Market Perspective for January 17, 2017

British Prime Minister Theresa May outlined the Brexit process on Tuesday. Currency traders took the pound to a new 52-week low on Monday following talk of a “hard Brexit.” May did say Britain would leave even without a new trade agreement with the EU, but she also said Parliament would vote on a deal. Whether that interpretation gained currency, or it was simply oversold, the pound rebounded more than 2 percent following the speech, climbing to a one-week high.

Donald Trump also rattled currency markets when The Wall Street Journal released comments from a Friday interview. Speaking about the U.S. dollar, Trump said, “Our companies can’t compete with them now because our currency is too strong. And it’s killing us.” Although there was no associated policy proposal, the U.S. Dollar Index tumbled more than 1 percent. This may be another example of short-term traders jumping on Trump comments and tweets, rather than considering the larger picture. On Friday, Trump will take the oath of office and deliver his inaugural address as the 45th president of the United States.

The European Central Bank will announce their latest interest rate decision Thursday. After extending the timeline for quantitative easing last month, no major changes are expected. Federal Reserve Chair Janet Yellen will speak before the Stanford Institute for Economic Policy on Wednesday.

Key economic reports this week include the Federal Reserve Beige Book, the December U.S. Consumer Price Index (CPI) and the domestic housing starts figure for December. In addition to the Empire State Manufacturing and Philly Fed Surveys, weekly crude inventory, mortgage application and unemployment claims data will be available this week.

The Empire State index came in lower than expected, but still indicated expansion. Analysts expect the Beige Book and Philly Fed Surveys will also show a slight decline in the pace of growth.

U.S. CPI is anticipated to have increased 0.3 percent in December, within the Fed’s target range. Analysts expect a rise in weekly mortgage applications as interest rates pulled back in January. Weekly oil inventories are forecast to show a slight decline while unemployment claims are expected to rise marginally. Economists anticipate domestic housing starts were 1.2 million in December.

Overseas, China will release GDP growth, fixed-asset investment, retail sales and industrial production on Thursday.

As another earnings season gets underway, investors will hear quarterly results from several major financial institutions as well as key technology and industrial companies. On Tuesday, Morgan Stanley (MS) beat consensus earnings estimates by 24 percent and beat revenue estimates, but shares fell along with the U.S. dollar as traders took profits on “Trump trades.” On Wednesday, Goldman Sachs is forecast to report consensus EPS of $4.82 on revenues of $7.72 billion. Like MS, Goldman is expected to benefit from the Trump effect stimulus and the postelection rally.

Many large regional banks are also set to report, including U.S. Bancorp (USB), Bank of New York (BK), M&T Bank Corp (MTB), Citigroup (C) and BB&T Corp (BBT). Analysts are looking for $1.12 per share and revenues of $17.3 billion from Citigroup.

UnitedHealth Group (UNH) delivered a solid earnings report on Tuesday before the bell, but shares fell with the market. The healthcare provider subsector enjoyed a 5-day rally last week as Congressional Republicans took the first step towards repealing the Affordable Care Act.

Video streaming service Netflix (NFLX) will also report on Wednesday. The consensus estimate is $0.13 per share in earnings along with revenues of $2.47 billion. Shares of the company have climbed to all-time highs ahead of the earnings release.

International Business Machines (IBM) is due to report Thursday and General Electric (GE) is scheduled for Friday. IBM is expected to report earnings per share of $4.89 on revenues of $21.69 billion. Analysts will be paying close attention to the success of the company’s continued restructuring efforts. At GE, falling earnings and revenues of $0.46 per share and $33.66 billion are expected.

Friday also brings earnings from Schlumberger (SLB), the oil services giant. In market cap weighted funds such as iShares US Oil Equipment & Services (IEZ), the firm is a major holding. In the case of IEZ, 19.8 percent. Analysts are looking for $0.27 per share, down from $0.65 last year.

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