John Hancock: Weekly Market Recap Week Ended September 20th

Divided Fed

As expected, the U.S. Federal Reserve cut its benchmark interest rate for the second time in two months, but board members were split on the outlook for further reductions this year. Seven of 17 Fed officials projected that there will be a need for another rate cut, but 10 others maintained that rates should remain at the newly reduced level or shouldn’t have been cut at all this month.

Liquidity scare

For four days in a row, the U.S. Federal Reserve intervened in a segment of the bond market known as overnight repo, where companies often go to meet short-term borrowing needs. Borrowing costs in the repo market soared on Tuesday amid a lack of liquidity, but the situation stabilized after the Fed stepped in with financial backing.

Yield watch

U.S. Treasury bond yields fell after rising sharply in the previous week, but they remained well above the multi-year lows recorded early this month. The 10-year Treasury bond yield fell to around 1.75% on Friday, down from 1.90% a week earlier.

Oil spike

Crude oil prices surged 15% on Monday in the wake of drone attacks that temporarily disrupted about half of Saudi Arabia’s oil production capacity. But prices subsequently pulled back, ending up with a 6% weekly gain, as production was restored and prospects of a military retaliation diminished.