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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

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464