While most eyes will be on the inauguration, we’re more focused on the increasing volatility in the markets. Long-term interest rates pushed higher, pricing in more risk in the markets. Stocks slid a little but don’t seem to want to sell-off… yet.
Thanks to Dent Research, provided here is our weekly information roundup ending the week on January 20, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
Donald Trump Becomes #45… The billionaire is set to be sworn in today as the next president.
What it means – We’ll find out. Volatility, unpredictability, a change in the status quo, an end to the chasm between the governing body and the governed, or it could end up as a giant fiasco. Americans voted for change, and it looks like we’re going to get it.
U.S. Housing Starts Up 11.3% in December, Driven by Multifamily Units… Apartment starts jumped 57%, while single-family starts dipped 4%.
What it means – The headline sounds great, but the devil is always in the details. That little detail of the split between multifamily and single-family makes all the difference in the world. The single-family market provides most of the investment and employment. So, when that category disappoints, it brings the trend for the sector into question. The December number continues the recent volatile trend of housing starts, where the general tone for single-family units is negative.
However, there was a bit of good news in the report for single-family homes. Permits for such units rose 4.7%, while multifamily unit permits dipped.
Consumer Prices Up 2.1% in 2016, Up 2.2% Excluding Food and Energy… A rise in medical care and housing pushed the headline number above the Fed’s 2% target.
What it means – Inflation has been one of those stubborn things that refused to obey the laws of economics. We’ve got very low interest rates, lots of available credit, and yet prices remained tame. Now we’re seeing some movement, but for the wrong reasons.
Energy prices rebounded last year, pulling up the headline inflation reading. But no one outside of the energy sector will cheer for higher prices at the pump. Same for more spending on medical care. We might be grateful we can get the medication and physical therapy we need, but we’d rather not be sick in the first place. Housing rounded out the leading causes of higher prices.
With real weekly average wages barely above zero for 2016, higher prices aren’t doing us any favors, but they do give the Fed cover for raising rates.
Eurozone Consumer Prices Up 1.1% Last Year... Inflation jumped 0.5% in December, almost doubling the annual inflation rate of 0.6% through November.
What it means – The lesson learned from the Eurozone inflation report doesn’t have much to do with current prices. Instead, it’s all about perspective. At 1.1%, inflation reached its highest mark since August of 2013, more than three years ago. This has Europeans talking about “turning the corner” and “higher growth ahead.” Inflation of 1.1% signals the all-clear? It’s more likely that the current report reflects higher energy costs, and the countries of the Eurozone remain stuck in the economic mud as they grapple with too much non-performing debt and aging populations.
Trump Says U.S. Dollar Too Strong… The comment sent the dollar lower against other major currencies, and also drove down interest rates for a day or so.
What it means – We’d better strap in and hold on! Investors weren’t surprised because the president-elect’s comments were outrageous or even out of touch, because they weren’t. The dust-up was because he made them at all.
For decades presidents have avoided discussing the strength of the dollar, leaving that to the Secretary of the Treasury. But not The Donald. He says what he wants, when he wants. There’s no indication he’ll try to rule the Fed with a heavy hand, but at this point, there’s really no indication of what he’ll do in general. Which should make the next four years very interesting!
Apple Increased App Prices by 20% in the U.K… In response to the weaker pound, Apple boosted prices in its app store, bringing the prices paid in Britain to parity with U.S. prices for the first time.
What it means – This is the cost of freedom for the Brits. When they voted for Brexit, investors sold off the pound, pushing it down from $1.50 to $1.20. Foreign companies selling products in Britain priced in pounds were taking a hit when they converted their revenue back into their home currency. Apple bumped prices to make up for the difference, but to British consumers it’s just another price increase. They should get used to it.
If the pound doesn’t recover in the next few weeks, importers of all sorts will raise prices in the U.K., driving down the British standard of living.
OPEC Claims Group Cut Oil Production by 221,000 Barrels in December… The oil cartel agreed in November to cut production by 1.2 million barrels.
What it means – Who could have seen this coming? The “Energy Liars Club,” as I’ll write about in a future Economy & Markets letter, succeeded in reducing production by about one-sixth of its target. And about half of that reduction wasn’t due to energy producers closing the spigots. Instead, Nigerian production fell because of supply line disruptions.
But don’t fret, the International Energy Agency estimates that U.S. oil production will increase by 230,000 barrels per day in 2017, more than compensating for the OPEC cuts. If prices creep higher, I expect U.S. production would ramp up as well.
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