The week ahead | Calamatta Cuschieri

Markets summary, Fed to hike rates by 25 basis points and signal a more aggressive path of increases and World leaders to gather at the UN General Assembly bracing for the next global crisis

The Dow Jones Industrial Average on Friday notched a second straight all-time high, but a slump in mega capitalization technology and internet-related stocks weighed on the broader market, pressuring the Nasdaq. The Dow Jones Industrial Average rose 75.67 points, or 0.3%, to 26,732, after logging its first all-time high on Thursday since January 26. However, the S&P 500, lower, closing 1.27 points to 2,929.48, a rise of less than 0.1%, after the broad-market benchmark posted its first record since August 29. Moreover, the Nasdaq Composite, which remains about 2% below record levels, fell 41.28 points to 7,986.96, a decline of 0.5%.

Europe’s main bourse closed higher and registered its best weekly gain since March, adding another positive session on Friday with financials and major oil companies doing the heavy lifting. The Stoxx Europe 600 closed up 0.4% at 384.29, marking its sixth positive session after Thursday’s gain of 0.5% and matching the longest win streak since July. Germany’s DAX 30 finished 0.9% higher at 12,430.88, while France’s CAC 40 added 0.8% to end at 5,494.17, also representing its best day since March 9. The U.K.’s FTSE 100 ended the week 1.7% higher at 7,490.23, notching its best weekly gain, up 2.7%, since February 16.

Fed will hike rates by 25 basis points and signal a more aggressive path of increases

The Federal Reserve meeting this week will be less noteworthy for what the central bank does than for what it says about the future path of rates. Policy makers are likely to try harder to nudge market expectations up to price a steeper path of rate hikes. Moving in that direction would improve the relative attractiveness of Treasury bonds and the dollar, even as it would highlight the growing economic and policy divergence between the U.S. and other advanced countries. Both outcomes have consequences for investors in stocks and other asset classes.

The Fed will hike rates by 25 basis points on September 26. The rate increase will point to the Fed's continued progress toward fully meeting its dual mandate, based on continued strong monthly job creation and historically low weekly jobless claims data, as well as a wider set of indicators that support the target of 2 percent inflation, including the latest wage-increase numbers in the August jobs report. Markets continue to feel that the Fed will end up pursuing a path that is less hawkish than the one policy makers have already signaled through their “dot plots” and some of their public remarks.

World leaders will gather at the UN General Assembly bracing for the next global crisis

The 73rd United Nations General Assembly opens on Tuesday in New York with world leaders bracing for the next global crisis – and the rest of us uncertain about what they would do if it comes. The debate has become less about the likelihood of a crisis and more about what form it might take, with what severity it will strike, and whether world leaders will have the capacity to contain it. They worry above all that America looks unbalanced to them, and thus the default source of stability during such a crisis feels like more of a wild card.

A crisis is brewing in the cauldron of excessive debt, growing trade tensions and mounting geopolitical risk. The stakes are historic in nature during our new era of global competition, characterized by Chinese efforts to displace U.S. leadership, Russia’s actions to disrupt it, and American uncertainty over how and whether to preserve it.

A U.S.-Chinese crisis, if not contained, could poison the most significant bilateral relationship for the global future. Markets appear to be betting that Trump’s new tariffs are merely another negotiating tactic, one that will ultimately result in a de-escalating deal. The real optimists even believe this trade conflict could create more value as China opens up markets and stands down from its unfair trade practices. What that underestimates is that this drama may become about far more than trade for China. A Chinese official stated that his leadership is growing more concerned every day that Trump’s real purpose isn’t to get a deal but to undermine China’s rise. This trade fight could turn out being much more than a trade fight.

 

Disclaimer: This article was issued by Nadiia Grech, junior trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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