We think it’s important to understand that right now, the U.S. markets are closely watching every single piece of economic data that comes out, trying to gauge whether the Fed will raise interest rates later this month.
• For example, last week we heard that the U.S. created fewer jobs than expected in August (151,000 vs. the expected 180,000). That number might not seem like it was very far off, and unemployment remained the same, but it was still taken as negative news. The market didn’t exactly react as you might expect to this bad news, however, instead wondering if perhaps the Fed would reconsider their decision based on that data.
• This week’s news has mostly been focused on the ISM non-manufacturing index, which tracks the growth of US services companies. The index fell last month, suggesting that these companies were growing more slowly than in previous months- in fact, growing at their slowest pace in more than six years. Slow growth is still growth, however.
• Our point here is not to rattle off a bunch of statistics. We mostly aim to describe how the market is reacting to this seemingly negative news in a way that isn’t sending the market down. Because these relatively poor economic numbers may influence the Fed to forgo raising interest rates, the market is happy, or at least content.
• We also want to mention that activity has been much more subdued than usual in the US equity markets this summer. August saw one of the narrowest trading ranges since the 1920s. This is of course in sharp contrast to August of last year, when we had major volatility surrounding China’s currency devaluation.
On that note, let’s get out of the United States for a minute.
• On Monday we heard that Saudi Arabia and Russia agreed to start cooperating in the world oil markets. That briefly sent the price of oil up close to 5%, only for it to fall back to $44/barrel after Saudi Energy minister said there was no need to freeze output for now. We’ll be watching this situation closely. Oil is currently sitting at $47/barrel on news that U.S. crude inventories have decreased.
• In Europe, we’re not seeing any benefit from the European Central Bank’s negative interest rate decision or quantitative easing as Eurozone inflation remains extremely low. Consumer price inflation was less than half of the ECB’s target. Quantitative easing in the Eurozone is scheduled to end next year, however these inflation numbers and a 10% unemployment rate may change that.