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TRADING THE WEEK: Hurricane Effects Weigh on Market

Traders Magazine Online News, September 11, 2017

John D'Antona Jr.

Back to life, back to reality.

The equity markets returned from the summer vacation season with more of a whimper than a roar, so far. Traders have yet to see much activity as headline risk, from multiple sources such as Treasury debt ceiling posturing, Hurricanes Harvey and Irma liabilities and persistent North Korea tensions have diverted attention from the actual business of trading. Volatility remains low, one trader lamented, which also has conspired to depress volumes.

William Mingoine, Head of Equities at Drexel Hamilton in New York, told Traders Magazine that as the market has come through almost all corporate earnings his firm believes the market has two strong assertions.

“First, the market has been concerned that corporate earnings may have peaked as earnings were very positive and now we have raised expectations on many of the companies which may be hard to attain,” Mingoine began. “Secondly, that North Korea is a real threat that likely will have to be dealt with.  So far it looks as if President Trump will not back down so we are headed for a showdown. The market also is still digesting the effects of Harvey and expectations for Irma begin to take their toll. We are all keeping our thoughts and prayers on South Florida as it braces for what appears to be a direct hit coming from Hurricane Irma this weekend.”

He added that it appears the effects of these hurricanes and the preceding suppressed economic activity will help keep the Federal Reserve at bay.

This was a point brought up by the Federal Reserve last week, as it has been eyeing headline events – noting last week that although economic losses from natural disasters are typically recovered because rebuilding stimulates growth, the timing of hurricanes Harvey and Irma likely will affect the its plan to increase interest rates in December. Economists across Wall Street have forecast that US GDP growth is expected to be reduced in the third quarter because of Harvey.

Fed Governor Lael Brainard, a close ally of Chairman Yellen, publicly acknowledged that it could be a while before the central bank hits its inflation target as it read the inflation tea leaves wrong. In comments, she now believes the Fed should move slower on rate hikes and even allow inflation to run above the 2 percent target for a while.

"I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective," Brainard told the Economic Club in New York last week. "In that case, it would be prudent to raise the federal funds rate more gradually."

Mingoine added that US jobless claims came in the highest last week in two years.

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