Dollar Gains Before State of the Union Speech

On the International spectrum, the global economy is watching and waiting to see President Donald Trump’s actions on the North American Free Trade Agreement, something he mentioned and threatened to do just last week while in Davos.

According to speculators on the issue, there's another critical risk haunting Mexico, in the form of its upcoming presidential election. Populist Andrés Manuel Lopez Obrador (also known as AMLO), is now leading in the country's polls as the country gears up for the July presidential elections that could have big implications for U.S.-Mexico relations.

Lopez-Obrador who also served as the mayor of Mexico City, is making his third attempt at securing presidential power. Now, global investors are viewing his rise as a key risk ahead of the election, which could shake up the already shaky state of NAFTA renegotiations.

Until now, the trade pact talks have been mostly viewed through the prism of domestic concerns in the U.S. — but popular opinion in Mexico is now becoming more of a factor.

As of now, the market does not look to have priced in this effect and is important to highlight that the Mexican peso has performed strongly in recent weeks.

The commodities sector, one of the country's most productive segments, the state owned oil company PEMEX—and its recent reform efforts — is being viewed as vulnerable if Lopez Obrador decides to "audit" the oil sector, analysts say.

 

McDonald's Corporation (NYSE: MCD), the world's largest burger chain, reports Q4 2017 earnings on Tuesday before market opens where investors will find out if the latest numbers support the earnings momentum and stock price movement in recent quarters. An average annual total return of 33% was granted to its shareholders over the last three calendar years.

Last quarter, McDonald's posted extremely strong global comparable sales, or comps growth of 6%. The company reported positive guest counts in each of its four operating segments: U.S., international lead markets, high-growth markets, and foundational markets.

Investors should pay particularly close attention to the international lead markets segment, which is composed of the five largest markets outside the U.S.: Canada, Australia, the U.K., France, and Germany. This segment generates 40% of McDonald's global operating income, making it equal in size and importance to the U.S. In the case McDonald's unveils another stellar comps rise, it may well be fueled by the accelerating European economy, thus lifting three out of the five countries in international lead markets.

In the third quarter of 2017, the price of McDonald's basic basket of grocery goods to serve customers in the U.S. increased by 1.5%. The U.S. segment covered this increase by raising menu prices by 2.2% over the same period, but the push remained under U.S. domestic food-away-from-home inflation rate of 2.4%. The company typically provides a full-year commodity cost outlook each year, and a projection similar to 2017's 1% total commodity cost inflation today will be promising for McDonald's earnings in 2018.