In the true fashion of summer doldrums, most markets were quiet last week absent any impactful market catalysts, with oil being the exception. Earnings season is now behind us and summer vacations are in full bloom. Thin volumes are typical for this time of year and August thus far is delivering on that note with trading volumes off 15% from June and 35% from the beginning of the year. Some sideways movement or consolidation can be read as healthy and expected in U.S. equity indices after all three major indices posted all-time highs last week. Putting aside fundamentals, sentiment, Fed policy, economics for a moment reveals what look to be fairly bullish chart patterns across the U.S. equity markets.
Releases garnering attention this week touched on inflation, housing, Fed policy, and industrial production. Year over year core and headline CPI registered 2.2% and 0.8% respectively for July. Of note were building pricing pressures in medical and housing components. Housing starts, particularly multi-family, came in strong for July at 2.1%, on the back of an even stronger June figure of 5.6% surge. FOMC minutes didn’t register any particular biases, signaling the need for more data confirmation for policy trajectory to become clear. Several Fed Governors (Dudley, Bullard, and Lockhart) hit the speaking circuit throughout the week signaling the possibility for rate hikes. Interest rates did climb on the week but Fed funds futures contracts did not move materially on the narrative, with September still unlikely (22%) and December more of a coin toss (48%). Strength in U.S. manufacturing sector (autos, mining, utilities, and high tech) was reflected in the July report on industrial production, up 0.7%. Also of note were jobless claims coming in less than 300,000 for the 75th consecutive week.
As mentioned, most market movements were benign last week with equity indices largely unchanged. Interest rates did move up in the U.S. in a relatively parallel fashion, up approximately 6 basis points across the curve. The U.S. dollar continued to bleed lower last week, hitting 3-month lows against the Yen and Franc. Anemic economic growth in Europe (0.3%), Japan (0.2%), and the U.S. (1.2%) have all eyes on central bank policies. Upcoming meetings and in order of priority include the ECB (9/8), BoJ (9/21), BoE (9/15), and Fed (9/21) carry potential investment consequences.
