Wednesday September 16

Stocks rise as investors await the Fed’s decision. The S&P500 added 0.9% to 1,995 and the Dow Jones gained 0.8% to 16,739. Investors appear to have confidence ahead of the Fed’s decision whatever the move may be. In spite of apparent sentiment that the Fed may not tighten at tomorrow’s meeting, recent movements in Treasury markets tell a different story. One possible explanation is that China may be selling some of it’s Treasury holdings, however this remains pure speculation. Anthony Karydakis at Miller Tabak refutes this idea because China’s holdings are primarily in longer maturities so a large selloff would steepen the yield curve which has not yet been seen. Stocks in sectors that typically pay high dividends rose by more than the broad market. These sectors are more sensitive to rates as they will be less attractive to hold when yields increase. The advance in these shares is a sign that investors may be expecting tightening to be pushed back. Data is largely nondescript, with unemployment suggesting tightening may be warranted, inflation suggesting otherwise, and other economic indicators such as GDP and most recently retail sales remain mixed. Data today showed that headline CPI inflation fell 0.1% last month while the core number rose only 0.1%. Accordingly, the dollar weakened as the euro rose to $1.1277. The British pound rose 1% against the dollar to $1.5488 as wage growth in the country begins to gain traction and the Bank of England gets closer to tightening. The two year yield rose to 0.81% while the ten year yield reached as high as 2.30%.

Stocks rise as US crude inventories declined by more than estimated. This shows pressures on the supply end that may continue in the US as the shale industry continues to be squeezed. Data from the Energy Information Administration showed that inventories fell 2.1MM barrels in spite of the fact that analysts had called for an increase of 1.1MM barrels. The decline in production that many analysts have expected in recent months may finally be materializing. WTI oil increased 5.7% to $47.15 and Brent rose 4.2% to $49.75. This may be a sign that the market is near a floor as US producers may finally start to become impacted by low prices.
Some analysts see light at the end of the tunnel for emerging market currencies. The Turkish lira stands at TL3 (lira per dollar), the South African rand at R13 (rand per dollar), and the Brazilian real R$4.40 (reals per dollar) representing significant declines for each since the start of the year. Some analysts believe that several currencies are undervalued, and that while markets may be volatile as the Fed normalizes this may be the floor which represents several buying opportunities. Emerging market currencies have been in decline since 2011, including a 12.7% decline this year. Weak data, portfolio outflows due to imminent tightening, and low commodity prices have been a trifecta of poor developments for emerging economies.
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Wednesday September 16

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