U.S. equities finished the week on a positive note Friday, posting modest gains to cap a volatile week.
Overnight, the big catalyst was that the People’s Bank of China guided the yuan stronger for the first time in four days. The central bank had allowed the currency to weaken by more than 4% over the three previous sessions, which was responsible for all the global market volatility seen earlier.
The other constructive development was the rebound in crude oil after settling to fresh lows overnight not seen since 2009. This came despite another increase in the U.S. oil rig count. Medium-term, crude oil looks like it has further to fall as a refinery outage is adding about 1 million barrels per day to storage tanks in Cushing, Oklahoma, with Financial Times reporting the situation could continue for at least a month.
To finish out the week, the Dow Jones Industrial Average and the S&P 500 gained 0.4%, the Nasdaq Composite gained 0.3% and the Russell 2000 gained 0.6%. Gold lost 0.1% while crude oil gained 0.6%.
On the economic front, producer price inflation came in slightly hotter than expected (up 0.2% month-over-month vs. the 0.1% gain expected) and industrial production was strong (0.6% m/m vs. 0.3% expected) with the largest gain since November driven by a surge in auto production.
The positive Friday was a pleasant surprise: Before today, the S&P 500 had closed lower 10 of the last 12 Fridays, something that hasn’t happened since 2007. The gain can be attributed, in large part, to a late-session melt-up in Apple Inc. (NASDAQ:AAPL) on a report in the Guardian that the company may be further along with its car project than many suspected.
Heading into next week, investors will be closely watching Wednesday’s consumer price inflation report for clues as to whether the disinflationary pressures of lower energy and healthcare prices are abating — thanks largely to the rise in shelter costs — which would remove a major hurdle to the Federal Reserve raising interest rates at its September meeting for the first time since 2006.
Also on Wednesday will be the release of the Fed’s latest meeting minutes, which will be scoured for clues as to the odds of a hike vs. no hike decision on Sept. 17.
Technically, stocks remain vulnerable after the Dow Jones completed its first death cross since 2011 this week, and remains in a downtrend channel started back in May and hasn’t traded above the 18,000 level since July 21.