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06/21/2017
Market Update

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The Federal Reserve (Fed) raised the federal funds target rate (the overnight lending rate it charges banks to borrow money) by 0.25% this week and forecast an additional rate hike for the year, citing a strengthening job market and increased business spending. The Fed also expects to initiate unwinding its $4.5 trillion balance sheet this year.
This Week
  • The Federal Reserve (Fed) raised the federal funds target rate (the overnight lending rate it charges banks to borrow money) by 0.25% this week and forecast an additional rate hike for the year, citing a strengthening job market and increased business spending. The Fed also expects to initiate unwinding its $4.5 trillion balance sheet this year.
  • Retail sales fell by 0.3% in May as consumer spending remained weak. Economists blamed dwindling auto purchases and discretionary spending for the unexpected decline. Lackluster retail sales indicate reduced consumer spending, which accounts for 70% of the U.S. economy.
  • Consumer prices declined by 0.1% in May, bringing year-over-year growth to 1.9%. Weakness in energy, clothing and housing contributed to the softer-than-expected report. Producer prices were flat as a falling dollar and lower energy costs mitigated upward pricing pressure in food and services.
  • Import prices retreated in May by 0.2%, mostly due to a 3.7% slide in petroleum, yet advanced by 2.1% in the one-year period. The drop was the largest in 15 months and could indicate that U.S. inflation has slowed. Export prices sank 0.7% lower in May, cutting the year-over-year gain to 1.4%; agricultural export prices significantly lagged, retreating by 1.6% in the month.
  • Mortgage-purchase applications dropped by 3% in the week ending June 9, despite a decline in rates, as affordability continued to be an issue in the housing market. Refinancing continued to pick up, rising by 9% in the same period, as falling rates helped extend the rush to refinance.
  • Initial jobless claims fell by 8,000 to 237,000 in the week ending June 10. The four-week moving average (considered a more reliable gauge of unemployment) rose by 1,000 to 243,000. Continuing claims climbed by 6,000, while the four-week moving average of continuing claims for the week ending June 3 was up 9,000 to 1.927 million.
  • The Philadelphia Fed Survey showed slower—but strong— manufacturing growth in the region in June. Hiring and new orders were both solid.
  • Housing starts dropped by a worse-than-expected 5.5% in May to the lowest level since November, due to adverse weather, labor shortages and rising materials prices.
  • Industrial production in the eurozone improved by 0.5% in April; gains in non-durable consumer goods, durables and intermediates erased losses attributed to capital goods.
  • The Bank of England left interest rates unchanged at 0.25% despite a strong labor market and increased inflation worries. The central bank also left its asset-purchase program unchanged, maintaining a conservative stance until the Brexit process becomes clearer.
  • Industrial production in China rose by 0.5% in May, led by manufacturing, bringing year-over-year growth to 6.5%.
  • Pointing to Japan’s continued moderate economic recovery, Bank of Japan officials left both its short-term interest-rate target and government-bond purchase rate unchanged.

 

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