After a bumper year in 2017, investors started the year with increased optimism and caution. The year started with the new tax cuts, which were announced by the United States. The president signed the bill into law, which led to the announcements of increased bonuses and investments. YTD, salaries and wages have grown, albeit marginally while share buybacks and dividends have increased.
This week, the focus among investors will be on politics. This is because we don’t expect major economic data from the major countries.
First, this week, the international community will react to the election in Venezuela. Yesterday, the country carried out an election in which Nicholas Maduro won. This was an expected move. As a reminder, Venezuela is one of the richest countries in Latin America. It has one of the largest proven oil reserves in the world. However, the country is also one of the poorest in the world. This happened as the country embraced socialism by distributing oil wealth to the people. When oil prices fell, the government did not have the money to sustain the socialist policies and so, they turned to printing money. Today, the country has an inflation rate of more than 18,000% and because of sanctions, it continues to lack the basic items.
This week, we expect the international community to retaliate against the Maduro regime. They will do this by imposing tough sanctions on the people surrounding his administration. This is likely to have some impact on the supply of crude oil.
Second, politics in the United States will continue dominating the financial markets. This comes after a weekend rant from Donald Trump criticizing the Justice department for planting a spy in his campaign. Late on Sunday, he announced that he would ask the justice department to investigate the justice department under Obama. Many experts believe that the president is trying to push out Jeff Sessions or Rod Rosenstein, the attorney general and the deputy attorney general out. If this happens, it could lead to increased criticism from the republicans and democrats.
Third, investors will focus on the ongoing trade negotiations. This is after a weekend report which said that China had agreed to boost its purchases from the United States. This is in line with the US goal of reducing the trade balance with China. However, experts are cautious about this deal because it fails to meet the requirements the US has asked. For example, it does not address the Intellectual Property (IP) issues.
On economic data, we will get the German GDP and manufacturing data on Wednesday. We will also get the UK Inflation data, US manufacturing CPI, home sales, and FOMC minutes. On Thursday, we will get the UK retail sales, ECB minutes, and US existing home sales. On Friday, we will get the Tokyo CPI, German IFO business climate assessment, and durable goods sales from the US.