June 26. 2017 – Weekly Market Commentary



 

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Dion Rabouin and Michelle Price – Reuters 
China Shares get MSCI nod in Landmark Moment for Beijing

Summary: China’s stock took a major step toward global acceptance on Wednesday, finally winning a long campaign for inclusion in a leading emerging markets benchmark. U.S. index provider MSCI stated it would add a selection of China’s “A” shares to its emerging markets Index. This is seen as a key victory for the Chinese government, which has been working steadily over the past few years to open up its capital markets. MSCI will add 222 large-cap Chinese stocks to its benchmark. The move is estimated to shift around $17.5 billion into Chinese stocks. 

 

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Mark Decambre – MarketWatch
Oil Prices Slipped into Bear-market Territory

Summary: U.S. crude oil prices retreated into bear-market territory last week. Prices have now fallen more than 20% since peaking in February. The industry continues to be bogged down by oversupply concerns. U.S. shale drillers have been cited by many analysts as the main culprit.  

 

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Jeff Cox – CNBC
Big Banks Make it Through Stress Tests, Investors Await Cash Release

Summary: U.S. banks made it through the latest round of Fed stress testing relatively unscathed. The tests show that the 34 major banking institutions have enough capital to make it through the two crisis scenarios regulators posed. “This year’s results show that, even during a severe recession, our large banks would remain well-capitalized,” Fed Governor Jerome H. Powell said in a statement. 

 

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Matthew Boesler and Christopher Condon – Bloomberg
Fed’s Dudley Confident that U.S. Expansion Has a “Long Way to Go.”

Summary: Federal Reserve Bank of New York President William Dudley aligned himself with Chair Janet Yellen in declaring his expectation that a tight labor market will eventually trigger a rebound in inflation. Sounding a positive note on the U.S. economy overall, he expects the current expansion to continue and says that the Fed will raise rates “very judiciously,” to avoid derailing the expansion that began in mid-2009.  

 

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Rick Rieder – CIO of Global Fixed Income – BlackRock
The Truth About the Fed and Inflation

Summary: Many commentators have been critical of the Fed’s decision to raise rates in spite of low inflation. Rieder points out that the Fed’s 2% mandate was adopted in 2012 and that historically the central bank has been comfortable with different levels of inflation. Given the technological disruptions and aging demographic trend in the US it is challenging to generate strong inflation. The Fed was right to raise rates, and the economy should take the hike in stride. 

 

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Templeton Global Equity Group
Value Update: Where Is the Next Pocket of Opportunity?

Summary: Domestic value stocks have outperformed over the last 18 months, but more attractive opportunities are coming to light. The Templeton team believes that cheaper valuations outside of the US create an opportunity for achieving greater returns overseas. The current cycle-adjusted price to earnings in the US is 25 while it is only 11-12 in both Europe and emerging markets. Non-US equities look to be undervalued, under-owned, and exposed to positive global economic catalysts. 

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