US and global stock markets became giddy after late Sunday’s announcement of the Trans Pacific Partnership free trade deal. The reality of the deal’s positive effects on global growth will likely be years away. It’s direct impact on the US will be mixed. Winners will likely include agriculture, large equipment manufacturers and tech companies. Losers will likely include drug companies (who will have shorter exclusivity), tobacco companies (who will find it harder to challenge anti-smoking measures) and auto companies who claim the agreement will limit challenges to currency manipulation. 3rd quarter earnings are just starting and forecasts have been showing a decline of about 5% from the previous quarter. The International Monetary Fund warns that companies in the emerging markets, especially China, have over-leveraged by around $3Trillion and about 25% of companies in China are at risk, particularly those in the real estate and construction sectors. Never the less, US stock prices finished the week higher partly due to the FED’s minutes leading people to believe that the first interest rate increases may not happen this year. Foreign stocks and commodity prices also rose while treasury prices and the dollar fell. In economic news this week:
- The Commerce Department reported that the US trade gap widened 15.6% August. Imports rose while exports fell. For the first 8 months of the year the trade gap grew 5.2%, a more modest amount.
- The US Energy Information Administration reported that crude inventories rose 3.1MM barrels in the prior week. Total supplies of crude and petroleum products rose 2.3MM barrels a record since EIA data began in 1990. The EIA also lowered its forecast for US production and increased its forecast for global demand for 2015 and 2016.
- Baker Hughes data reports that there are nearly 62% fewer drilling rigs operating than at the peak of 1609 last October.
- China reported its currency reserves declined by 43.3BN in September. This follows a 93.9BN drop in August. The sales of foreign reserves were intended to prevent a sharp drop in its currency after the initial devaluation. Brazil, Russia and Taiwan have also significantly sold off their foreign reserves. While central banks are selling individuals have been buying US Treasuries. While this may cause more volatility in Treasuries it will likely not result in a sharp rise in Treasury bond yields.
- The Labor Department reported:
- First time claims for unemployment fell 13,000 in the prior week to 263,000. The week before was revised down by 1,000. The four week moving average of claims also fell 3,000 to 267,500.
- Import prices fell 0.1% in September. From a year ago import prices are down 10.7%.
- Export prices fell 0.7% in September. From a year ago export prices are down 6.7%.
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Loren C. Rex, CFP®, AIF® Erik Smith
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Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.