Market Insights: July 7, 2014
Economic Outlook: Most Data Confirms Continuation of Growth
- As we’ve discussed in the last several weeks, the housing numbers continue to show improvement. The Pending Home Sales number for the month of May posted a 6.10% increase over the previous month. This is the biggest monthly gain in more than four years. [National Association of Realtors]
- Auto Sales rose 1.20% in June and surpassed the 17 million annualized rate. This marks the highest annualized rate since 2006, before the Great Recession.
- PMI’s Manufacturing Index reading from Markit for the month of June posted a strong 57.3. This reading was confirmed by the separate measurement from ISM at 55.3. Hard to find signs of a looming recession here.
- The Bureau of Labor Statistics released its Employment Situation report in the holiday shortened week last week. The Unemployment rate dropped to 6.10%, and nonfarm payrolls increased 288,000, more than expectations. Average Hourly Earnings increased 0.20% over the preceding month. This rate of increase is less than the rate of increase in wages which Fed Chair Janet Yellen has indicated that she would like to see.
- The CPI metric for the Euro-zone was updated last week, and has posted a 0.50% increase from the year-ago level. Mario Draghi commented that this leaves the CPI at what monetary authorities consider a “danger zone” of less than 1.0%. This preserves the likelihood that additional stimulus will be applied in the Euro-zone.
- Japan’s PMI Composite Index posted at exactly 50 in the most recent reading. This puts the Japanese economy exactly at the inflection point between expansion and contraction.
- Meanwhile the Chinese PMI Composite Index has rebounded and stands at 52.4.
Equities Outlook: Record Close in Short Week
- It was a short market week because of the holiday and trading was light. Nonetheless U.S. equity market closed on Thursday at record levels.
Fixed Income Markets: A Slow News Week
- The Ten-Year Treasury drifted higher in yield during the short week. It had closed the previous week at a yield of 2.53%, and opens the new full week trading at the 2.62% level, just about where it was two weeks ago.
- Fed Chair Janet Yellen spoke last week to the IMF meeting in Washington. She expressed the opinion that risk-taking in the financial system is not severe at the current time and does not pose a threat to flexibility in monetary policy.
The Week Ahead
- NFIB Small Business Optimism Index (NFIB)
- FOMC Minutes released
- Treasury Budget