September 18th, 2017 - Market Commentary
Hurricane Irma caused less damage than was feared, tax reform in DC took center stage on the U.S. political front, and geopolitical tensions with North Korea relaxed despite another test missile launch. Safe haven assets, gold and U.S. Treasuries, fell on the week with global growth trends seemingly well entrenched.
Last week's deal on the debt ceiling with the Democrats and this week's positioning on tax reform signals the administration's priority on notching some legislative wins. Tax reform would be a bullish initiative which we do not feel is fully priced into the market.
Crude oil hit prices north of $50 per barrel for the first time in six weeks and energy stocks rallied sharply in response. Declining U.S. inventories and an International Energy Agency report showing stronger than expected global energy demand in the second quarter both confirm the global growth narrative in place for much of the year.
The Bank of England shifted to more of a hawkish stance last week. While they voted 7-2 of keeping rates on hold, Bank Governor Mark Carney singled himself out as one of the two members voting for a hike. It's a matter of time.
Much of the financial media remain confused as to why political uncertainty is not translating to equity market volatility but the uncertainty itself may be serving to temper growth expectations and, more importantly, inflation expectations - extending the runway for accommodative monetary policies.
In a nod to global synchronized growth, the global PMI (purchasing managers index) is at its highest level in six years and copper, otherwise known as "Dr. Copper" for its reliability as a global growth indicator, is up nearly 30% since May.
In a cautious note, Steen Jakobsen of Saxo Bank notes his measure of change in private sector credit growth peaked at the turn of the year and is now heading down sharply. In fact, the change in trend is the most negative since the financial crisis. Historically, his metric leads the economy by 9-12 months, suggesting a slowdown in early 2018.
U.S. CPI rose 1.9% in August driven by higher gas and rent costs. The uptick in headline inflation took the probability of a December rate hike from 36% up to 47% immediately following the release.
AAII investor sentiment showed the largest one week increase in bullish sentiment since April. After 34 straight weeks below 40%, bullish sentiments jumped from 29% to 41% last week
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