Posted by on January 25, 2017 10:31 pm
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HEADLINES

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  • Dow finally breaks 20k for the first time
  • US President Trump: Strong Mexico economy good for US
  • Trump: Border wall building will begin ‘in months’ –ABC
  • Trump calls for ‘major investigation’ into voter fraud
  • US House Price Index (MoM) Nov: 0.50% (est 0.40%; rev prev 0.30%)
  • Italian court modifies election law, could open way for 2017 vote
  • June 2017 touted as the date for early Italian elections –Rtrs
  • Euro ‘could fail’, says man tipped as US ambassador to EU –BBC
  • ECB research: ECB policy working, but with a greater lag
  • EU Negotiator: Further disintegration of EU possible post-Brexit
  • BOE: Corporate-Bond Buying Program May End Ahead of Schedule
  • US Crude Oil Inventory 25-Jan: +2840K (est +2500K; prev +2347K)
  • US Distillate Inventory 25-Jan: +76K (est -1000K; prev -968K)
  • US Gasoline Inventory 25-Jan: +6796K (est +1000K; prev +5951K)
  • Cushing Inventory 25-Jan: -284K (est -400K; prev -1274K)
  • Fitch: Global Ratings Outlook Weaker Than Last Year
  • PBOC Yi: China doesn’t meet FX manipulator criteria –SCMP

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COMMENTARY

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Dow breaks 20k

Donald Trump’s early moves on infrastructure and deregulation have reignited investor confidence in the US economy, propelling stocks into record territory and sending the Dow Jones Industrial Average above 20,000 for the first time. Mr Trump was quick to note the milestone for the blue-chip average, tweeting “Great!” with the hashtag “#Dow20K”. But bullish sentiment was not isolated to the Dow, an idiosyncratic index which tracks just 30 popular stocks whose performance is driven by companies with the highest share prices. The broader S&P 500 benchmark also hit new highs, helped by rallies in economically-sensitive sectors directly affected by Mr Trump’s first executive actions — including requiring that domestic steel be used for US pipelines and building a wall along the Mexican border. (FT)

The Hurdles to Building a Border Wall

The building of a border-length wall between the United States and Mexico is a campaign promise that U.S. President Donald Trump continues to nurture. But the construction of such an edifice is no small matter, assuming Congress would even approve or agree to fund the endeavor in the first place. Not only must the Trump administration deal with internal complications — legal opposition, issues of land ownership and physical geography — but there is also the matter of U.S.-Mexico relations and the fluid, adaptive nature of the migrant flow from South America. (Stratfor)

Early Italian Elections?

Italian politics poses the biggest single tail risk to the stability of the Eurozone in 2017, as it did in the second half of last year. The tail risk has probably become a little fatter today with a decision by Italy’s Constitutional Court that might pave the way for early elections in Italy, possibly in June. As one of his major reforms while he was prime minister, Matteo Renzi had introduced an election law that automatically awards a majority of seats to the strongest single party in a two-round voting process for the lower house of parliament. The Constitutional Court today struck down one provision, namely that of a potential second round if no party reaches 40% in the first round. However, the Court left the remainder of the “Italicum” law standing, adding that the election law could be applied immediately. A perceived need to change the election law had been one of the major arguments against holding early elections in Italy. Courtesy of the court decision, Italy now has a valid election law: the strongest party gets a majority in the lower house if it receives at least 40% of the vote. Otherwise, it’s a normal distribution of seats without a bonus, requiring parties to form a coalition in order to govern. Of course, the major political parties could still decide to change the law anyway – and take as much time for that as they want. A desire to bring the election law for the lower house of parliament more in line with the different rules for the upper house of parliament could well be an argument to adjust the law even after today’s court decision. (Berenberg, continue)

UK GDP Preview (Q416, P)

Analysts are looking for a relatively stable 0.5% quarter-on-quarter rise versus 0.6% prior, and a 2.1% year-on-year increase from the 2.2% seen in Q3. This is the first full-quarter growth release following the EU referendum and IHS highlights “that the preliminary release will be based on the output side of the economy; and it is clear that growth will once again have been highly dependent – possibly even totally dependent – on the services sector.” Morgan Stanley also expect growth to be driven by services. Looking ahead to the second estimate, the bank foresees “strong consumer spending growth. However, we continue to expect the consumer to slow as inflation rises and we expect sluggish investment growth in light of approaching Brexit.” While the economy has been resilient in the immediate aftermath of the referendum, many expect the economy to slow as it encounters fresh headwinds, alongside the development of Brexit negotiations. An early indication of such slowing came in December’s retail sales data, although much of the suffering was owing to the heavily discounted prices evident in November, and despite foreigners bargain-hunting in London on the back of the softer sterling. (Livesquawk)

Redefining a ‘special relationship’: Trump and May to talk trade

Trade will dominate the first talks between the new leaders of the United States and Britain this week, with both hoping commitments to a future deal will redefine their ‘special relationship’ in a new world order. For British Prime Minister Theresa May – who will be the first foreign leader to meet new U.S. President Donald Trump – even a simple promise to deepen trade ties between the two countries could strengthen her hand in divorce talks with the European Union. Trump might use the meeting to go some way to winning concessions from Britain and bolster his vision of the United States exporting its way to prosperity. (Rtrs)

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