This week there were few economic releases, but the evidence still led to the conclusion that the recovery in the U.S. was on solid ground; but, elsewhere the recovery remained less firm. The equity and bond markets both sold off this week. Geopolitical risks remained high, but they did not appear to be driving the capital markets. The two factors that were sited were expectations that the U.S. Federal Reserve would move up the timing of raising interest rates and falling energy prices. The U.S. dollar was mixed; oil and metals commodity prices declined on the week.

Perspective:

Two factors sited for the decline of equities this week appear to be in conflict. First, the U.S. economy and jobs market appeared solid enough that the Federal Reserve is likely to move up the timing of interest rate increases. Fed Chair Janet Yellen has insisted that the Fed's actions are data-dependent, not on a timetable. Many had expected that the Fed would not be raising rates (to slow the economy and head off inflationary pressures) till mid-2015. This week, some thought that that might come sooner; the clues may come from the Fed following next week's FOMC meeting in its statement and release of its economic forecasts.

The second factor is the decline in oil prices, which put pressure on energy stocks. If the economy is so strong, why would oil prices fall in anticipation of softer demand? Good question... Could be that the Fed's actions would cool off the economy. Or, the economy is picking up, but not strong enough for lift-off without the Central Bank's stimulus.

In any case, all eyes will be on the Fed's announcement and economic forecasts after the FOMC meeting next Wednesday for clues to the Fed Chair's timing.

On a personal note, in the Davidson household, all eyes are awaiting the birth of our second grandchild who was due last Friday, but, like the Fed, will come when she is ready.

Economic Releases:

New Claims for Unemployment benefits rose 11,000 unexpectedly to 315,000 the week of Sept. 6. The four-week average of Claims (blue in the chart) rose to 304,000. Continuing Claims (red in the chart) rose 9,000 to 2.487 million. Nonetheless the Claims data were still below the pre-Great Recession levels and are unlikely to deter the Federal Reserve from their path of removing accommodation.

The consumer has been spending. Retail Sales (blue in the chart) rose +0.6% in August, as expected. Even without the more volatile automobile component, Retail Sales ex auto's (red in the chart) rose +0.3% in August. July data for both releases were revised higher as well.

Other Economic Releases

The University of Michigan's preliminary Consumer Sentiment Index for September rose a couple of points to 84.6.

In the European Union, Industrial Production rose +1.0% in July, beating consensus; the French IP contributed to the surprise with an increase of +0.2%; the UK's IP rose +0.5%.

Chinese IP rose only +0.2%, which capped a 6.9% year-over-year increase, well below expectations.

Equities Markets:

The Swiss and Japanese markets managed to generate positive returns, but elsewhere equity markets declined for the week. Bond credit markets were hit with both widening credit spreads and rising interest rates.

Bond Markets:

Bond yields rose in anticipation that the Federal Reserve would move up its timetable for increasing interest rates. The FOMC is scheduled to meet next week and will release a new forecast of economic factors. Credit spreads, especially for the riskier asset classes, widened as investors pulled money out of high yield bond funds.

Currencies & Commodities:

The U.S. dollar rose against the Yen and Looney, but fell against the Pound and Euro. The European releases were a little better this week than they had been previously. Oil and metals prices declined on the week.