Rate increase, OPEC: Wealth Economic Update Dec. 19, 2016

U.S. and World News

  • fed360In Wednesday’s Federal Open Market Committee meeting, the decision was made to increase the fed funds rate by 0.25% to a 0.50-0.75% range, as expected. What came as a surprise, however, was that the committee now sees three interest rate increases in 2017 as opposed to two. This news sent the trade-weighted Dollar and treasury yields higher for the week as expectations for quicker monetary policy tightening has arisen.
  • For the first time since 2001, OPEC and non-OPEC oil producers have signed a deal to cut oil production. Unlike OPEC deals in the recent past, the current deal led by Russia to limit oil production to 558,000 barrels per day is widely expected to be enforced and abided by. The goal by OPEC countries is to keep the price of oil within the $60 range and full compliance with the deal will likely push the price to that level. On the other hand, as a result of interest rate increases, the Dollar has strengthened which is expected to lower the demand for oil, putting pressure on oil prices.

Markets

  • This week the S&P 500 was down slightly by 0.03% and closed at 2,258. The Dow Jones increased by 0.45% and closed at 19,843. So far in 2016, the S&P is up 12.64% and the Dow is up 16.61%.
  • Interest rates continued to climb higher this week following the FOMC meeting. The 5 year and 10 year U.S. Treasury Notes now yield 2.07% and 2.59%, respectively.
  • The spot price of WTI Crude Oil increased by 0.91% this week and closed at $51.97 per barrel. WTI Crude is up 40.47% in 2016.
  • The spot price of Gold fell 2.25% this week, closing at $1,133.82 per ounce. Year to date, gold prices are up 6.85%.

Economic Data

  • Initial jobless claims came in at 254,000, a decrease from last week’s reading of 258,000. The labor department noted no major distortions to the data this week. The four week moving average for claims moved up to 258,000.
  • Retail sales rose by 0.1% (mom) in November versus consensus estimates of a 0.3% gain. Core retail sales (excluding autos, gasoline, and building materials) increased by 0.1% versus consensus estimates of a 0.3% gain.
  • The consumer price index (CPI) increased by 0.2% (mom) in November and 1.7% from one year earlier which was in line with expectations. Core CPI (excluding food and energy) increased by 0.15% (mom) and 2.1% from a year earlier which was also in line with expectations.
  • Housing starts declined by 18.7% (mom) in November after a large gain in October. The decline in housing starts for the month was largely led by multi-family starts which were down 45.1% while single-family starts fell by 4.1%. Multi-family and single-family starts were up 76% and 10.5% in October respectively.
  • The Philadelphia Fed’s manufacturing index rose to +21.5 in December from +7.6 in November which was much higher than expectations. 

Fact of the Week

  • Outstanding student loan debt is $1.279 trillion as of 9/30/16. 11.0% of student debt (by dollar) is at least 90 days delinquent or is in default as of 9/30/16. The delinquency calculation understates the actual delinquency rate since student loans that are now in deferment are treated as if they are “current” with regard to their payment status (source: Federal Reserve Bank of New York).

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

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