The previous five trading days were relatively devoid of any major scheduled news announcements. However, this doesn’t mean that there wasn’t any drama in the markets.
On Monday, the ISM Services PMI was released and came in at 51.4, which was higher than the anticipated 51.1. It was also higher than the 48.8 figure from last month. Ultimately, this month’s figure indicates that the service sector is expanding while last month the index indicated that there was a contraction in the service sector.
This could have some implications for inflation as the price of services was one of the main drivers of price increases across the board. On Thursday, unemployment claim data was released and revealed 233,000 people filed for benefits. The figure was lower than the anticipated 241,000 and lower than the 250,000 requests last week.
If unemployment claims figures stay where they are, it could mean that concerns about the labor market are unfounded. In addition to inflation figures, the Fed also takes unemployment and earnings data into account when making decisions about the country’s main interest rate. It could have an impact on whether the Fed will decrease rates quickly or whether they will continue to take a measured approach.
After significant volatility in the markets, there were some banks calling for a 50 basis point cut to the Fed Funds Rate. The rate is currently in a range between 5.25 percent and 5.5 percent. However, the consensus is still that the Fed will only cut rates by 25 points in September and continue to be dependent on data as it relates to future cuts.
It’s worth noting that the Japanese government said that it wouldn’t necessarily continue to raise interest rates as it had planned to. This helped to calm those who believed that higher Japanese interest rates would lead to the end of the years-long carry trade. Essentially, you borrow a currency that charges a lower interest rate and invest it into a currency that charges a higher interest rate.
You can also use your inexpensive funds to buy stocks or other items that have the potential to appreciate. Without access to cheap currency, many chose to sell their holdings to lock in profits. This was partially what led to the volatility seen in markets over the past couple of weeks.
This week the S&P 500 gained 3.72 percent to finish at 5,344. The market would effectively begin the week at its lowest point and finish the week at its highest point. On Monday morning, the index dipped to 5,150 before beginning its climb for the week.
The Nasdaq would gain 6.17 percent this week to finish at 16,745. Much like the S&P 500, the Nasdaq would begin the week at its low of 15,774 and finish at its highest point. Despite significant losses in the two weeks prior to this one, the index is still hovering near yearly and all-time highs.
Finally, the Dow would gain 908 points to close at 39,497 for the week. This represents an increase of 2.35 percent over the past five trading sessions. As with the other two indexes, the Dow also started at the low point of the week and finished at its weekly high. The low on Monday was 38,598.
In international news, Australia elected to keep its key interest rate steady at 4.35 percent. On Friday morning, Canada announced that it had lost roughly 2,800 jobs over the past month, which was much lower than the expected increase of almost 27,000 jobs over that same time period.
On Tuesday, the Price Producers Index (PPI) will be released while CPI data is set to be released on Wednesday. Inflation is expected to be 3 percent on an annualized basis. Retail sales and unemployment benefit figures will be released on Thursday morning.