Markets Finish Lower
Markets across the board pulled back this week as the S&P 500 Index ended its streak of four straight weekly gains, the longest such streak since November 2021. Concerns about China’s economic landscape along with an all-time record increase in German producer prices in July caused equity investors to pause on adding new money to stocks. A big options expiration likely also contributed to some late-week volatility. Amid the ongoing Eastern European conflict, Europe’s reliance on Russian energy has increased challenges for the global economy. The winning sectors this week were utilities and consumer staples, two defensive sectors, along with energy.
Fixed Income Lower
The Bloomberg Aggregate Bond Index finished the week lower as bond investors continue to reassess prospects for economic growth following last week’s better-than-expected inflation reports. This week’s FOMC minutes indicated that the Fed remains steadfast in its hawkish stance, which weighed on fixed income markets this week. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, lost ground as equites sold off.
Natural Gas Moves Higher/Copper Concerns
Amid continued energy supply concerns in Europe from the Eastern European conflict, natural gas returned over 4%. U.S. natural gas prices are near their highest level in 15 years, up almost 150% year-to-date.
Copper prices finished marginally lower after reaching a 5-week high amid a challenging year for the industrial metals. Despite its rebound over the past month, Reuters reports that global copper speculators are anticipating a downturn in the industrial metal as the latest data shows more funds with bearish positions vs. bullish on the London Metal Exchange and COMEX. China demand is also a concern amid the country’s softer-than-expected July economic report.
Economic Weekly Roundup
Minutes from the last Federal Open Market Committee meeting were released on Wednesday. The Federal Reserve (Fed) indicated that it likely would not pull back on its hawkish sentiment until inflation retreats substantially. They did not provide specific guidance for future increases, but the Fed indicated that they would be watching data closely before making an interest rate decision. The minutes noted that some Fed members expressed concern that it could overshoot with rate hikes, underscoring the importance of being data-dependent. LPL Research’s base case is that the Fed will most likely raise interest rates another half-point at the September meeting.
July Retail Sales
Retail sales last month were unchanged vs. June, which came in below economists’ expectations. Declining fuel prices caused gas station sales to retreat as consumers appeared to use the savings for other goods as online sales increased over 2.5% while miscellaneous store sales increased 1.5%. Food sales increased fractionally, however, as the Bureau of Labor Statistics food price index increased over 1% for the month. Sales at bars and restaurants also struggled, rising only a fraction compared to June.
China’s challenging July
China, the world’s second largest economy, saw retail sales, industrial output, and investment all come in lower than economists’ expectations last month. Moreover, China’s new bank loans declined more than analysts expected amid property market concerns. China’s central bank also unexpectedly cut its key interest rate in an effort to spur economic growth as new daily COVID-19 infections reach a three-month high this week.
Weekly Employment Report
Initial claims for unemployment insurance for the latest week came in just less than the prior week and surpassed economists’ expectations. Continuing claims increased from the prior week, and missed economists’ forecasts. Labor market conditions remain tight however higher interest rates are signs of slowing momentum with the employment landscape.
The following economic data and potentially market-moving events are slated for the week ahead:
- Tuesday: Building permits (Jul), Markit PMI Manufacturing and Service Report (Aug), PMI composite (Aug), new home sales (Jul)
- Wednesday: Total Light Vehicle Sales (Jul), durable orders (Jul), pending home sales (Jul)
- Thursday: Weekly initial and continuing unemployment claims, Q2 GDP
- Friday: Personal consumption expenditures and income (Jul), wholesale inventories (Jul), University of Michigan sentiment (Aug)
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