The big news in the market this week is the lack of movement in the major United States (U.S.) exchanges. Today will be the 35th trading session, where the Standard and Poor has moved less then 1% in either direction. This condition in equities, has not occurred in decades.
The week began with the U.S. Federal Reserve Bank (Fed) watchers speculating on whether at long last interest rates would begin to move up again. Although there are some indicators like an improving jobs and housing market that may provide support for a rate hike, others like the stagnate growth in GDP (Gross Domestic Product) of just 1.2% in the second quarter, provide support for the opposite conclusion.
U.S. Fed Reserve Chair Janet Yellen announced Friday morning, that improving economic conditions provides further evidence for a rate hike. She focused on the strength of consumer spending. Market analysts now say that there is a 1 out of 3 chance, that interest rates will be increased in September.
The surge in valuation in the United States equity markets, which reached all time highs earlier this month have now leveled off. Not since 1999, had all three major composites reached life time highs. This occurred more than once in August. The Dow Jones Industrials peaked at 18,722.61. The exchange is up between 6% & 7% for the year.
The Standard & Poor 500 which is up about 7% this year, topped at 2,193.81 and the NASDAQ increased to 5,271, an addition of between 4% and 5% in 2016.
The surge in the price for crude oil in the last two weeks has now been halted. American West Texas Intermediate (WTI) had increased from $44.38 USD (United States Dollar) in the middle of the month to $48.27 a week ago. This was a gain of 8.77% in a week. Similarly, International Brent during the same period went from $46.71 USD to $50.74 USD. That had indicated a 8.63% increase in the price.
Crude prices were set for the biggest weekly decline in a month. Then following the Fed announcement this morning, oil moved in the opposite direction.
Crude oil has stabilized, due to news of higher production in a number of countries and rising inventories. Saudi Arabia has moved from producing 10.67 million barrels a day in July, to between 18.8 and 18.9 million in August. The kingdom has already stated an output cut is unlikely to be agreed upon, on upcoming OPEC (Organization of Petroleum Exporting Countries) meeting next month.
Meanwhile, Iraq is also preparing to ramp up export levels by 5% of 150,000 barrels a day. Production reached 3.71 million barrels a day last month. Stronger oil output in China and a new ceasefire with insurgents in Nigeria, all point to rising global supplies of crude.
In Europe, the leaders of France, Germany and Italy met this week, to try to decide how to keep the European Union (EU) intact following the Brexit vote. Germany wants to focus on reform, rather than expansion. France is calling for a doubling of a EU wide investment fund and Italy just wants a stronger voice, as one of the three largest remaining economies.
An earthquake in central Italy, has wiped out a number of historic towns and villages. The death toll is now listed at 268. The aftershocks keep rolling through, which is effecting rescue efforts.
In South America, Venezuela has been ordered by the World Bank to pay the Canadian mining firm Rusoro Mining over $1.2 billion USD. The expropriation of the the company’s gold mines by the government, has been ruled illegal. It is unclear if Venezuela will comply with the judgment.
In Brazil, the Senate began the impeachment trial of suspended President Dilma Rousseff. She has been accused of violating budget laws, ahead of her re-election. Strong likelihood, that she will be convicted.
The markets in Brazil have rallied somewhat on the prospect that more right leaning Vice President Michel Temer will become the permanent replacement for the left leaning Ms. Rousseff. Of course, he will be facing the worst Brazilian economic downturn since the Great Depression and a huge budget deficit.
In Colombia, it has been announced that the government and the Marxist insurgency FARC (Revolutionary Armed Forces of Colombia) have reached a peace deal after 52 years of conflict and casualties near 220,000. The agreement will be put up for a public referendum in October, which is expected to be approved. The ending of hostilities, could add up to 1% GDP to the domestic economy.
In Asia, India appoints a new head of the central bank. A number of analysts feel the assignment of Urjit Patel, is a strong endorsement to continue the policy of his predecessor to fight inflation.
The central bank of Japan will not rule out further cuts in interest rates in the effort to reignite domestic economic growth. Negative rates were already introduced as of February.
Turkey invades northern Syria this week, in retaliation for a ISIS (Islamic State of Iraq and Syria) terrorist attack at a wedding.
The big business news for the week, was the announcement that Pfizer has agreed to acquire Medivation for $14 billion USD. The latter makes the leading prostate drug Xtandi, expected to generate $5.7 billion USD in annual revenue by 2020.
In related news AstraZeneca has agreed to sell its small molecule antibiotics operations to Pfizer, in a transaction that will be worth about $1.575 billion USD.
Gold has been declining of late, after reaching a high of $1,370.80 last month. The price is now listed at $1338.70, a decrease of $7.30 USD from last week. Gold is still up about 25% in 2016. The price for silver increased 2.24% on Friday to $18.79 USD, a -$0.38 dip for the week.
Crude oil has reversed the previous 3 month lows and has escaped bear territory. The price per barrel has dropped from $52 USD in June to a low $39.51 USD in early August. The price now has once again surpassed the $47.00 USD benchmark. This is a +20% increase from the low.
On Friday, American West Texas Intermediate (WTI) oil listed for $48.25 USD. Prices are $3.87 USD or 8.72% higher over last week. International priced Brent is up by +0.14% at $50.60 for the week. This is a mere $0.07 USD increase in valuation from last Friday.