Market Perspective for September 12, 2016

After trading in a narrow range for several weeks, the major indexes broke to the downside Friday as investor expectations for a September interest rate hike increased along with global interest rates. Asian and European markets played catch-up overnight and markets had stabilized prior to Monday’s opening bell as buyers looked for bargains.

Comments from Federal Reserve officials contributed to last Friday’s drop. Boston Federal Reserve Eric Rosengen expressed concerns that low interest rates are increasing the risk of an overheating economy, suggesting a slow rate increase might be an appropriate course of action. FOMC voting members Lael Brainard and Dennis Lockhart will speak today. Their highly anticipated statements have the potential to nudge the markets in either direction this week.

Oracle is the only major stock due to report earnings on Thursday, but it has historically had a powerful impact on the entire technology sector. Oracle (ORCL) is expected to report earnings per share of $0.58 on revenues of $8.7 billion, which are slightly higher than the same period a year ago. Analysts will be paying particular attention to the company’s 12C database and cloud computing services.

In overseas economic news, China is scheduled to release the most recent industrial production numbers Tuesday. Analysts are anticipating a 6 percent year-over-year increase. Fixed asset investment and real estate investment will also be released. The market expects the slowdown in investment halted in August. The UK Consumer Price index (CPI) and the Producer Price Index (PPI) will also be available on Tuesday. Both reports are expected to show slight increases. Eurozone inflation numbers will be out on Wednesday. The Bank of England is expected to remain steady when their interest rate policy is announced this week. Eurozone leaders will also gather Friday to discuss the implications of the UK leaving the EU.

The latest mortgage purchase application numbers are expected to show an increase as homebuyers try to lock in rates ahead of any possible rate hike. The weekly oil inventory report is expected to remain unchanged after last week’s unexpected drop. New unemployment claims are expected to rise slightly from last week.

Retail sales for August will be out on Thursday and are expected to fall 0.1 percent. Analysts forecast retail sales ex-autos rose 0.2 percent during the month, a reversal from the 0.3 percent decline in July. Economists are looking for a 0.1 percent rise in the August Producer Price Index (PPI), a swing from the 0.4 percent drop in July. The September Philly Fed and Empire State Index, two measures of economic activity in the Mid-Atlantic and Greater New York region will also be released. Industrial production and capacity utilization for August and July’s business inventories will be reported Thursday as well. Retail sales and these latter three reports will all have a direct impact on GDP growth forecasts for the current quarter.

The University of Michigan Consumer Confidence Report and CPI numbers for August will be released on Friday.  The data is expected to show a 0.9 percent year-over-year increase in headline inflation. Economists forecast core CPI increased 2.1 percent, which is close to the Fed’s 2 percent target, but it will take a surprisingly strong number to change rate expectations.

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