Market Perspective for September 15, 2014

Last week the British pound and UK stocks were weighed upon by the upcoming vote over Scottish independence. The debate will be settled when Scotland goes to the polls on Thursday. Opinion polling shows the No vote out in front and likely to win, which should generate a relief rally for the pound and UK shares. The rally could begin earlier if traders think the result of the vote is a foregone conclusion. A surprise is very unlikely at this stage in the campaign.

Over the weekend, China released economic data showing industrial production, electricity usage and real estate investment all slowing. The decline was enough to spark questions about China’s GDP growth rate for the quarter. While the data was just released, the concerns became apparent last week in related markets such as commodities (copper), emerging markets (Brazil) and currencies (Australian dollar). These markets could see further selling this week.

In the European Union and United States inflation data will be out this week. Both will also release CPI data and the United States will announce producer price data. Small increases are expected, which in the case of Europe is very important as it could indicate the eurozone moved out of deflation and saw mild inflation in August. Later in the week, initial unemployment claims and housing starts will be of interest.

Domestically, the significant economic story of the week will likely be the Federal Reserve meeting that ends on Wednesday. The Fed is not expected to change policy, meaning an exit from quantitative easing is still on schedule to occur in October. What the Fed will do, however, is provide an economic forecast that stretches into 2017. Adjustments to the forecasts are watched by economists for clues as to when rate hikes will begin. An optimistic forecast would cause analysts to expect rate hikes sooner, while a negative outlook would indicate rates will stay low for some time to come.

Also, traders and investors are watching the specific language in the Fed statement. Time and again, it has said that interest rates will remain low for a “considerable time.”

Earnings: We’re still a few weeks out from the third quarter earnings season. Nevertheless, there is some activity this week with FedEx (FDX), Oracle (ORCL), General Mills (GIS), ConAgra (CAG) and Rite Aid (RAD) reporting. Home builder Lennar (LEN) also reports. This stock is nearly 10 percent of iShares U.S. Home Construction (ITB) and is a major holding in Fidelity Select Construction & Housing (FSHOX).

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