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What happened last week?
Monday was Martin Luther King, Jr. Day and the inauguration of the 47th U.S. president, Donald Trump. The S&P 500 hit a new record high, again, on Thursday, besting its previous record of about seven weeks ago. At the close of the week, the TSX, Dow and NASDAQ are less than 2 % below their all-time highs.
As of Friday, Trump’s threatened tariffs on Canadian, Mexican and Chinese imports have not materialized and remain as threats. A February 1 implementation date for 25% tariffs against Canada and Mexico imports has been repeatedly mentioned. In some statements tariffs are designed to facilitate the tightening of borders that permit drugs and illegal immigrants to enter the U.S.
In other settings President Trump has suggested that firms could relocate production to avoid paying tariffs, which demonstrates his lack of understanding of basic economic theory and history. American importers pay import tariffs, not the originating countries. The importing firm passes the increased costs onto its clients by charging higher prices. American firms pay the tariffs to the U.S. Treasury and are, effectively, reimbursed by customers, who endure higher prices. Import tariffs lead to higher inflation. The higher prices can reduce demand and lead to lower economic output and employment in the originating country, which is the potential harm caused to the exporter. CNN and tariffs CBC and tariffs The Guardian and tariffs Global and threats
The threatened tariffs have created uncertainty in capital markets, but have not affected values, yet, as the major indexes rose about 2% last week which benefited from corporate performance. Fourth quarter earnings for U.S. corporates are off to a strong start, again, after about 80 firms of the S&P 500 have reported. Seven of the eleven sectors are reporting year-over-year earnings growth for Q4, and six of the seven are reporting double-digit growth. To-date the Financials sector has been the largest contributor to the overall growth in earnings. FactSet Insights 250124
What’s ahead for this week and beyond?
In Canada, November’s Gross Domestic Product (GDP), Federal Budget Balance and wholesale sales. The Bank of Canada will update its monetary policy with an interest rate decision on Wednesday morning.
In the U.S, building permits, new home sales, house price index, mortgage market and refinance indexes, durable goods orders, retail and wholesale inventories and GDP. The Federal Reserve will make an interest rate decision and host a press conference on Wednesday afternoon. The Fed’s preferred inflation indicator, PCE price index, will be released on Friday.
Globally, The European Central Bank will also release a Monetary Policy Statement and interest rate decision. The Eurozone will release a business and consumer survey, consumer confidence, consumer inflation expectations and GDP. Japan will release its consumer inflation and employment report.
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