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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

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Ulland Investment Advisors

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