Week In Review: April 4-8, 2016

  1. It was an interesting week as a massive data leak out of Panama shook the global political landscape, and the U.S. Treasury and the Obama administration combined forces and essentially attacked American businesses who choose to move their headquarters to countries such as Ireland to lower their tax bills, calling them unpatriotic.
  2. A massive data leak of over 11 million documents from the Panamanian law firm of Mossack Fonseca could shake the landscape of the world’s political and financial elite. The data breach has already resulted in the resignation of Iceland’s prime minister, a formal investigation in Australia, a growing pall of suspicion on U.K. Prime Minister David Cameron and the implication of several top leaders in China. The papers, aptly named the “Panama Papers”, show that the law firm helped set up shell companies for prominent political figures, actors, and even individuals and companies that are “blacklisted” under sanctions by the U.S. So far the discussions that have broken out over the data contained in the papers have centered around how the political and financial elite used the schemes to avoid taxes but soon the discussion is likely to turn to a deeper investigation of money laundering, financing terrorism and sidestepping sanctions.
  3. The U.S. Treasury announced new rules this week that have provisions which make it more difficult for U.S. companies to purchase foreign companies and then, in turn, move their company headquarters overseas to lower their tax bills. This will mark President Obama’s third attempt to address so-called “tax inversions”, but the measures will only be temporary unless the U.S. Congress actually takes steps to implement formal legislation and real changes to the existing U.S. tax code. The announcement had the immediate effect of killing what would have been the second largest takeover deal in history between Pfizer and Allergan that could have resulted in the largest drug manufacturer in the U.S. moving to Ireland to lower its tax bill. The abrupt change in the rules for corporations seeking to complete foreign deals could also cause U.S. corporations to slow their expansion plans and scale back on hiring as the Obama administration injects complete and total uncertainty into their future business practices.
  4. The number of Americans filing initial claims for state unemployment benefits fell more than expected last week, dropping by 9,000 claims to a new seasonally adjusted level of 267,000 claims. The continued improvement in the employment sector will still likely be offset by the potential impact of weakening global economic growth.
  5. On Wednesday, the meeting minutes for the U.S. Federal Reserve’s last Federal Open Market Committee meeting to set monetary policy were released and showed a Fed that is unlikely to hike rates in June as the world continues to face of slowing global economic growth. The Fed downgraded its economic growth expectations last month when it failed to come to the conclusion that the economic environment warranted conducting another interest rate hike.
  6. In Japan, after watching the yen rise against the dollar this week, Japanese Finance Minister Taro Aso warned on Friday that the Japanese government would take steps “as needed” and said that rapid movements in the yen were “undesirable”. The Bank of Japan (BoJ) has maintained its negative interest rate policy and the lackluster result of the move is leading analysts to speculate that the BoJ may be forced to undertake additional quantitative easing. Economic growth remains sluggish in Japan and the central bank’s 2% inflation target continues to appear unattainable. Mark Matthews, the head of research for Asia at Julius Baer, told CNBC this week that “They [the BoJ] tried negative rates. It didn’t work. I think what they will do… is they will announce more quantitative easing [QE], probably through equities.”
  7. U.S. ratings agency Moody’s cautioned this week that liquidity pressures in the energy and mining sectors, where companies are finding it difficult to raise short-term funding, could jeopardize other areas of the European economy. It stands to reason that the same would hold true in the U.S., where banks also have heavy exposure to the beleaguered oil industry.
  8. U.S. oil prices surged 6 percent Friday, marking the largest weekly gain in nearly a month as inventories in the U.S. fell and rumors over a possible OPEC production “freeze” continued to circulate. Analysts had forecast a build of 3.2 million barrels to the U.S. inventory, and stocks fell by nearly 5 million barrels instead. Some of the draw was likely the result of a shutdown of the Keystone crude pipeline, which led to a plunge of 480,000 barrels at the delivery point in Oklahoma alone.
  9. The euro had a wild week against the U.S. dollar, swinging back and forth between positive and negative most of the week in a series of near vertical moves. The euro had hit its highest point by Thursday and plunged back near its lows for the week. The euro then trended lower through Friday, but another vertical rise Friday morning sent the euro back to slightly positive against the U.S. dollar for the week. The Japanese yen slowly and steadily rose against the U.S. dollar nearly all week. The yen also peaked by Thursday, but drifted only marginally lower into Friday and the trend to the downside had reversed by Friday morning. The yen will close the week higher against the U.S. dollar.


– Trading Department, Precious Metals International, Ltd.