News for the Week of August 22 to August 26, 2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
1. Chileans rallied to demand the dismantling of a private pension system
2. The UK plans to separate Muslim extremists from other prisoners in the nation’s jails
3. Russian Paralympians were banned from the Paralympics in Rio. The Secretary General of the Russian Paralympic Committee said the mood of athletes was low, “because often for a disabled person it is the only change of self-realization and achieving something in life.”
4. The leaders of Russia, Germany, and France agreed to meet next month to address the crisis in Ukraine.
· I often note here my successes and my correct prognostications. This is one where I did not make a prognostication, but I did honestly think that things in Ukraine would get down-right ugly, I admit, I was wrong – thankfully!
5. The Clinton Foundation is considering exceptions to its plan to stop accepting corporate and foreign donations and reduce family involvement as a way to insulate Hillary from potential conflicts if she is elected. Well, I guess theoretically it is possible she could have waitied longer to come to the same conclusion?
6. Colombia’s government and Marxist rebels said they successfully concluded talks to end a half century of conflict. I guess the Hundred Years’ War record will never be broken
7. Iraq’s parliament voted to oust the nation’s defense minister, citing corruption charges
8. Putin ordered snap military drills, with a particular focus on the region bordering Ukraine
General Markets / Economic
1. The ECB’s corporate bond buying program has so stirred the credit markets that some firms are creating new debt especially for the central bank to buy!
2. US investment in home remodeling and repairs this year will top records, new forecasts project
3. Several big shale drillers are tiptoeing back into the oil patch as the price of US crude rises toward $50
4. Sales of newly built homes in the US rose in July to the highest level in nearly a decade
· Sales of existing homes slipped in July
5. Growth in overall health-care spending in the US is slowing, but middle-class families’ share of the tab is getting larger
6. Durable goods orders rebounded in July, a sign the US manufacturing sector could continue to stabilize
1. Pfizer is nearing agreement to buy biotech Medivation in a $14B deal that would expand its lineup of cancer treatments
2. Delphi and Mobileye are joining forces to develop a fully autonomous driving system for car makers to place in their vehicles.
3. WhatsApp will start sharing phone numbers and other user data with Facebook, in a policy shift
1. No wonder the American education system is failing. A Texas school teacher canceled homework for the entire year! And it’s second grade – arguably more impressionable on a child’s intellect and understanding than 12th grade! And then the parents are excited about this!
2. A new Texas High School Football stadium is costing…$70m, that’s high school…you know, the things that 14 year olds play in.
3. A man found a 345kg pearl in the ocean! The size of the clam was well over 400 kilos. He kept the pearl for good luck, not knowing that is was worth a lot of money. 2.2 pounds per kilo
4. A woman in Vietnam cut off part of her foot and legs for an insurance payment. She was close to a rail accident and wanted to get insurance money ($150k). Obviously she didn’t get the money
5. British doctors have recorded the first known death due to bagpipes – he died of a long-term lung condition caused by the fungus thriving in the moist environment of his bagpipes. Trombonists and saxophonists are at risk too
6. North Korea created a state-approved streaming service to rival Netflix. It’s only available to citizens in some cities. The name is Manbang. For my non-Korean speaking friends, that translates to “everywhere”
Commentary for Week of August 22 to August 26, 2016
by David Abuaf, CFA
Investment Manager, RJFS
Last week’s events in the market can be identified from just one day’s events, as trading was quiescent Friday ahead of a speech by Janet Yellen. Although Yellen said the case for raising interest rates had increased of late, she said the rise would be gradual.
No reference to a potential September hike, nothing new. After her speech, stocks gained all they had lost earlier in the week. But then, Stanley Fischer – the vice chair of the Fed – went on TV and indicated that Yellen’s speech was consistent with a possible rate hike in September and December. Because the equities market wasn’t prepared for a potential hike in just a few weeks, stocks plunged 1% from the day’s highs. As we’ve said many times before finance and economics dislike “sudden and temporary” news.
After the comments from Fischer, the fed futures market showed investors putting the probability of a September hike at more than 40%, double what it was a few weeks ago and up from nearly zero right after the Brexit vote. According to Joe Saluzzi at Themis Trading, “it’s hard to read the Fed tea leaves…two rate hikes would seem to be in play now.”
This week promises to be another one where Friday could be a key session. On Friday, US unemployment data for August will be released. If they are much better than expected, look for a September rate hike market expectations to spike sharply. Beyond what the Fed does or doesn’t do next month, look for the debate on fiscal stimulus to pick up ahead of the elections.
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services.
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