June 19, 2017 – Weekly Market Commentary



 

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Jeff Cox – CNBC 
Fed Hike Interest Rates Despite Declining Inflation

Summary: The Federal Reserve approved its second rate hike of 2017 despite data showing inflation running well below the central bank’s target. As anticipated, the Federal Open Market Committee increased its benchmark target a quarter point. It also surprised many investors by announcing that it will begin reducing its balance sheet sooner than expected. The Fed now expects inflation to fall short of its 2% target this year which could push back the date of future rate hikes.   

 

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Katie Allen – The Guardian
Bank of England Edges Closer to Increasing UK Interest Rates

Summary: The Bank of England has edged closer to raising interest rates as three out of eight policymakers voted for an immediate rate hike to keep inflation in check. The UK’s key rate will remain at 0.25%. Members who voted to keep rates unchanged are worried that a slowdown in consumer activity and that uncertainty related to the Brexit will cause headwinds for future growth. 

 

UK Flag

Simon Kennedy – Bloomberg
Brexit Bulletin: It’s Time to Talk

Summary: Almost a year to the date after Britons voted to leave the European Union, Brexit talks formally began in Brussels. Theresa May’s failure to gain a parliamentary majority will likely tilt the talks toward a “softer” exit. The deadline to agree to a deal is October 2018.

 

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Tiffany Wilding – Pimco
CPI Lags Expectations for a Third Straight Month

Summary: Another soft U.S. core Consumer Price Index inflation report – the third in a row – could complicate the Fed’s intentions to raise rates one more time this year. May’s inflation weakness was broad-based across goods and services categories. These weaknesses in April in May are not attributable to a single story and therefore should be more worrying to Fed officials, who were already struggling to meet their inflation target. 

 

Oil Refinery

Julia Simon – Reuters
Oil Slides, Hits a Six-month Low on Rising Global Production

Summary: Oil prices settled lower following a report from the International Energy Agency which said growth in oil supply next year is expected to outpace demand. An additional report showing that U.S. gasoline inventories rose unexpectedly led to a 4% decline in crude prices.

 

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Bill Gross – Janus Henderson Advisors
How to Make Money: A Monthly Outlook on the Global Financial Markets 

Summary:  Because of the secular headwinds facing global economies, investors have resorted to “making money with money” as opposed to “old-fashioned” investment in the real economy. Because interest rates are at historical lows investors are having to take more and more risk to achieve desired returns. Gross argues that the lack of capital making its way into the real economy is increasing systemic market risks and he advises investors to maintain caution when reaching for yield.

 

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Katherine Chiglinsky – Bloomberg
El-Erian Sees Risk of Growth Below 2% as Trump’s Agenda Stalls 

Summary: El-Erian, Allianz SE’s chief economic adviser, said political turmoil in Washington is raising the risk that Donald Trump and lawmakers will be unable to promote economic growth. The risk is that Trump will not be able to get tax and infrastructure reform to Congress in a constructive manner. Without intervention from Washington El-Erian believes that US growth could fall below 2 percent this year. 

 

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Russ Koesterich, CFA – Blackrock
What’s behind the tech selloff 

Summary: The continuation of the bull market has many investors feeling like everything is calm in the market, but under the surface, things may be starting to churn. Koesterich lays out three reasons for the recent tech selloff. One, there was an abrupt reversal of this year’s momentum trade. Tech has become a momentum play like in the late 1990s. Two, multiples are much higher. At nearly 25x trailing earnings, the sector is the most expensive it has been since the financial crisis. Lastly, the surge in growth equities has made the entire style expensive. 

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