Dollar Gains Before State of the Union Speech

Daily Analysis - 30/01/2018

US Dollar Rebounds Ahead of Major Events and Trumps 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.

Not Just NAFTA Threatens

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.



Eurozone Q4 Prelim Flash GDP

The release of the first reading of the Eurozone fourth-quarter GDP figures is coming out today at 10:00 GMT. The expectation amongst traders is that the 19-countries economic growth remained steady at 0.6% in the last quarter of 2017, while on an annualized basis, is forecasted to come in at 2.7% versus 2.6% from the last release, the highest in almost seven years.

The US Dollar is having a correction from last week’s weakness and has bounced away from the oversold territory. On a better GDP print, the EUR bulls could regain control, pushing the EUR/USD pair back towards the 1.2400 mark. However, the pair could extend the drop to test the 1.23 handle on a downside surprise.

The Gross Domestic Product released by the Eurostat is a measure of the total value of all goods and services produced by the Eurozone. The GDP is considered as a broad measure of the Eurozone economic activity and health. Usually, a rising trend has a positive effect on the EUR, while a falling trend is seen as negative (or bearish).

On the other hand Euro is unlikely to find strength in GDP pickup as inflation stagnates. US Dollar continues to gain as State of the Union speech from US President Donald Trump approaches. The US Dollar managed a cautious rebound amid speculation that President Trump will announce an infrastructure-spending plan in the State of the Union speech.


Key Points to Follow When McDonald's Reports Earnings

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.


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