Are the waters muddying for Janet again?

Equity markets had a dull end to the month. The enthusiasm with which the year started in anticipation of the Trump reflation era has faltered as concerns that some of his other measures may have different implications for trade and economic growth. The Dow Jones Index, which was recently celebrating breaking 20000, has slipped back.

The US dollar, which likewise started the year on a positive note, has been in reverse for the second half of the month, having lost about 5% against yen from the start of the year. The performance of the yen against the US dollar, as we have pointed out before, is often seen as an indication of sentiment towards risk. Donald Trump put further pressure on the dollar as he renewed his criticism of foreign currency regimes.

We pointed out at the start of the week that it was a busy week for data. After the disappointing GDP report, investors would look for more reassuring signs of sustained economic growth in the world’s largest economy.  Ahead of the first meeting of the year of the Federal Open Market Committee later in the day, the Institute for Supply Management release a series of indicators for the state of the US economy. This includes the manufacturing PMI, employment, prices and new orders.  We also get the ADP employment change for January. Earlier on Tuesday, MNI released their Chicago Purchasing Managers Index reading for January, which could be a small window on the broader economy and came in below expectations.

Janet Yellen and the fellow committee members are expecting to raise rates 3 times this year. That picture may be muddied early in the year once again if the optimism for the economy dips again.  

US Corporates seem to be anticipating an increasing rate environment as Microsoft announced on Monday that it had borrowed $17bn over a series of maturities from 3 to 40 years. There seemed to be no shortage of demand from investors, as according to the FT, demand hit $38bn. Also, according to the FT, companies, governments and their agencies have borrowed more than $600bn already in 2017, the strongest start to the year since 2013.

Finally, as we have also pointed out we are in the middle of results season, and so far, it has been reasonably encouraging. UPS, considered something of a bellwether on the US economy as it delivers goods and parcels, failed to meet expectations. Maybe another sign investors may consider the US economy is not quite as robust as thought. The stock fell almost 6% on the day. 20000 again for Dow may have to wait. 

Posted on January 31, 2017 .