The U.S. stock markets closed the week slightly higher as investors remained cautiously optimistic towards lower odds of a near-term rate hike after the non-farm payroll result.
The Dow Jones industrial average was up 72.66 points (0.39%) to close at 18,491.96, driven mostly by Boeing. The S&P 500 was lifted by 9.12 points (0.42%) and the tech-heavy Nasdaq composite gained 22.69 points (0.43%), to settle at 2,169.04 and 5,218.92, respectively.
On Tuesday, The European Commission (EC) ruled that Apple has been underpaying its tax bill in Ireland, an illegal state aid granted by the Irish government. The EC has ordered the U.S. tech giant to honor its $14.5 billion tax bill. The basis of the declaration is relied on the fact that the typical corporate tax in Ireland is charged at 12.5%, while Apple paid 0.005% in 2014. Tim Cook, CEO of Apple, disagreed with EC’s tax evasion claims and responded with an open letter.
On Wednesday, the euro zone reported 0.8% core consumer price inflation, fell short of the ECB’s target of 2%. In addition, the Eurozone unemployment rate remained at 10.1%, more than double its U.S. counterpart.
On Thursday, the U.S. ISM manufacturing index, which tracks the amount of manufacturing activity, declined to 49.4 for August vs. 52.0 consensus and 52.6 in July. The five major indicators that go into this number: new orders, inventory levels, production, supplier deliveries and the employment environment were lower than the figures from the previous month. The result will trigger fresh doubts surrounding the manufacturing outlook as well as the odds of a Fed rate hike in the near team.
Since the conclusion of Jackson Hole conference, investors have been factoring in higher odds of up to two interest rate hike this year following comments by both Janet Yellen and Stanley Fischer from the Fed. However, on Friday, this notion became less likely as the U.S. reported 151,000 jobs in August, which is fewer than consensus of 180,000 and much lower than the data from the previous two months.
Thoughts: 1)Apple’s tax affairs: Apple is likely to win the tax evasion dispute, not only with the assistance from the Irish government, but also with the implications against the EC. Should EC declares victory in this unprecedented case, Apple along with other U.S. companies (Eg: Starbucks, McDonald’s, and Google) might pull out and this would result in severe political and economic harm to Ireland as well as to the Eurozone. 2)Post Non-farm payrolls: Two rate hikes for the rest of 2016 remains on the table despite the fact that the market has priced in lower odds for a Sept rate hike after the release. One data point might not be sufficient to dictate what the rate decision could be. If we look at the 3-month average of 232,000, coupled with a compelling 4.9% unemployment rate (0.1% shy away from full employment), this makes a more compelling case in favor of a September rate hike.
The week ahead: Eurozone retail sales (Monday), Eurozone Q2 GDP (Tuesday), the US Federal Reserve’s Beige Book & the Bank of Canada interest rate decision (Wednesday), and the ECB meets to discuss monetary policy (Thursday).
Tops News
AMJourney 
Market Commentary – September 2, 2016
The U.S. stock markets closed the week slightly higher as investors remained cautiously optimistic towards lower odds of a near-term rate hike after the non-farm payroll result.
The Dow Jones industrial average was up 72.66 points (0.39%) to close at 18,491.96, driven mostly by Boeing. The S&P 500 was lifted by 9.12 points (0.42%) and the tech-heavy Nasdaq composite gained 22.69 points (0.43%), to settle at 2,169.04 and 5,218.92, respectively.
On Tuesday, The European Commission (EC) ruled that Apple has been underpaying its tax bill in Ireland, an illegal state aid granted by the Irish government. The EC has ordered the U.S. tech giant to honor its $14.5 billion tax bill. The basis of the declaration is relied on the fact that the typical corporate tax in Ireland is charged at 12.5%, while Apple paid 0.005% in 2014. Tim Cook, CEO of Apple, disagreed with EC’s tax evasion claims and responded with an open letter.
On Wednesday, the euro zone reported 0.8% core consumer price inflation, fell short of the ECB’s target of 2%. In addition, the Eurozone unemployment rate remained at 10.1%, more than double its U.S. counterpart.
On Thursday, the U.S. ISM manufacturing index, which tracks the amount of manufacturing activity, declined to 49.4 for August vs. 52.0 consensus and 52.6 in July. The five major indicators that go into this number: new orders, inventory levels, production, supplier deliveries and the employment environment were lower than the figures from the previous month. The result will trigger fresh doubts surrounding the manufacturing outlook as well as the odds of a Fed rate hike in the near team.
Since the conclusion of Jackson Hole conference, investors have been factoring in higher odds of up to two interest rate hike this year following comments by both Janet Yellen and Stanley Fischer from the Fed. However, on Friday, this notion became less likely as the U.S. reported 151,000 jobs in August, which is fewer than consensus of 180,000 and much lower than the data from the previous two months.
Thoughts: 1)Apple’s tax affairs: Apple is likely to win the tax evasion dispute, not only with the assistance from the Irish government, but also with the implications against the EC. Should EC declares victory in this unprecedented case, Apple along with other U.S. companies (Eg: Starbucks, McDonald’s, and Google) might pull out and this would result in severe political and economic harm to Ireland as well as to the Eurozone. 2)Post Non-farm payrolls: Two rate hikes for the rest of 2016 remains on the table despite the fact that the market has priced in lower odds for a Sept rate hike after the release. One data point might not be sufficient to dictate what the rate decision could be. If we look at the 3-month average of 232,000, coupled with a compelling 4.9% unemployment rate (0.1% shy away from full employment), this makes a more compelling case in favor of a September rate hike.
The week ahead: Eurozone retail sales (Monday), Eurozone Q2 GDP (Tuesday), the US Federal Reserve’s Beige Book & the Bank of Canada interest rate decision (Wednesday), and the ECB meets to discuss monetary policy (Thursday).
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A small potato working on Bay Street