What we learned last week:
“Some people see the glass half full. Others see it half empty. I see a glass that’s twice as big as it needs to be.” – George Carlin
As the nation remembered the 25th anniversary of the terrorist attacks on September 11, 2001, the story in financial markets were the rise in oil prices and Treasury yields. Oil prices jumped to their highest levels since May of this year, and Treasury yields soared to multi-year highs.
The worsening of two major inputs into the economy, cost of energy and cost of capital, gave Wall St a glass half empty outlook and pulled major indexes down.
Higher oil prices weighed on market sentiment, U.S. West Texas Intermediate futures for October jumped above $100 per barrel Thursday morning. The international benchmark Brent crude for November delivery punched through $103 a barrel.
Oil prices finished the week down from their double-digit weekly gains Thursday, however Brent crude prices sit above $100 a barrel.
Adding to the cost of energy around the world is the cost of trade.
In an escalation of the U.S. and Canada trade war, the United States is banning dairy products, most alcoholic beverages and motorcycles from Canada, the White House said Tuesday. The ban will begin in three weeks and comes after Canada imposed retaliatory tariffs on $20 billion in U.S. imports earlier Tuesday.
Turning to interest rates, an action out of the Treasury meant to slow the rise of interest rates worked in reverse.
The Treasury Department said Wednesday it will raise its bond buybacks to up to $6 billion, future buybacks will be at least $4 billion. Despite this move, yields at the long end rose. The benchmark 10-year issue hit 4.841% and the 30-year bond rose above the 5.3% level.
Friday morning’s consumer price index (CPI) report was eagerly anticipated for indications of this week’s Fed rate decision.
The core CPI annual rate (minus energy and food) came in at 2.4%. The last time core CPI annual rate came in at this level was more than six years ago in February of 2020. Adding food and energy back into CPI and the 12-month increase jumped a full percentage point to 3.4%. This met expectations and was comfortably lower than this year’s peak CPI reading of 4.2% back in May.
The inflation report increased odds for a Fed rate hike of 0.25% at this coming Wednesday’s meeting based on the month-over-month change in consumer prices. Should the Federal Reserve meet market expectations the policy rate range, which impacts all lenders and borrowers, will be 3.75%-4.00%.
This week events in the middle east will continue to have investors’ attention, as will any news that boosts or threatens the artificial intelligence growth story. The main event is Wednesday afternoon with the Fed rate decision.
What’s ahead this week:
Economic Reports
- Federal Reserve interest rate decision Wednesday afternoon will take center stage
- August retail sales report Wednesday morning will be an informative data point as June’s sales growth was soft and July’s sales growth was negative from the same point last year.
Earnings
- Quiet week of quarterly corporate earnings report with no S&P 500 companies reporting
My goal is for you to feel educated and informed about variables we do and don’t have control over and find ourselves working within. I hope to do it in an informative and relatable way. As always, I value your relationship and planning objectives – my door is always open for conversation.
