For the mid-week ending November 18, 2015, the Dow and S&P 500 rebound recovering most of the losses in the prior week. In other news: Deutsche Bank joins the consensus of a December rate hike; a new strategy with ISIS is to cut off its funds; and, a modest rise in inflation provides further support for a rate hike next month.
U.S. stocks rally on FOMC minutes which indicate the economy is strengthening. This week, the Dow has risen 2.89% (497 points), and the S&P 500 has risen 3.07% (62 points) making this the largest rally over the last four weeks. The markets jumped Wednesday after the FOMC minutes signaled that the economy is strong enough to warrant a December rate hike. The Fed stated in its minutes that “it may well be appropriate” to raise rates next month. Job openings rose to the second highest level on record, while the consumer price index (without food and energy) rose 1.9 percent. The question now is how much of a rate hike and how often.
Deutsche Bank now believes a rate hike will occur in December. After the release of the FOMC minutes, the economists at the bank said in a note Wednesday that “The October meeting statement hinted at the Fed’s strong desire to raise rates at the December meeting.” “We are now in the December liftoff camp”. What convinced the economists at the bank was the following from the minutes: “Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting.” For 2016, Deutsche Bank is expecting two rate hikes in the first half resulting in a cumulative 75 basis points, then holding rates at that level for the remainder of the year to monitor the impact.
U.S. officials have added a new approach in the war with ISIS: cutting off its cash flow. A large portion of the war chest for ISIS comes from stolen cash in Iraqi banks, plus other valuable assets seized during the invasion of Mosul last year. The U.S. Treasury and the Federal Reserve have temporarily suspended transfers to Iraq’s central banks but resumed transfers when the banks warned they were running out of cash. In addition, U.S. officials have been tracking the financial footprints of ISIS and developing a list of names of individuals who control ISIS accounts. Aside from freezing the accounts, following the money could lead back to the leadership.
The U.S. consumer price index increased in October indicating a modest rise in inflation. The Labor Department said the index increased 0.2 percent, reversing the -0.2 percent drop in September. Last month, gasoline prices rose 0.4 percent; food prices rose 0.1 percent; the rental index rose 0.3 percent; medical care costs rose 0.7 percent; hospital costs rose 2.0 percent; and, airline fares rose 1.5 percent.
If you’re trading options, it is suggested trading Put credit spreads for the remainder of the week at 1.75 standard deviations or greater. Expect the price of the SPX to fall within 2046 and 2118 (2 standard deviations) by this Friday.
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