Download September 18, 2015

In the markets:
Stocks closed the week mixed, as initial exuberance over the widely anticipated (in)action of the Federal
Reserve quickly dissipated. The Dow Jones Industrial Average lost -48 points on the week, ending at
16,384. The interest-rate sensitive Dow Jones Utility Average, however, surged +2.83%. The tech-heavy
Nasdaq remained nearly flat, up +4 points to 4827. The large cap S&P 500 ended the week down only 0.15%. The small cap Russell 2000, more insulated from the shocks in the global economy, actually
gained +0.48%.
In international markets, Canada’s TSX ended a 2 week down streak by closing up +1.38%. The United
Kingdom’s FTSE closed down -0.22%. On mainland Europe, Germany’s DAX ended down -2.05%, and sits
perilously close (at -19.9%) to the -20% level marking “bear” territory, while France’s CAC 40 declined 0.28%. In Asia, China’s Shanghai index declined -3.2%. Japan’s Nikkei also ended down for the week,
losing -1.06%.
In commodities, Gold ended a 3 week down streak by gaining +2.8%, finishing the week at $1,139 an
ounce. Silver also gained, rising +3.87%. A barrel of West Texas Intermediate crude oil gained $0.54 to
$45.32.
In US economic news, the news that overshadowed all other news was that on Thursday the Federal
Reserve left interest rates near zero, saying ‘global economic and financial developments’ may curb
economic growth and inflation. Federal Reserve policymakers stated that "economic activity is
expanding at a moderate pace. Household spending and business fixed investment have been
increasing moderately, and the housing sector has improved further; however, net exports have been
soft. The labor market continued to improve, with solid job gains and declining unemployment. On
balance, labor market indicators show that underutilization of labor resources has diminished since early
this year." Stocks were volatile, with the Dow rallying +190 to a session high 45 minutes after the
announcement, but by the close that gain had been erased, and the Dow settled negative at -65.
Job openings soared to a fresh all-time high in July, evidence that the labor market continues to heat up.
However, employers aren’t necessarily filling those positions with higher paychecks. The Labor
Department’s Job Openings and Labor Turnover Survey (JOLTS) last week showed that actual hires fell
4% to 5 million, more than ¾ of a million lower than openings. July marked the 6th straight month in
which that relationship was upside down. Tara Sinclair, chief economist at job website indeed.com
attributes this to the hangover of a weak labor market. “Employers had many years where they were
able to get workers they wanted without having to make the job competitive,” she stated.
Builder sentiment rose to a high not seen since November 2005. The National Association of Home
Builders Housing Market Index gained a point to 62, beating expectations of a flat reading. The gauge of
current sales conditions rose 1 point to 67 and buyer traffic rose 2 points to 47. Mortgage applications
declined -7% in the Mortgage Bankers Association’s composite index last week. Applications to
purchase were down -4% and refinancing applications declined -9%. Builders broke ground on fewer
homes than expected in August. Housing starts ran at a 1.12 million annual pace in August, down from a
1.16 million pace in July and below forecasts of 1.17 million. However, August housing starts were +17%
higher than year-ago levels.
The consumer price index declined -0.1% in August, missing forecasts of a flat reading. For the year, the
CPI is +0.2% higher. Excluding food and energy, the index rose +0.1% for the month and was +1.8%
higher versus a year ago. The number is still short of the +2% goal of the Federal Reserve.
Retail sales were up +0.2% in August, a tick less than expected, but July’s number was increased to
+0.7% from +0.6%. Core retail sales, used in calculating GDP, advanced a strong +0.4% following a +0.6%
gain in July. Core retail sales exclude automobiles, gasoline, building materials and food services.
Redbook reported that same-store sales rose +1.7% versus a year ago last week. This was an
improvement over the +1.3% yearly rise the prior week.
Industrial production declined -0.4% in August, worse than the -0.2% expected. Manufacturing declined
-0.5% and mining activity fell -0.6%. Weaker overseas economies and a stronger dollar may be taking a
toll on industrial exporters. Capacity utilization, which measures how much spare capacity remains in
capital equipment, declined --0.2% to 77.6%.
In Canada, inflation remains flat as the consumer price index was unchanged in August and up +1.3%
versus a year ago. The Bank of Canada’s core reading rose +2.1% for the year, down from +2.4%
recorded in July. The plunge in oil prices continues to weigh heavily on the Canadian economy.
In the Eurozone, industrial production rose +0.6% in July, beating expectations, and June’s reading was
also revised upward. Output is +1.9% higher versus a year ago, also beating expectations. Subsectors
were mixed with energy up +3% but consumer nondurables down -0.6%. The currency bloc’s trade
surplus rose to €31.4 billion ($35.6 billion), up from €21.2 billion a year ago. Exports rose +7%, and
imports rose +1%. All in all, the data suggests a gradually improving European economy. Inflation in the
Eurozone weakened as the consumer price index for August was revised down to a yearly gain of just
+0.1%, the weakest since April. The core reading, which excludes food, alcohol, tobacco, and energy
was revised down to+ 0.9% - just half the ECB’s target level.
In China, industrial output rose +0.53% in August, stronger than July. Output for the year was up a
slightly disappointing +6.1%, vs. expectations of a year to date gain of +6.5%. Retail sales were up
+10.8% year to date in August, better than expected.