RECAP: for the week ending August 12th, 2016

August 18, 2016

the Dow Jones Industrial Average, Standard & Poor’s 500 Index, and technology-heavy Nasdaq Composite Index reached all-time highs before falling back a bit. The S&P MidCap 400 Index underperformed amid typically light late-summer trading. The biggest news of the week was oil: Volatility in oil prices caused swings in energy stocks and appeared to play a major role in driving overall sentiment, as well as rumors that OPEC was going to have informal talks about boosting oil prices. Speculation on the commodity from these rumors led a rally on Monday that caused a reversal in the bounce on Tuesday, however, and word on Wednesday of increased U.S. oil inventories caused a further decline. a report from Reuters on Thursday that Saudi Arabia was willing to cooperate with other producers to stabilize prices was enough to send short-sellers (traders betting on falling oil prices) running for cover. As these investors hedged their positions, oil prices rose 4%.
Treasury yields fell to their lowest level since the start of the month after the release of data on Friday morning showing flat retail sales in July along with the largest drop in producer prices in nearly a year. In Europe, bond prices were mirrored as yields on 10-year UK government bonds reached new lows during the week as the Bank of England (BoE) started buying gilts (an instrument like a mutual fund which purchases medium and long term high quality debt such as government bonds) as part of its quantitative easing measures announced on August 4. The BoE’s bond-buying program hit a snag on Tuesday as holders of long-dated gilts proved reluctant to sell, resulting in the central bank falling short of its purchase target by £52 million, but it fully met its buying target for shorter-dated gilts later in the week. Britain’s housing market cooled—a ramification of the UK’s decision to leave the EU—growing at its slowest pace in three years, according to the Royal Institution of Chartered Surveyors, indicating consumers are losing confidence in property values
In Asia the Nikkei 225, closed for the Mountain Day holiday on Thursday, gained 665 points (4.1%) for the week and closed at 16,919.92. For the year to date, the Nikkei is down about 11%, the large-cap TOPIX 100 is off 15%, and the TOPIX Small Index is roughly 13% lower. The yen remained in a tight range for the week and closed near ¥102 per U.S. dollar on Friday. In 2016, the yen has gained about 15% versus the greenback. August is thought of as the holiday season in Japan, but historically it has been an unkind month for the performance of the TOPIX Index. Stocks in the benchmark index are 2.1% lower so far this month. Investors sold stocks following Prime Minister Shinzo Abe’s underwhelming fiscal stimulus package. If the TOPIX ends this month in the red, it will mark nine losses in August over the past 10 years.

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