Market Update: Thursday, September 22, 2016

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  • Fed passes on rate hike, markets rally. U.S. equities are adding to Wednesday’s gains in early trading, while foreign stocks rally, after investors applauded the Federal Reserve Bank’s (Fed) decision to hold off on a rate hike at the conclusion of its two-day policy meeting. All 11 sectors rose, with rate-sensitive utilities (2.1%) and telecom (1.3%) among the day’s top performers; though a 2.6% spike in crude prices provided an added tailwind for energy stocks (2.1%). Overseas markets are also enjoying widespread strength on the heels of the Fed decision. Asian markets finished higher with the Shanghai Composite finishing up 0.5%, while India’s SENSEX gained 0.9%; Japan’s Nikkei Index was closed. Major indexes in Germany, France, and Spain are leading the advance in Europe, all up more than 2% midday. Elsewhere, dollar weakness is helping to further lift commodity prices; WTI crude oil is back above $46/barrel and COMEX gold is higher by half a percent to $1340/oz. Treasury yields are moving lower as the 10-year note trades near 1.64%.

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  • Rates left unchanged at FOMC meeting, but we may see hike by year-end. As expected, the Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC), decided to keep rates unchanged at the conclusion of its two-day meeting yesterday. The FOMC did upgrade its assessment of the economy from its July statement and noted that the case for an increase in the fed funds rate had strengthened. However, it reinforced that future hikes remain data dependent as it looks for data on the economy, labor market, and inflation to track closer to its forecasts. The Fed did drop a strong hint that it may raise rates in December. For more on the latest FOMC meeting, see yesterday’s blog post and be on the lookout for a Client Letter, due out later today.
  • Regional Fed presidents the dissenting voices in policy vote. Three voting members of the FOMC dissented from Wednesday’s policy statement, the most since December 2014, including Boston Fed President Eric Rosengren, a reputed dove. All three were regional Fed presidents. A total of four regional presidents serve as voting members of the FOMC on a rotating basis (not including the New York Fed, which has a permanent vote), so this represented 75% of the regional presidents who voted. Regional bank presidents can have a little more of a practitioners’, or private industry, point of view; the dissents may be signaling that, practically speaking, an additional hike over the next several months may actually be the right move for the health of the economy.
  • Bank of Japan trying to talk yen down one day after meeting. Despite a largely dovish outcome to the Bank of Japan (BOJ) meeting yesterday, where the central bank reaffirmed its commitment to finding a policy combination that will provide additional support to the economy, markets pushed the yen higher. Even though the tone was accommodative, the BOJ did not lower already negative rates, which may have helped strengthen the yen. In what is sometimes called “verbal intervention,” comments from a Japan official emphasized the BOJ stands ready to limit what it called “speculative moves” in the yen.
  • Claims move lower. New claims for unemployment insurance came in at 252,000 for the week ending September 17, 2016, a drop of 8,000 from last week, and below the consensus expectations of 261,000. In the past, claims need to rise more than 75,000 over a six-month (26-week) period to indicate a recession. Claims are down 13,000 from their level 26 weeks ago, so are not showing a recession signal at this point in time.

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Thursday

 Friday

  • Markit Mfg. PMI (Sep)
  • Mester (Hawk)
  • Harker (Hawk)
  • Lockhart (Dove)
  • Eurozone: Markit Mfg. PMI (Sep)
  • Japan: Nikkei Japan Mfg. PMI (Sep)

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