Market Insights

Market Insights: August 3, 2015

Economic Outlook: Data Divergences

  • The most recent posting of Consumer Confidence from the Conference Board showed a truly remarkable decline of 9 points from the previous month’s reading to a level of 90.9. Most of the decline is accounted for by a drop in the component which gauges future expectations.
  • That is an unusually large decline for a single month. Some of the headline items on China may have exerted an influence. It is premature to attach too much importance to the change but if it holds without a bounce next month, that could be cause for further concern.
  • It is interesting that the other major confidence index compiled by the University of Michigan did not show a decline and finished virtually unchanged from the previous month.
  • This is a somewhat puzzling divergence of the data and will bear watching. For now, we are not drawing any premature conclusions.
  • Second quarter U.S. GDP came in with an initial indication that is slightly below expectations, at a 2.3% annual growth rate. However, the First Quarter GDP was revised higher and moved from a slight contraction back into expansion mode at +0.6%. That makes the slight shortfall in the Q2 number less worrisome. Personal consumption and residential investment were strong contributors to the second quarter GDP metrics.
  • June was strong for durable goods orders, which rose 3.4 percent, more than analysts were expecting. These readings are evidence of a long anticipated show of strength. Hopefully, it develops into a trend that is sustained.
  • Initial Jobless Claims continue to be low, and posted at 267,000 last week. The Employment Cost Index is showing 2.0% growth on a year-over-year basis. This metric is one of Janet Yellen’s favorites.
  • Meanwhile, Euro-zone unemployment is still in double-digits at more than 11.0%. It is going to take a while to work this down. Without structural change, it is unlikely to reach U.S. levels.
  • China continues to struggle. New car sales in June fell. That is the first decline in more than 2 years. Ford and Hyundai both reported declining Chinese market deliveries. The slump in the Chinese stock market is creating a drag in consumer sentiment.

Equities Outlook: Sensing Direction in a Sideways Market

  • We continue in a pretty sideways equity market so far in 2015, but we did see some rally last week. In the near term, there is no clear momentum or direction.
  • As we discussed last week, corporate earnings for Q2 have generally been coming in above analyst’s expectations. This is a nice surprise. This bodes well for longer term.
  • China’s equity market difficulties are generally putting a lid on most Emerging Markets and they are generally hamstrung. Chinese economic leaders gathered at a policy summit last week and announced a pledge to make some pre-emptive policy adjustments in the second half, most likely new infrastructure spending.

Fixed Income Markets: Show Me the Money — Fed

  • After that Employment Cost reading last week, bonds rallied and the dollar weakened. This would suggest that the Fed’s interest rate hike might get extended one or two meetings.
  • The Fed wants evidence in further labor market improvement and for inflation to begin edging up toward its 2 percent policy target. If they feel confident of both, they will move with a reduction in rates.
  • The drop in yield on the 10 Year Treasury note extended last week, as the yield closed at 2.18%. It closed the previous week at 2.26% and was at 2.40% as recently as early July.
  • Overall, the U.S. Treasury Yield Curve has flattened a bit, with the short yields (less than 3 years) edging up and the longer yields (10 years and higher) softening.

The Week Ahead


  • U.S., Personal Income and Outlays (BEA)
  • U.S., PMI Manufacturing (Markit)
  • U.S., ISM Manufacturing (ISM)


  • U.S., ADP Employment Report (ADP)
  • EU, Retail Sales (Eurostat)


  • U.S., Employment Report (BLS)