Market Insights November 7, 2016 Download This Week’s Market Insights Prior Week Summary In the final jobs report prior to the U.S. Presidential election, the Labor Department reported that employers added 161,000 jobs during the month of October, bringing the headline unemployment figure back below 5%, owing to declines in the labor force participation rate. The revision to September report also added an additional 35,000 jobs, revising the prior release to a total of 191,000 workers. The highlight of the report was the strong 2.8% year-over-year increase in average hourly earnings. The 0.4% increase during the October reporting period was strong enough to bring the yearly change to the highest level since the summer of 2009. The broader measure of unemployment, the U-6 underemployment rate, fell 0.2% in October to 9.5%, the lowest rate on that metric since 2008 when…

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Market Insights October 31, 2016 Download This Week’s Market Insights Prior Week Summary It was another relatively light week for economic data here in the U.S., with a strong headline print for third quarter GDP setting the stage. The Commerce Department report detailed that the economy expanded at an impressive 2.9% seasonally adjusted annual pace in the third quarter after averaging closer to 1% growth during the first half of the year. The strength of the report surprised economists, who had forecast for a growth rate of 2.6% on average. Notably, the report detailed a strong demand for our export goods, which grew at a 2.7% annualized pace in the third quarter, after a few consecutive quarterly losses. On the other hand, personal consumption, which supports about 2/3rds of GDP slowed to 2.1% in the third quarter, after a massive…

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Market Insights October 17, 2016 Download This Week’s Market Insights Prior Week Summary It was an active week for Fed communication with the release of the September FOMC meeting minutes, as well as a speech in which the Fed chair suggested the committee may allow the economy to “run hot.” Taken together, it appears the Fed is continuing to guide the market to expect a “live” meeting in December at the same time it is trying to reinforce the notion that the current stance of monetary policy is still very accommodative. The minutes detailed that “Participants generally agreed that the case for increasing the target range for the federal funds rate has strengthened in recent months…and that continuing to delay an increase in the target range implied a further divergence from policy benchmarks based on the Committee’s past behavior or…

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Market Insights October 11, 2016 Download This Week’s Market Insights Prior Week Summary The British Pound took the market for a ride last week as a confluence of forces briefly took the currency meaningfully and abruptly lower in disjointed and volatile trading. The “flash crash” in the Pound pushed the currency lower by 6 large figures relative to the Dollar over the course of three short minutes. The British Prime Minister, Theresa May, set the stage for the depreciation by publically advocating for a “hard” exit from the European Union by the end of the 1st quarter. Indeed, May has indicated that her government will invoke Article 50 “no later than the end of March next year…now it is up to the government to get on with the job.” Article 50 of the Lisbon Treaty defines the mechanisms that an…

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Market Insights October 3, 2016 Download This Week’s Market Insights Prior Week Summary The aftershocks of the financial crisis are still being felt nearly a decade after the onset, as fresh concerns of counterparty credit risk in the financial sector precipitated a flight-to-quality trade in the Treasury market. The risk-off sentiment took the 10-year note lower in yield by nearly 8 basis points early in the week, flattening the curve along with it, before reversing course to end the week roughly where it began. Jittery markets, influenced by the pending implementation date for money market reform, combined to push quarter-end funding rates to their most stressed levels since the crisis. Repo rates soared into quarter-end as financial institutions reduced balance sheet leverage, amplifying the supply/demand imbalances in the money markets. Overnight Treasury financing costs spiked to a spread of nearly…

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Market Insights September 26, 2016 Download This Week’s Market Insights Prior Week Summary Fans of American history may recall that exactly 56 years ago today the first televised U.S. Presidential debate, between Kennedy and Nixon, took place in downtown Chicago. As the market works through the potential implications of the recent announcements from the Bank of Japan and the FOMC last week, it is likely that domestic markets will begin to focus more heavily on the outcome of the upcoming U.S. Presidential election, beginning with tonight’s debates, for clues on longer term market direction. The Fed has, once again, used its forward guidance to set the stage for the next rate hike, while simultaneously lowering its longer run projection for Fed Funds. The FOMC’s latest summary of economic projections walked the committee’s median expectation for the Fed Funds rate at…

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Market Insights September 19, 2016 Download This Week’s Market Insights Prior Week Summary A very busy few days in the markets last week will help to set the stage for the highly anticipated meetings at the Fed and the Bank of Japan this week. As the Fed grapples with its dual mandate and the relative pros and cons of potentially tightening monetary policy this week, updated readings on consumer price inflation increased marginally. The Labor Department reported on Friday that prices increased 0.2% in August on a seasonally adjusted basis. Excluding the more volatile components of food and energy, prices rose 0.3% in August, bringing the yearly increase to 2.3%. The report detailed that while inflation pressures appear to be rising, a large contributing factor to this month’s report was attributable to a 0.9% gain in the prices for medical…

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Market Insights September 12, 2016 Download This Week’s Market Insights Prior Week Summary The ECB announcement on Thursday that it would maintain the size of its massive QE program at current levels disappointed traders, who were largely anticipating a more dovish outcome. At the same time, a number of Fed governors, including Chair Yellen, have continued to indicate they view the economy as strong enough to support higher short-term interest rates. Most recently, Federal Reserve Bank of Boston President, Eric Rosengren, said that a “reasonable case can be made for continuing to pursue a gradual normalization of monetary policy.” Markets fell sharply across asset classes following the news, as concern that foreign central banks, who are seen to be operating at the boundary of their ability to generate growth and inflation through incremental policy accommodation, are running out of tools.…

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Market Insights September 6, 2016 Download This Week’s Market Insights Prior Week Summary The Labor Department reported on Friday that the economy added a lackluster 151,000 jobs in August, following a robust upwardly revised 275,000 gain in July. Economists surveyed by Bloomberg prior to the release had been expecting a gain of nearly 180,000 jobs in the period. On a rolling six month basis, the economy is currently adding approximately 175k jobs per month, down from the nearly 230k average that stood at the end of the first quarter of this year and the 260k average that existed when the Fed last raised the target rate in December. Even still, the monthly gain was sufficient to keep the headline unemployment rate, which is calculated separately, steady at 4.9%. In fact, when viewed in the context of the post-crisis employment environment,…

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Market Insights August 29, 2016 Download This Week’s Market Insights Prior Week Summary In a highly anticipated speech at the Jackson Hole symposium, Janet Yellen made a strong case for the need to tighten monetary policy in the short run. The chairwoman pointed to expanding economic activity, led by growth in household spending, as sufficient to generate further improvements in the labor markets. The Fed chair argued that the dynamics weighing on the inflation target reflect the transitory effects of earlier declines in energy and import prices. The committee expects moderate growth in real GDP, continued strength in the labor markets, and an increase in the inflation rate towards the 2% target over the course of the next few years. The media and market commentaries focused heavily on the following statement from Janet Yellen which served to increase the market…

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