The financial markets are poised to end the year on an optimistic note on Friday, the last trading day of 2016 before we head into the New Year this weekend. Wall St futures pointed to a higher opening for stocks while the precious metals were steady as markets opened in New York.
Spot gold held its position around $1,160/oz in early trading. Spot silver was actually close to 10¢ higher to trade near $16.30/oz. The platinum price 0.5% above unchanged, trading close to $910/oz, while spot palladium added approximately 1% to move above $680/oz.
Even after the selloff in gold the past two months, the yellow metal is still poised to end 2016 about 8% higher. (Silver is ending the year with about a 14.5% gain.) This is the first annual rise in gold prices since 2012.
Stocks, Bonds, Currencies
The late-year rally in the stock markets is setting up an interesting start to 2017 for investors. Especially after Inauguration Day on January 20th, when power will officially transition from the outgoing Obama administration to President-elect Donald Trump, Wall St will likely look for a variety of measures that boost the U.S. economy.
On a range of policy issues, the equities markets have decided that they like what Trump has presented so far. The new administration’s proposed appointees for various positions in the incoming president’s cabinet, and the executive branch in general, have virtually all had a pro-business background. Most of Trump’s nominees for these key positions have come from the military or the private sector. Investors seem convinced that a Trump administration will slash regulatory red tape, support American businesses against foreign competition, and broadly assume stewardship over a coming economic boom.
If all of these policy priorities do come to fruition, the most likely outcome would be new all-time highs for stocks. The Dow Jones Industrial Average may have fallen tantalizingly short of the 20,000 milestone for weeks, but the index is still in line for its best annual performance since 2013. Meanwhile, the S&P 500 index has risen better than 23% from its 2016 low in February.
On Friday, the three major U.S. indices were all in the green, following European shares higher. Treasury yields eased back from their recent highs after an onslaught of selling gripped the bond market in the seven weeks since the presidential election. The 10-year T-note yield held at 2.48%.
The foreign exchange (forex) market was rather quiet to close out the year. This is probably due in part to the thin trading volumes that result from many brokers having already gone home for the holiday weekend. The U.S. dollar fell about 0.4% against its peers on Friday morning; although the yen and pound sterling gained relative to the greenback, the euro still fell further.
China Opens Up
One major development that could have an impact on markets throughout 2017 is China’s decision to open up its rules for foreign investment. Up to now, overseas companies cannot own more than 49% of any given Chinese asset. However, with China cutting its foreign reserves in order to support its currency, the need for more cross-border capital flows has prompted the government to ease such restrictions. The expectation that Trump may incite a trade war with the Chinese is also weighing on the yuan, which has had its worst yearly performance since 1994.
As China sold off a portion of its dollar reserves to prop up the yuan from an eight-year low, it slipped to second in the rankings of the United States’ foreign creditors. (Japan once again holds the top spot.) Year-on-year, inflow of foreign capital to China rose 3.9%, totaling over $100 billion.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.