Equity markets pulled back during last week’s holiday shortened trading. Tensions with North Korea, the impact of multiple hurricanes, and some legislative developments in D.C. all factored into the mix. Harvey, Irma, and potentially Jose will likely draw down some third quarter economic activity in those local areas but things ought to pick up in the fourth and first quarter rebuilding windows. Interest rates fell across the curve last week and now the 10yr U.S. Treasury bond is again flirting with the 2% level.

Weekly Anecdotes:

  • Stanley Fischer announced his resignation as Fed Vice-Chairman last week, highlighting turnover at the Fed. The favorite to replace Janet Yellen within the past several weeks was National Economic Council Director, Gary Cohn, but rumors of a deteriorating relationship with POTUS has thrust an element of uncertainty into this important decision.
  • The U.S. dollar notched its worst week in nearly four months, losing -1.6%. The dollar has fallen 10% on the year and currently sits at its lowest level since 2015.
  • Reduced expectations for a rate hike became evident in futures market pricing as the likelihood of a December hike fell from 42% to 31% last week. Fed officials cited the near-term impact of the hurricanes in addition to persistent low inflation as drivers for the upcoming decision.
  • Interest rates fell to fresh 2017 lows last week on strong demand for Treasuries as the ‘risk off’ sentiment increased again last week and the reduced likelihood of a December hike makes bonds feel safer in the near term.
  • Last week’s short-term debt ceiling fix is likely to have pushed tax relief back from first quarter to second quarter 2018, not a favorable deal from the market’s perspective but a signal to Republicans that POTUS will negotiate with the blue ties if he feels it is a priority.
  • Strength in healthcare has been notable as the sector posted robust gains in a week where most market segments struggled. The number of biotech names at 52-week highs currently stands at the highest level in two years.
  • Two weeks ago, the pileup of crude oil inventories because of Hurricane Harvey reduced activity on the Gulf coast and resulted in crude oil falling below $46.00 per barrel. Refineries coming back online and a weak U.S. dollar both contributed to a bounce back in oil prices last week.

Economic Updates:

  • 51,637 jobless claims from the state of Texas marks the first effects of Hurricane Harvey’s hit to the Texas coast. The usual levels are approximately 10,000.
  • The August ISM non-manufacturing report for August came in at a solid 55.3. New orders, backlog orders, business activity, and employment all registered encouraging tallies for the month.
  • The Bloomberg Consumer Comfort Index registered a strong 52.6, echoing most other consumer sentiment indices. This is particularly believed to represent consumers view of income opportunities as they pertain to the economy, personal finances, and the buying climate.
  • In a somewhat surprising release, Japan’s 2Q GDP was revised downward sharply from 4% to 2.5% last week, checking some of the exuberance after the initial release.