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Archive for September, 2016

Weekly Market Update – September 30, 2016

The Dow was up 165 points on Friday to end the week higher after the first presidential debate. For the week the Dow was up 0.26%. Year-to-date the Dow was up 5.1%.

Economic data was mostly positive this week. Q2 GDP growth was revised up to an annualized rate of 1.4% from 1.1%. August new home sales came in much better than expected at 609,000, a 20.6% increase from 2015. The Conference Board Consumer Confidence Index rose to 104.1 for September, beating the 98.8 consensus estimate and up from 101.8 in August. The initial jobless claims increased 3,000 to 254,000, better than the 260K consensus. Pending home sales for August fell 2.4%.

Federal Reserve Chairwoman Yellen said most officials believe a rate hike is likely this year, though there is no fixed timetable. San Francisco President Williams (non-voter) reiterated his view that the economy is strong enough to withstand a rate hike, while Chicago President Evan’s (non-voter) said weak growth, an aging workforce and poor productivity may leave the US stuck with low rates for years to come. Additionally, former Philly Fed President Plosser said the central bank has a credibility problem as officials failed to fully explain the decision to keep rates unchanged last week. Fed Governor Powell said the FOMC can continue to be patient, and supports a gradual path for rate increases. For the week, the U.S. Preferred Stock Index was down 0.83%.

The price of crude oil rose as the market continued to weigh a tentative agreement to cut production among members of OPEC. On Thursday, OPEC officials reportedly reached an agreement to limit production to 32.5M to 33M bpd, compared to the August production level of 33.2M bpd. The key obstacle in negotiations has been divisions between Saudi Arabia and Iran, with the latter unwilling to freeze production until it returned to pre-sanctions levels of over 4M bpd. Crude was up 7.9% for the week.

All of corporate America continues to be under intense criticism. Some of it is justified but the level of criticism generally is way disproportionate to the behavior. Wells Fargo is the latest in the news. In the Wells Fargo case, one article cited the total cost to customers of opening bogus checking and credit card accounts at $5 million or so. Fees generally are not charged on unused checking accounts or credit cards, which limited losses. However, the fines to date are $185 million, about 37 times the customer losses. The CEO forfeited $41 million and the head of retail banking $19 million. If you add in the forfeited pay/bonuses, the penalties are 49 times the loss to customers! In the past, a penalty of triple damages” was thought to be very severe. Today in banking, instead of tree times damages, we have 49 times and counting. In most cases, the customer loss already has been refunded.

Next week’s economic calendar highlights include Auto and Truck Sales (Oct. 3), ADP Employment Change and Crude Inventories (Oct. 5), Initial Jobless Claims (Oct. 6), and Nonfarm Payrolls (Oct. 7). Q3 ends today and earning reports will start in two weeks.

Have a great weekend,
Yansong Pang

Weekly Market Update – September 23, 2016

The Dow was down 131 points on Friday to end the week higher amid relief that global central banks did not raise interest rate. For the week the Dow was up 0.76%. Year-to-date the Dow was up 4.8%.

The Federal Open Market Committee (FOMC) meeting last Wednesday was this week’s event of focus. As widely expected, the FOMC held interest rate steady. The committee noted that the case for a rate hike has strengthened, and the risks to the near-term economic outlook appear “roughly balanced”. Federal Reserve Chairwomen Yellen said that the labor market was not overheating and still had “room to run”. Notably, three committee members disagreed and favored an immediate 25bps rate hike. The 2016 Federal Funds rate projection was reduced from 0.9% to 0.6%, the 2017 projection down from 1.6% to 1.1%, and the 2018 projection down from 2.4% to 1.9%. For the week, the U.S. Preferred Stock Index was down 1.2%.

Economic data was mixed this week. Homebuilder confidence jumped in September and the September housing market index was well above expectations. However, August existing-home sales fell for the second consecutive month, down 0.9% from July. Healthy labor markets should create sustained demand, but supply and affordability restrictions continue to keep would-be buyers on the sidelines. Housing starts were weaker after recent strength, down 5.8% from 1,120,000 in July. August building permits registered 1,139,000, missing consensus and coming in 2.3% below the downwardly revised July level.

The price of crude oil rose this week following a larger than expected inventory draw. The EIA’s data showed a draw of 6,200,000 barrels for crude oil, and a draw of 3,000,000 barrels for gasoline. The possibility of a coordinated crude production freeze of OPEC remains next week’s focus. On Monday, the Venezuelan president said that OPEC was close to an agreement on how to stabilize the market. OPEC’s General Secretary Barkindo commented that the cartel, along with non-member producers such as Russia, were likely to reach consensus on a one-year production freeze agreement in an attempt to rebalance the oil market, but decisions won’t be made until OPEC formally meets on November 30th. Crude was up 3.9% for the week.
Next week’s economic calendar highlights include New Home Sales (Sept. 26), Consumer Confidence (Sept. 27), Crude Inventories (Sept. 28), Initial Jobless Claims (Sept. 29), and Personal Income (Sept. 30). Q3 ends September 30th and earning reports will start to be announced two weeks from then.

Have a great weekend,
Yansong Pang

Weekly Market Update – September 16, 2016

The Dow was down 87 points on Friday amid uncertainty about global central bank policy. Headwinds from the European Central Bank’s decision not to engage in further stimulus continued to ripple through the market. Investors also awaited guidance next week by the Bank of Japan and the US Federal Reserve. For the week the Dow was flat. Year-to-date the Dow was up 4%.

Economic data was weaker than expected. Retail sales were down 0.3% in August, a decline worse than the predicted fall of 0.1% and its first drop into negative territory in five months. In manufacturing data, the news was mixed: the Empire index climbed to -2, below consensus expectations of -1, while the Philly Fed’s index increased by 2 against a 1.7 consensus prediction. The August producer price index stayed flat, below expectations for a 0.1% rise. Initial jobless claims, however, rose by 1,000 to 260,000 on the week, well under the consensus forecast of 265,000.
Federal Reserve commentary this week was largely dovish, solidifying the consensus that interest rates will not be increased at the Federal Open Market Committee’s meeting next week. Fed Governor Lael Brainard, the last Fed official to speak before a quiet period ahead of the meeting, stated that the argument for an early rate hike was “less compelling,” citing persistent slack in the labor market along with weak foreign demand and an absence of deflationary pressures. Investors currently place the odds of a rate hike next week at around 15%, down from 30% last week. For the week, the U.S. Preferred Stock Index was down 0.46%.

Crude oil was down this week following a report Tuesday by the International Energy Agency, which claimed that global demand for crude was slowing at a much faster pace than it had initially believed. Prices sank further on the news of larger-than-expected inventory builds of refined petroleum products. Swelling exports from Iran and Saudi Arabia – along with indications that more production in Libya and Nigeria could come back on-line following favorable political developments – also pushed prices lower. Crude was down 5.7% for the week.

In the upcoming week, the press conference at the conclusion of the two-day Federal Reserve meeting on September 21 will have the biggest impact on the market. Additional highlights in the week’s financial calendar include crude inventories (Sep. 21), initial jobless claims (Sep. 21), and existing home sales (Sep. 22).

Have a great weekend,
Yansong Pang

Weekly Market Update – September 9, 2016

The Dow was down 394 points on Friday after Federal Reserve Bank of Boston President Eric Rosengren argued for tightening interest rates to avoid overheating the economy. Although higher interest rates are favorable for banks, they are viewed as a headwind for the economy in general. For the week the Dow was down 2.2%. Year-to-date the Dow is up 3.8%.

This week’s domestic economic data was mixed. August’s report of non-manufacturing Institute for Supply Management (ISM) index came in at a level of 51.4, well below consensus of 55.0. Business activity was weaker and new orders were also down markedly, while employment held up fine. Respondents cited a number of different dynamics, including the lingering overhang from crude oil volatility, adverse seasonal factors, and labor availability and cost headwinds in the accommodation and food-services industry.

Several Federal Reserve Officials commented this week that the economy is healthy and a strong labor market supports a gradual interest rate increase. On Friday, Federal Reserve Bank of Boston President Eric Rosengren suggested a tightened interest rates is “reasonable”. According to Fed Funds futures, investors currently price a 30% chance of a September interest rate rise, compared with an 18% chance on Thursday. The Fed meets on September 20th and 21st. For the week, the U.S. Preferred Stock Index was down 1.1%.

Crude oil surged on Thursday after a reported inventory draw of 12,100,000 barrels vs. expectations for a 200,000 increase. The EIA’s data showed an even larger inventory draw at 14,500,000 barrels. The draw was the largest seen since January 1999. Some of the reduction in inventories was caused by hurricane disruptions of deliveries of crude oil inputs. The prospects for a production-freeze deal by OPEC and others remain a focus. Bloomberg cited comments from Iran’s state-owned NIOC chief Ghamsari, who said it was too early for Tehran to discuss freezing crude output when producers meet on Sept. 26th. For the week, the crude oil was up 2.7%.

Next week’s economic calendar highlights include Crude Inventories (Sept. 14), Initial Jobless Claims and Producer Price Index (Sept. 15), and Consumer Price Index (Sept. 16). Expect a volatile market until the conclusion of the Fed meeting and the press conference schedule for early afternoon on Sept. 21.

Have a great weekend,
Yansong Pang

 

Ulland Investment Advisors

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