Dow Ends the Week Down 3.25%

A Weird Week for Currency

The value of foreign currency has been all over the board this week, with international markets feeling the sting of China's currency revaluation and market collapse. The Euro moved most prominently, back to lows it hadn't seen for well over a year. The yuan also moved 2% lower when China devalued it in a bid to increase exports. The British pound fell this week, amidst market instability.

All of these moves serve to make the US dollar stronger in comparison. It means that our exports become more expensive, and imports become cheaper. It also has implications for our buying power at home, because so many goods are imported at retailers like Walmart (WMT).

It's been a good week at home, especially since we are currently in a strong dollar market.
Commodity prices are fluctuating, but they tend to be lower than they have in the past. That's especially true of import goods, like coffee and cocoa.

All in all it has been a weird week for the currency markets. The yuan's big move took the entire world by surprise, and the currency markets still haven't entirely recovered. Changes in the Euro were also unexpected, but are a natural part of falling markets and financial disarray.

Fed Rate Hike Less Certain After Jobs Report

Analysts are less certain that the Fed is going to hike the prime rate when it meets 10 days from now. The jobs report showed better than expected growth in some key sectors, like healthcare, but worse than expected growth across the board. It also showed a 2.2% rise in income that was better than expected, and a return to 5.1% unemployment, which we haven't seen in nearly 10 years.

Still, that's no guarantee that the Fed will act to raise rates. There is pressure on the to act at some point this year, simply because the prime rate has been stuck at 0% since 2008 and the economy is in much better shape now. The other possibility is that the Fed will hold out until December to raise rates, something it had signalled was unlikely in months past.

"You can't hike on a 173,000 number," says Phil Orlando, an economist at Federated Investors, referring to the jobs added in August. "The Fed has to think long and hard about pushing this thing out to December."

Whether or not the Fed will wait until December will be decided soon, but when the Fed does act there will be consequences. Interest rates will go up across the board, impacting everything from mortgages and car loans to savings accounts. It will cost more money for businesses to borrow, and even banks will feel the sting when they borrow money from each other. The Fed has been so slow to act in regards to the prime rate at least in part because of its far-reaching implications.

Dow Ends the Week Down 3.25%

The Dow had a hard week this week, ending it down 3.25%. Monday and Tuesday were both in the red, while markets rallied on Wednesday and Thursday. Friday's 200-point loss was enough to drag markets into the red for the week, and saddle the Dow with a 3.25% decline. It was a similar story for both the NASDAQ and S&P 500, which both ended the week on a sour note. The NASDAQ lost 3% and the S&P 500 lost nearly 3.50%.

This week's decline was really an across the board event, but it did hit certain sectors harder than others. Industrial equipment and manufacturing, along with the entire Energy Minerals sector, were the hardest hit. Tech managed to avoid the worst of the damage, but some major players like Facebook (FB) and Apple (AAPL) still took losses.
Published on Sep 5, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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