Week in Review: August 15-19, 2016

1. Stocks continued their runs at record highs this week as media pundits and analysts alike remarked that the market continued to look “toppy” and began drawing comparison to 1999, immediately before the “Dot-Com” bubble burst and sent markets lower.

2. The number of Americans filing initial claims for state unemployment benefits dipped marginally, falling by 1000 claims to a new seasonally adjusted level of 266,000. The previous week’s data was revised lower by 2,000 claims and the 4-week moving average moved up by 3,000 claims to a new level of 262,750.

3. US retail sales failed to meet expectations in July according to a report released by the Commerce Department on Friday. Retail sales were mostly unchanged in July as Americans scaled back on their purchases of clothing and other goods. Overall, it appears Americans cut back on discretionary spending at restaurants and bars, hobby and sporting goods stores. If the “back-to-school” season does not see a pickup in consumer spending, then the third quarter may be just as bad as the previous two quarters were.

4. US Producer prices were down in July as well, which will likely act to dampen inflation further, adding pressure to the Federal Reserve to hold off on raising interest rates at its next Federal Open Market Committee meeting to set monetary policy. The U.S. dollar continues to be strong against a basket of other currencies and ongoing weakness in the oil sector is keeping energy prices low which is also adding downward pressure to U.S. inflation numbers. If the Federal Reserve finds inflation slipping further and further away from its stated 2 percent target it will be highly unlikely that an interest rate hike will occur prior to December at the earliest.

5. Danish shipping giant Moller-Maersk released its profit report and its forecast for the rest of 2016 on Friday and the news was not good at all. The company’s overall profit, compared to the same period last year, was down 90 percent and the company’s chief financial officer Trond Westlie said “When we look at the overall market and when we look at supply and demand and growth in the world, we still think it’s going to be low-growth and volatile” when CNBC asked for his thoughts on the remainder of 2016. Mr. Westlie continued, saying “If you look at the general market, the rates are at an all-time low so the shipping market is challenged…but when we look at ourselves, we also have the lowest cost per shipped box that we’ve ever had so we are adapting to these environments. But, in general, shipping markets and specifically container markets are uncertain going forward.” If shipping levels can be extrapolated to give a picture of overall global market demand, that picture does not appear to be pretty.

6. The International Monetary Fund (IMF) released its forecast for China on Friday and that forecast is not one of improving growth. The IMF said in its report that “The [Chinese] economy is advancing on many dimensions of rebalancing, particularly switching from industry to services and from investment to consumption. But other aspects are lagging, such as strengthening SOE [State-Owned Enterprises] and financial governance and containing rapid credit growth.” The IMF projects that China’s economy will grow by 6.6% in 2016 and then slow further each year, falling below 6 percent by 2020.

7. Vietnam has apparently quietly moved mobile rocket launchers to islands that it lays claim to in the South China Sea. The launchers would be capable of striking facilities on China’s new man-made islands in the Spratly archipelago. Reuters, quoting both diplomats and military officers, reported that intelligence shows that Hanoi moved the mobile launchers into position on five bases that it maintains in the Spratly islands over recent months. The anonymous officials said that the launchers have been camouflaged to avoid aerial detection and have not yet been armed, but could easily be made operational within a period of several days if required. Vietnam’s Foreign Ministry told Reuters that the information it had obtained was “inaccurate”, but did not elaborate further. China downplayed the rumors, saying “We hope the relevant country can join with China in jointly safeguarding peace and stability in the South China Sea region.” The U.S. is also monitoring the situation, with the State Department saying “We continue to call on all South China Sea claimants to avoid actions that raise tensions, take practical steps to build confidence, and intensify efforts to find peaceful, diplomatic solutions to disputes.”

8. In Europe, flash estimates project that Germany’s economy grew by just 0.4 percent, down from 0.7 percent, but still better than economists had expected. Despite the better-than-expected figure, the economy still slowed and that could be a troubling sign for what has been Europe’s bright spot throughout the financial crisis. Economists at Barclays, in a research note published this week, said “Uncertainty stemming from the UK’s Brexit vote will weigh on international trade and investment and, with this, on the demand for German industrial goods.” With Italian banks on the brink of crisis, and the geopolitical fallout from the “Brexit” vote still making its way through the system, if Germany’s economy begins to falter it could spell serious trouble for the rest of the European continent.

– Trading Department, Precious Metals International, Ltd.