Global Growth Worries Weigh on Markets Weekly Update – December 14, 2015

Image courtesy of FreeDigitalPhotos.net/Master isolated images

Image courtesy of FreeDigitalPhotos.net/Master isolated images

Markets ended a volatile week sharply down after oil hit near-seven-year lows and a major corporate merger highlighted global growth woes. For the week, the S&P 500 fell 3.79%, the Dow dropped 3.26%, and the NASDAQ lost 4.06%.[i]

Worries about the global economy took center stage last week as oil prices skidded to multi-year lows on warning of a supply glut. U.S. crude oil futures dropped over 10% lower for the week on expectations that oil prices may suffer from declining demand, high production volume, and a warm weather forecast.[ii]

Also underscoring the global weakness was the news that two of America’s largest corporate behemoths – Dow Chemical [DOW.WD] and DuPont [DD] – have agreed to combine in one of the largest mergers in U.S. history.[iii] Though the deal may yield cost-cutting benefits to shareholders, investors largely viewed it as a move to battle darkening global growth.[iv]

All this gloom and doom about the global economy complicates the upcoming Federal Reserve decision about raising interest rates. In August, when a surprise move by the Chinese to devalue the yuan sent shockwaves through financial markets, the Fed declined a rate hike.[v] Now, the Chinese are loosening the yuan again, raising concerns about the health of the world’s second-largest economy.[vi]

Will global woes derail the Fed’s intent to raise rates? We’ll have to see.

Official statements from the Fed have emphasized that the Fed is closely weighing the strengthening domestic economy against global concerns in their rate decisions. Currently, Wall Street odds strongly favor a December rate hike, with one firm putting the probability at 79%.[vii] (Data as of 12/12/15)

In the week ahead, all eyes will be on the Fed’s meeting, and investors will focus on the official announcement and Janet Yellen’s press conference on Wednesday afternoon. Investors will also look carefully at manufacturing and industrial production data to see whether global woes are affecting critical domestic industries.

ECONOMIC CALENDAR:

Tuesday: Consumer Price Index, Empire State Mfg. Survey, Housing Market Index, Treasury International Capital

Wednesday: Housing Starts, Industrial Production, PMI Manufacturing Index Flash, EIA Petroleum Status Report, FOMC Meeting Announcement, FOMC Forecasts, Fed Chair Press Conference

Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey

12-14-15

HEADLINES:

Retail sales rise in November. Americans boosted their spending in November, offering retailers hope for the season. Excluding gasoline, whose price has declined sharply, retail sales are up 0.3%.[viii]

Consumer sentiment ticks upward in December. Consumers regained some confidence this month, which hopefully bodes well for the critical holiday shopping season.[ix]

Business inventories flat in October. After a tiny increase in inventory purchases in September, businesses left their stockpiles flat in October as total business sales fell. The weakness could impact growth in the fourth quarter.[x]

Jobless claims jump to five-month high. Weekly claims rose 13,000 last week though the increase doesn’t necessarily indicate worsening conditions. Claims tend to be volatile around the holidays and underlying data remains positive.[xi]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=11&b=7&c=2015&d=11&e=11&f=2015&g=d

http://finance.yahoo.com/q/hp?a=11&b=7&c=2015&d=11&e=11&f=2015&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=11&b=7&c=2015&d=11&e=11&f=2015&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.cnbc.com/2015/12/10/us-crude-oil-holds-near-2009-lows-as-global-glut-persists.html

[iii] http://www.usatoday.com/story/money/business/2015/12/11/dupont-dow-chemical-merger/77137888/

[iv] http://www.cnbc.com/2015/12/11/us-markets.html

[v] http://qz.com/572388/investors-have-already-begun-worrying-about-the-feds-second-rate-hike/

[vi] http://www.cnbc.com/2015/12/11/china-yuan-falls-to-lowest-since-august-2011-versus-dollar.html

[vii] http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html (Data as of 12/12/15)

[viii] http://www.foxbusiness.com/economy-policy/2015/12/11/november-retail-sales/

[ix] http://www.foxbusiness.com/economy-policy/2015/12/11/consumer-sentiment-ticks-up-in-december/

[x] http://www.foxnews.com/us/2015/12/11/us-businesses-left-stockpiles-unchanged-in-october-while-sales-fell-raising/

[xi] http://www.foxbusiness.com/economy-policy/2015/12/10/weekly-jobless-claims/

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