, General Mohammad Barkindo, said that stocks needed to fall further. Saudi Energy Minister Khalid al-Falih said on Friday that it was important to agree on an extension of a global oil cuts deal into the second half of the year.
Despite the supply cuts, global inventories rose in the first quarter, according to the International Energy Agency. Key highlights from the EIA's report's summary of weekly petroleum data for the week ending April 21, 2017:
• U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 3.6 million barrels from the previous week.
• At 528.7 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year
• U.S. crude oil refinery inputs averaged 17.3 million barrels per day during the week ending April 21, 2017
• U.S. crude oil imports averaged over 8.9 million barrels per day last week, up by 1.1 million barrels per day from the previous week
• Refineries operated at 94.1% of their operable capacity last week
• Gasoline production decreased last week, averaging over 9.7 million barrels per day
• Distillate fuel production decreased last week, averaging about 5.1 million barrels per day

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Will the US dollar bull market continue in 2017?

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The USD/CAD currency pair rose last week around 200 pips, based on the U.S. and Canada data.

The National Association of Realtors said last week that existing-home sales ran at a seasonally adjusted annual rate of 5.71 million, a 4.4% monthly increase. That was the strongest selling pace since February 2007 and was 5.9% higher than a year ago. Tight inventory is still the biggest factor in the marketplace: supply was 6.6% lower compared to a year ago. According to Statistics Canada, excluding food and energy, the the Consumer Price Index (CPI) was up 1.7% year over year in March, after posting a 2.0% increase in February. Prices were up in five of the eight major components in the 12 months to March, with the transportation and shelter indexes contributing the most to the year-over-year rise in the CPI.
Other potential rate hikes for this year
According to other news, Dallas Federal Reserve President Robert Kaplan said that two more interest rate hikes this year remains possible but that the U.S. central bank has the flexibility to wait and see how the economy unfolds. The Fed has already raised its benchmark interest rate once this year, by a quarter percentage point at its last policy meeting in March.
Kaplan said that three rate increases this year is still a good baseline. The Dallas Fed chief noted he was watching inflation and that even though it continued to slowly move up. Excess capacity in China and technology-enabled disruption of business were both exerting downward pressure.

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Oil exports fell
Oil exports fell to 6.95 million barrels a day, the lowest since May 2015, from 7.7 million a day in January, according to data published by Joint Organisations Data Initiative website. Saudi Arabia trimmed exports to a 21-month low in February as local refineries took advantage of more abundant supplies and processed a record amount of crude.



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