Weekly Market Commentary May 15, 2017

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Markets remained almost flat through the week as economic releases failed to trigger any significant reaction. The S&P 500 slid 0.4% while the MSCI All Country World Index (ACWI) eked out a 0.1% gain. The Aggregate U.S. Bond Index climbed 0.2%. Volatility remains historically low and investor complacency remains a risk.

Consumer spending rebounded. Retail sales rose 0.4% in April and previous months were revised higher. Over the last year, retail sales are up a robust 4.5%. Inflation remains a concern. U.S. producer prices showed a broad-based gain in April as a sign of building inflation pressures. Consumer prices were tamer, rising 0.2% in April and 2.2% over the last twelve months.

After sharp declines in previous weeks, oil prices were up by more than 3% as inventories declined by 3 million barrels more than expected. Additionally, prices got a boost from the expected extension of production cuts for another six months from OPEC and other oil producers.

After the Macron victory in France last week, investor attention moved to Asia. Moon Jae-in won the South Korean presidency. Moon favors a more open policy with North Korea. Korean markets rallied on the news. While most emerging markets are doing quite well, China’s local market continues to struggle with efforts by the central bank to reign in excessive risk-taking.


What are we reading?

Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:

U.S. weekly jobless filings fall; producer prices rebound strongly

New applications for U.S. jobless benefits unexpectedly fell last week while producer prices rebounded strongly in April, pointing to a tightening labor market and rising inflation. Higher inflation and employment will likely trigger another rate hike in June.

Oil rises more than 3% as U.S. crude inventories unexpectedly drop

U.S. crude stockpiles had the biggest drop of the year, declining 5 million barrels and somewhat alleviating concerns of a prolonged supply glut due to revival of shale production.

Why stocks aren’t going anywhere lately

The major indices are lingering around the same levels seen at the end of the month. Some investors are reluctant to make any significant moves as they continue to wait for details on the Trump Administration’s tax plan.

China’s war on debt causes stocks to drop, bond yields to shoot up and defaults to rise

The Chinese central bank continues to allow short-term rates to rise. The changes are designed to reduce excessive lending and the use of potentially risky investment vehicles as a funding mechanism instead of bank debt. The moves have pushed rates higher and domestic stock exchanges lower.


 Fun Story of the Week

Buyers of new luxury cars are losing the technological war with their own cars. Automakers continue to load up their cars with technology solutions that baffle drivers who aren’t big technology users. The systems also regularly experience bugs. One owner shut off his navigation system after it told him to turn left on red into a pond.

Auto dealers are responding with the tried and true combination of education and food. A Toyota dealership in Maine offers a 90-minute training class along with free sandwiches to train new-car buyers on the technology advantages of buying a new car.


 

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