Slumping Services Weigh on Chances of Rate Hike (Market Commentary September 2016)

The Economy

  • The Institute for Supply Management’s (ISM) August report showed that growth in U.S. non-manufacturing sectors fell sharply to the lowest point since February 2010. Both new orders and numbersnew export orders grew at the slowest pace since December 2013, with the latter firmly in contraction (that is, below 50.0). Markit’s services purchasing managers’ index also indicated reduced growth in August. With the country’s most important sector cooling off, the Federal Reserve may have reason to think twice about raising interest rates later this month.
  • Mortgage purchase applications moved 1% higher in the week ending September Despite favorable interest rates, the year- over-year gain has declined since July. Refinancing also increased by 1% during the same period.
  • Job openings expanded by 1% in July, and the quits rate remained 2.1% — each a testament to the strength of the labor market. The hiring rate was unchanged at 2.1%, however, suggesting that employers are having difficulty filling positions.
  • The European Central Bank (ECB) held interest rates steady despite persistently low inflation in the ECB president Mario Draghi also said the central bank’s bond-purchase program may extend beyond March 2017 due to low growth and inflation forecasts. The decision to leave rates unchanged came on the heels of the latest economic data, which painted a relatively downbeat picture. Growth in the region slowed to 0.3% in the second quarter due to lower household and government spending, with a 0.1% downward revision to the first quarter’s reading. The final August eurozone purchasing managers’ index composite was revised down by 0.4 points, largely due to a softer services sector and slower new-business growth. Employment increased marginally, and business optimism for the year ahead plummeted to its lowest level in close to two years.
  • The K.’s services purchasing managers’ index showed impressive progress in August, delivering the greatest one-month improvement in the survey’s history. New-business growth increased at the sharpest pace in four months, and job creation ratcheted up. Business confidence for the coming year returned to pre-Brexit-vote levels. Currency weakness, however, was reflected in producer-price increases.
  • Japan’s economy stalled in the second quarter, but not as much as The final estimate for the country’s second-quarter gross domestic product was 0.2%, an improvement on the previously estimated 0.0%, but still below the first-quarter’s 0.5% pace. Domestic demand and government and private consumption rose, but was offset by a modest decline in private non-residential investment. The reading will likely add pressure on Bank of Japan officials to implement further stimulus.
  • China’s economic activity continued to decelerate in August as exports fell for the fourteenth consecutive month (by 8% year over year, in U.S. dollar terms). Imports rose by 1.5% following 21 months of declines. Reduced global demand has impacted the country’s exports, while weak domestic demand has weighed on imports.

U.S. Economic Calendar

  • September 14: Mortgage Applications, Import and Export Prices
  • September 15: Philly Fed, Industrial Production, Retails Sales, Producer Prices
  • September 16: Consumer Prices, Consumer Sentiment



  • U.S. equities plunged this week; the Dow Jones and S&P 500 both posting their largest losses since the Brexit vote in late June. Global equities rose.
  • U.S. sectors were mostly negative. Energy and healthcare led while materials and consumer staples lagged. Value stocks topped growth stocks, and large company stocks outperformed small company stocks.


  • Global bond markets were positive this Global government bonds did best, followed by global high-yield bonds. Global corporate bonds lagged.

U.S. Treasury yields rose to their highest levels since late June on increased speculation of a September rate hike.


This information is provided for general information only, and is not intended as personalized investment advice. Reading the above is in no way intended to be a substitute for individualized investment advice, and no conclusions should be drawn from this information regarding any potential investment. Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. This material is provided by SEI Investments Management Corporation (SIMC) for educational purposes only and is not meant to be investment advice. The reader should consult with his/her financial advisor for more information. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. There are risks involved with investing, including possible loss of principal. SIMC is a wholly owned subsidiary of SEI Investments Company. Certain material in this work is proprietary to and copyrighted by SEI Investments Management Corporation and is used by Capital Trust & Associates, LLC with permission. Reproduction or distribution of this material is prohibited and all rights are reserved.


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