Fed Meeting, Alibaba’s IPO and the Scottish Vote Dominate the News

The first half of last week was largely dominated by the Fed Meeting while the second half was dominated by Alibaba’s IPO and the Scottish independence vote. In the International market, investors across the world had their eyes on the vote for Independence. Investors appeared to be pleased as Scottish voters decided not to break with the United Kingdom. The British Pound which lost ground, as earlier polls pointed toward an independent Scotland, recovered some of its losses against the U.S. dollar after the results were announced.

The Fed again kept rates unchanged as the taper remains on schedule to end with the October FOMC meeting. As per Bloomberg, the FOMC released principles for a return to normalized monetary policy. The key point is that changes will be gradual. The Fed plans to raise policy rates when conditions warrant. Reinvestment of assets likely will end after the first rate increase and the impact should be gradual. There was little change in Fed forecasts for the economy. For 2014, growth is a little lower due to the negative first quarter. Unemployment is expected to gradually ease. Inflation is not expected to reach the Fed’s goal until 2016.

Speaking of inflation, for the month of August, both the headline CPI and core CPI, excluding food and energy, came in lower than expected, giving the Fed some room to stay loose on policy. Overall consumer prices fell 0.2 percent in August after rising 0.1 percent in July. Analysts projected no change. Excluding food and energy, the CPI was unchanged after gaining only 0.1 percent the month prior.

Last week, all major indices ended in positive territory. The S&P closed at 2,010 while the Dow ended the trading week at 17,279. In major economic indicators released last week, the Index of Leading Economic Indicators pointed to moderate growth, up 0.2 percent in August, after an upwardly revised and very sharp gain of 1.1 percent in July.

Another major market event last week was the initial public offering by Chinese e-commerce giant Alibaba on Friday. The IPO garnered $21.8 billion, the largest amount ever raised in U.S. markets, and subsequent trading pushed the value of the company among the largest U.S. traded firms in terms of market capitalization. The stock surged 38 percent in its debut on Friday which prompted underwriters to exercise an option to sell an additional 48 million shares. Alibaba was the world’s biggest IPO at $25 billion, surpassing the previous global record of $22.1 billion set by Agricultural Bank of China Ltd in 2010.

Turning to the bond markets, treasury yields, which were rising for the last two weeks in anticipation of the Fed meeting, eased after the Fed reaffirmed its plans to keep rates low for a “considerable time.” At the end of the week, the Ten Year Treasury yield was down nearly 3 bps and ended at 2.58 percent. Towing the same line, conforming mortgages rates also loosened a bit. At the end of the week the Conforming Fixed 30-year rate leveled out at around 4.08 percent, while the Conforming Fixed 15-year rate finished at around 3.16 percent.

The main economic indicators to watch for this week will be Existing Home Sales and New Home Sales on Monday and Wednesday, Durable Goods Orders on Thursday and second Quarter GDP on Friday.

Thank you for your business and have a profitable week.

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