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Hurricane Irma Calms Down; Markets Appear Ready to Move to Higher Ground

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September 11, 2017

(Monday Market Open) Before we start the week, let’s take a moment to pause and remember all those we lost during the Sept. 11 terrorist attacks 16 years ago.

There’s plenty on tap this week as many heave a sigh of relief that Hurricane Irma’s potential was not fully reached. Between that and easing fears of North Korea’s sabre rattling, the markets appeared to be in rally mode in the early going.

The week is rife with economic reports, starting with tomorrow’s all-important Job Openings and Labor Turnover Survey report, commonly referred to as JOLTS. The Federal Reserve watches this report, which helps paint a clearer picture of the labor market. (See below.)

We’ll also get a look at economic measures that include the Producer Price Index on Wednesday, and on Thursday, the Consumer Price Index, which is a gauge of inflation that the Fed also closely watches. On Friday, the government will report retail sales, a tool that tells a tale of consumer spending.

Today, investors might want to watch Apple’s (AAPL) stock ahead of tomorrow afternoon’s expected announcement of the lineup of new iPhones, Apple Watch and Apple TV. AAPL does this every September, and this announcement will mark the 10-year anniversary of the iPhone, but early leaks on these products include lots of new bells and whistles, and an iPhone that might test customer loyalty as its price tag is said to approach $1,000. Stay tuned.

Friday ended the worst week in months with all three benchmarks finishing in declines, breaking two straight weeks on the rise, ahead of a weekend that would be dominated by Hurricane Irma news. When all was said and done, Irma was downgraded to a tropical storm but not before creating much chaos and devastation. As of early Monday, Southern Co. Chief Executive Thomas Fanning estimated that nearly 6 million were still without power, noting on CNBC that it would be a “long process replacing infrastructure” throughout the state.

Though things are better than they expected, officials warned that Floridians were not necessarily out of harm’s way and that damage assessment could take weeks, even months to fully calculate.  

Typically, when the markets are jittery, investors turn to safe havens, and gold and U.S. Treasury bonds appeared to be the recipients last week. The yield on the 10-year Treasury was sitting at its lowest since early November, dipping to 2.058%—remember that yields fall when prices go up—but had edged up in the early going. That 2% level might prove to be an interesting one to break.  Gold, meanwhile, rallied last week, too, but was pulling back modestly at the open.

10-year prices

FIGURE 1: TREASURY PRICES SOAR.

Bond prices climbed last week amid fears of Hurricane Irma’s potential and other geopolitical worries, pushing yield to flirt with going below 2%. In the early going, yields were edging higher. Data sources: CME Group, Standard & Poor’s. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Why JOLTS Matter: Tomorrow’s monthly Job Opening and Labor Turnover Survey is a key piece of the employment puzzle for the Federal Reserve, and, really any group interested in understanding the labor market.

Known as JOLTS, the Bureau of Labor Statistics report measures the state of jobs, retention rates and business cycles. The data, which businesses voluntarily offer the government, includes employment, openings, hires, quits, layoffs and discharges, and other separations from employment. Unfilled jobs, for example, is used to compute the job-openings rate, and, according to BLS, is considered an “important measure” of unmet demand for labor, a big complaint among many businesses this year.

“With that statistic, it is possible to paint a more complete picture of the U.S. labor market than by looking solely at the unemployment rate, a measure of the excess supply of labor,” BLS says.

Mystery of the Missing Inflation: August inflation numbers step up to center stage this week, with the Producer Price Index (PPI) Wednesday morning followed by the Consumer Price Index (CPI) Thursday morning. Inflation has been a bit of a mystery this year, staying stubbornly below the Fed’s goal of 2% despite solid jobs and economic growth. In July, monthly PPI actually fell 0.1%, a weaker showing than analysts had expected, while core PPI (excluding food and energy) rose 1.8% year over year. July monthly CPI rose 0.1%, while core CPI rose 1.7% year-over year. There are lots of theories out there trying to explain why inflation has remained so low, and if this week’s reading once again come in shy of expectations, it might make the Fed’s job even harder as it approaches next week’s meeting.

Consumer Health Checkup Coming Up: The other key economic reading this week is August retail sales, due Friday morning. This one could be tough to gauge, because Hurricane Harvey took place in August and basically shut down the Houston area for a week. That would tend to depress the tally slightly. However, it’s possible that people bought a lot of goods ahead of the storm, either to protect their homes or to have supplies to ride it out. Houston is only one area of the country, so outside of that wrinkle, we’ll look at the data for any follow-through from the strong 0.6% uptick shown in July. That month saw a sharp rise in vehicle sales, a market that can sometimes be transient. Retail sales factor into gross domestic product (GDP) models, so keep an eye on the Atlanta Fed’s GDP Now and other GDP indicators after the report to see if the data influence Q3 GDP estimates.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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