Investors worried that higher interest rates from the Fed will come soon.
United States
Stocks tumbled the most since June — investors worried about possible higher interest rates. The biggest declines came in high dividend stocks like utilities and phone companies, which would suffer the most if interest rates increased. Those stocks have been in favor among investors seeking income while interest rates and bond yields remained very low. The Dow Jones industrials were down 2.1 percent while both the S&P and Nasdaq lost 2.5 percent. Geopolitical concerns also weighed on the markets following North Korea’s claim that it successfully tested a miniaturized nuclear warhead. On the week, the Dow declined 2.2 percent and the S&P and Nasdaq lost 2.4 percent.
On Friday, the Boston Federal Reserve Bank President Eric Rosengren suggested that a case could be made for the Fed to raise its fed funds interest rate sooner rather than later. In a speech Friday morning, Rosengren said gradual tightening of monetary policy is likely to be appropriate to ensure the US economy remains at the full employment level it is now approaching. Dallas Fed President Robert Kaplan also said the case for raising rates has strengthened in recent months and noted the markets have gotten plenty of notice the Fed is looking for opportunities to remove accommodation. The Fed is scheduled to hold a policy meeting on September 20 and 21.
Shares of several oil and gas production and drilling companies were down, giving back some of their gains from a rally on Thursday. Diamond Offshore Drilling retreated along with Williams Companies and Transocean. A sharp rise in bond yields weighed on utilities, real estate investment trusts and other high-dividend stocks. Ventas, SL Green Realty and AT&T tumbled. However, Restoration Hardware and the fiber-optic components supplier Finisar were up sharply on strong quarterly results.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$12.55 to US$1,330.85. Copper futures were down 0.4 percent to US$2.09. WTI spot crude was down US$1.74 to US$45.88. Dated Brent spot crude was down US$1.98 to US$48.01. The US dollar was up against all of its major counterparts including the euro, yen, pound, Swiss franc and the Canadian and Australian dollars. The Dollar Index was up 0.4 percent. The yield on US Treasury 30 year bond was up 8 basis points to 2.39 percent while the yield on the 10 year note was up 6 basis points to 1.67 percent.
Europe
Stocks declined Friday as investors continued to express their disappointment after the European Central left its policy unchanged and gave no hints of future moves. Weak economic data from Germany and France, along with disappointing Chinese inflation data added to the negative mood. Geopolitical issues also played a role after North Korea confirmed its most powerful nuclear test to date. Comments from Boston Federal Reserve President Eric Rosengren renewed worries about a near-term rate increase by the Federal Reserve. The FTSE was down 1.2 percent (down 1.7 percent on the week), the CAC declined 1.1 percent (down 1.1 percent), the DAX retreated 1.0 percent (down 1.0 percent) and the SMI lost 0.9 percent (down 0.4 percent on the week).
Deutsche Bank rallied on a report that it is nearing an agreement with the US Department of Justice to settle an investigation into the sale of mortgage-backed securities. Bayer weakened after Bloomberg reported that it is exploring the sale of its dermatology business. The drug-maker is looking to sell peripheral businesses as it pursues a takeover of Monsanto. In Paris, Total retreated after it said it is exercising its preemption right to acquire Chesapeake’s 75 percent share in the jointly held Barnett Shale in Texas. In London, Burberry dropped on a broker downgrade. Greene King tumbled after the pub operator warned that trading conditions could get tougher as a result of the recent Brexit vote. Pub chain JD Wetherspoon climbed after reporting a 12.5 percent increase in fiscal 2016 pre-tax profit. Royal Bank of Scotland, Barclays, Lloyds Banking Group and HSBC advanced.
In Germany, both exports and imports declined unexpectedly in July. Exports dropped 2.6 percent on the month after increasing 0.2 percent in June. Similarly, imports fell 0.7 percent, reversing a 1.1 percent increase in June. The trade surplus fell to a seasonally adjusted €19.4 billion from €21.4 billion in June. July French industrial production declined 0.6 percent. This was the third consecutive monthly decrease in production. The July UK visible trade deficit narrowed in July from a year ago. The deficit on trade in goods narrowed to £11.8 billion from £12.9 billion in June. Imports declined 0.9 percent on the month while exports advanced 3.4 percent.
Asia Pacific
Most Asian stocks fell Friday after the European Central Bank disappointed investors who were looking for some kind of announcement on what future steps it may take to boost Europe’s sluggish economy. A pullback in oil prices after sharp overnight gains, mixed Chinese inflation data and reports that North Korea had conducted a fifth nuclear test also kept investors nervous before the weekend.
The Shanghai Composite dropped 0.6 percent but was up 0.4 percent on the week. The Hang Seng was up 0.8 percent and added 3.6 percent for the week. The Hang Seng continued to rally after a Chinese regulator said it would allow domestic insurers to invest in Hong Kong-listed stocks through a trading link with Shanghai. The China Insurance Regulatory Commission’s announcement came less than a month after Beijing confirmed it would launch the Shenzhen-Hong Kong Stock Connect program within 2016. China’s August consumer prices were up 1.3 percent on the year and down from 1.8 percent in July. The producer price index eased an annual 0.8 percent after sliding 1.7 percent in the previous month.
The Nikkei was virtually unchanged (up 6.99 points) and was up 0.2 percent on the week in choppy trading. Investors here also were disappointed over the European Central Bank’s decision to leave its monetary policy unchanged. Investors also continued to be apprehensive about whether the Bank of Japan will expand its monetary stimulus at the Sept. 20 and 21 monetary policy board meeting. NTT DoCoMo, Nippon Telegraph and Telephone and Kirin retreated while Kawasaki Kisen Kaisha, Sumitomo Heavy Industries, Kobe Steel, Nippon Yusen KK and J Front Retailing rallied.
Both the S&P/ASX and All Ordinaries were down 0.8 percent on the day and 0.6 percent on the week. Banks declined after the ECB refrained from extending its stimulus and lowered its 2017 growth forecast. Disappointing Australian home loan data also weighed on investor sentiment. The big four banks dropped but miners including BHP Billiton, Rio Tinto and Fortescue Metals Group advanced despite a decline in iron ore prices.
The Kospi dropped 1.3 percent Friday after North Korea announced it has successfully carried out its fifth nuclear test. Sentiment was also dampened after the Bank of Korea held its key interest rate steady at the record low 1.25 percent for the third straight month. On the week, the Kospi was virtually unchanged. The Sensex declined 0.9 percent but added 0.9 percent on the week.
Looking forward

Central Bank activities

Sep 15

UK

Bank of England Monetary Policy Announcement & Minutes

Switzerland

Swiss National Bank Monetary Policy Assessment

The following indicators will be released this week…

Europe

Sep 13

Germany

ZEW Survey (September)

Italy

Industrial Production (July)

UK

Consumer Price Index (August)

Producer Price Index (August)

Sep 14

Eurozone

Industrial Production (July)

UK

Labour Market Report (August)

Sep 15

Eurozone

Merchandise Trade (July)

Harmonized Index of Consumer Prices (August)

UK

Retail Sales (August)

Asia/Pacific

Sep 12

Japan

Producer Price Index (August)

Machine Orders (July)

India

Consumer Price Index (August)

Industrial Production (July)

Sep 13

China

Industrial Production (August)

Retail Sales (August)

Americas

Sep 14

United States

Import/Export Price Indexes (August)

Sep 15

United States

Initial Unemployment Claims (week ending prior Saturday)

Retail Sales (August)

Producer Price Index (August)

Empire State Survey (September)

Philadelphia Fed Survey (September)

Industrial Production (August)

Sep 16

Canada

Manufacturing Sales (July)

United States

Consumer Price Index (August)

Consumer Sentiment (September preliminary)

Global Stock Markets

*Note — all releases are listed in local time.

Source: Fidelity

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