Markets Action-August 28th-2017

Economy

Main Economic data points released this week include readings on consumer confidence, gross domestic product and the Federal Reserve’s inflation gauge.

Elsewhere, Canada will release GDP data, while Japan issues household spending information.

Congress will have a few short weeks to raise the federal borrowing limit in order to keep the government operating beyond Oct. 1. Financial markets are getting anxious that lawmakers won’t be able to close a deal on time. Treasury officials have urged Congress to raise the borrowing limit by Sept. 29.

On the jobs front, the US unemployment rate has fallen to a 16-year low of 4.3% and may fall further. This can be a two-edged sword as the falling unemployment indicates the economy is still operating below capacity and has plenty of room to run, or it means the economy is close to overheating and heading for trouble. Over the past century, the “natural” or balanced economic expansion jobless rate has fluctuated between 4.5% to 5.5%

Structural changes in the economy could alter this theoretical natural rate, meaning the jobless rate might have room to go lower without throwing the economy off balance

In 2015, economists at the Chicago Fed estimated that the aging workforce could have pushed the natural rate considerably below both Fed officials’ estimates and those calculated by the Congressional Budget Office

According to the new data, Immigration to the U.K. from the EU slowed sharply in the year through March, while investment in the second quarter was flat, substantiating the anti-Brexit rhetoric of negative impacts of Brexit on the British economy.

Data confirmed that growth in the U.K. in the second quarter was weaker than Germany, France and Italy, as British consumers grapple with rising prices fueled by a weak pound.

Markets:

The S&P 500 edged lower Monday, as declines in the energy sector offset gains in shares of health-related companies. The broad index wobbled in a narrow range for much of the session, extending a recent pattern of quiet trade.

So far, this year, the data have largely suggested the global economy is on steady footing, something that should help stocks keep climbing as corporate profits grow, investors say.

It feels like we’re in a sweet spot for financial assets, where you have a synchronized global expansion while inflation remains low. Elsewhere, Gilead Sciences shares rose 1.5% after the biotechnology company said it agreed to pay about $11 billion to acquire Kite Pharma .

Shares of health-care companies in the S&P 500 jumped 0.7%, leading advances among the broad index’s 11 sectors.

Commodities

Commodities prices remained volatile as analysts warned it would take time to measure the full impact of Harvey’s damage.

U.S. crude fell 2.7% to $46.57 a barrel, while the Gasoline futures surged, with contracts for September delivery rising 2.7% to $1.7123 a gallon.

Gold prices continued climbing Monday, lifted by a weaker dollar as the Jackson Hole meeting failed to give meaningful few clues about the future of monetary policy.

Gold for December delivery closed up 1.3% at $1,315.30 a troy ounce on the Comex division of the New York Mercantile Exchange.

US Dollar

The Canadian dollar strengthened on Monday against a broadly weaker U.S. dollar, which softened against key rivals as Tropical Storm Harvey flooded the country’s fourth-largest city.

The Canadian dollar also shrugged off the latest NAFTA comments by U.S. President Donald Trump, who tweeted that Mexico and Canada were both being “very difficult” and again raised the possibility of scrapping the free trade agreement.

The U.S. currency has been in a steady decline since January after reaching a 15-year high. The decline has been especially pronounced against the euro, 11%, and the Mexican peso, 14%.

One of the major reasons for Dollar weakness could be the improved stability in the rest of the world, particularly Europe. After years of repeated fiscal and political crises, Europe’s growth so far in 2017 has slightly outpaced the U.S. That’s given European Central Bank officials confidence to contemplate pulling back on their stimulus measures, which is giving the euro a boost. A weak currency has its downsides. It weakens the purchasing power of dollars globally, making it more expensive to travel overseas and pushing up the price of imported goods. If it happens in a hurry, it can destabilize financial markets and discourage investment at home.

But the near-term upsides to a weak dollar could outweigh those risks. It makes U.S. exports cheaper overseas, and thus helps to drive production at home. In June, exports were up 7% from a year earlier. That’s a sharp reversal compared with the 9% drop from 2014 to 2016, when the dollar was climbing rapidly.

Business:

Best Buy is hiring hundreds of salespeople to sit down with consumers inside their homes and recommend electronics to buy, part of a free service it has been testing in several cities and plans to roll out across the U.S. this fall.

The company hopes its in-home salespeople will help drive sales of TVs and gadgets at a time when fewer people are visiting shopping centers, as well as drum up business for Best Buy’s Geek Squad, which provides tech repairs and in-home installations for a fee.

Amazon, meanwhile, is expanding a program that sends its employees into homes to provide free “smart home consultations” and let shoppers test its Echo smart speakers and voice-controlled devices. These consultants can also provide fee-based installation services after shoppers purchase the gadgets on Amazon.

Amazon.com Inc marked its takeover of Whole Foods Market Inc. by cutting grocery prices and advertising its Amazon Echo devices at a steep discount in many of the natural grocer’s stores nationwide. The extremely competitive food-retail business demands high capital investments for low margins. Supermarkets’ success has mainly relied on getting customers into conveniently located stores with deals

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