Markets, Economy

Weekly Kickstart (09/25/2017-09/29/2017)

9/25/17 8:00 AM

/iStock-487831223.jpgThe market melt-up continued last week, as the S&P 500 rose by 0.08 percent to 2,502.22. That fractional gain still left the benchmark index up a solid 11.76 percent year-to-date, and just 0.24 percent below the all-time closing high. Although there were numerous headlines for traders to pay attention to last week, the biggest event for the market was the latest decision on monetary policy from the Federal Open Market Committee (FOMC). Indeed, officials on Wednesday kept the target range for the federal funds rate at 1.00-1.25 percent and announced that the unwind of the Fed’s $4.5 trillion balance sheet would begin in October. The balance sheet run-off will commence with modest caps that increase every three months should economic conditions continue to warrant such actions.


Fed officials last week also updated their quarterly economic projections, which now imply another three quarter-point interest rate increases in 2018. As for the current year, the latest market pricing suggests a 71.4 percent chance of a quarter-point hike at the December FOMC meeting, up from just 51.6 percent a week earlier. With respect to hurricanes Harvey, Irma, and Maria, the FOMC statement said that “storm-related disruptions and rebuilding will affect economic activity in the near-term,” but stressed that “past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium-term.” Altogether, the committee’s continued confidence in the economy and clear determination to move forward with balance sheet normalization suggest that the hawks are in control at the Fed. The only things that may change this are a significant deterioration in economic activity and/or a regime change at the FOMC when chair Yellen’s term ends in February of next year.


To recap a few of the things we learned about the economy last week, the positives included that building permits increased, home prices rose at a slower rate, manufacturing activity in the Mid-Atlantic region of the country firmed, and first-time claims for unemployment benefits fell sharply as the impact from hurricanes Harvey and Irma faded. As for the negatives, the nation's current account deficit widened, cross border inflation pressures picked up, mortgage and refinance applications plunged, homebuilder sentiment deteriorated, housing starts fell, and existing home sales declined. This week the pace of economic data picks up slightly with several important reports on manufacturing, housing, consumers, inflation, and gross domestic product (GDP) scheduled to be released, along with a handful of potentially market-moving speeches by officials at the Federal Reserve.


**A more detailed snapshot of the U.S. economy can be found here.**

What To Watch:








Sources: Econoday, FRBG, FRBNY, Bloomberg, Wells Fargo, ZH, FRBSL

Post author: Charles Couch