General market news
- Since the low on June 27, the sell-off in Treasuries has caused the 10-year to break through some technical levels. The 10-year Treasury opened at 2.36 percent early Monday after finishing the holiday-shortened week just below 2.40 percent. It tested the 2.12-percent level on the downside less than two weeks ago. The 30-year remains below 3 percent at 2.92 percent; it had been below 2.70 percent on June 27.
- All three major U.S. indices were up slightly last week. The Dow Jones Industrial Average led the way with a 0.38-percent gain. This was followed by gains of 0.23 percent for the Nasdaq Composite and 0.14 percent for the S&P 500. Top-performing sectors included financials, industrials, and materials. Telecom, real estate investment trusts, and energy were among the worst-performing sectors.
- Central banking policy took center stage last week. The Federal Open Market Committee meeting minutes indicated that the Federal Reserve (Fed) may begin shrinking its balance sheet as early as September. The minutes from the European Central Bank’s June meeting also grabbed headlines, as the central bank discussed potentially moving away from increasing the pace of asset purchases. These two statements suggest that the central banks are becoming more confident in the ability of their economies to sustain themselves without the use of extremely low rates or stimulus.
- The holiday-shortened week saw the release of only a few data points, but the results were mostly positive. The week began with the ISM Manufacturing survey, which increased more than expected. This was followed by the ISM Non-Manufacturing survey, which also came in above expectations. The rise in these two widely watched measures of business confidence points toward a strong rebound in growth for the second and third quarters of the year. Last Friday, the June jobs report also surprised to the upside, with 222,000 non-farm jobs added, against expectations for 179,000. This strong headline number is evidence of continued strength in the employment market.
|MSCI Emerging Markets||–0.58%||–0.58%||17.86%||24.37%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||–0.37%||1.90%||–1.48%|
What to look forward to
This week will provide a good look at the economy as a whole. On Wednesday, Fed Chair Janet Yellen will give her semiannual testimony to Congress. Her prepared testimony will be released in the morning. This will be followed by a question-and-answer session with members of Congress. Expected topics include the Fed’s commitment to its interest rate projections, the start date of the balance sheet drawdown, and, quite possibly, Yellen’s interest in another term as Fed chair. As far as economy goes, her comments should echo the most recent meeting minutes, so few surprises are expected.
The remaining economic data releases of note will all come on Friday. Consumer Price Index data for June will be watched closely. Since March, inflation has come in below expectations and is nearing a two-year low. If June brings more of the same, it could start to affect Fed policy decisions. Consensus expectations are low, at 0.1 percent for headline inflation and 0.2 percent for core inflation, which excludes the more volatile food and energy prices.
The retail sales report should give us an idea of whether spending growth will start to catch up with rising consumer income. Core retail sales—which exclude food, gas, building materials, and autos—are expected to grow 0.3 percent in June, up from flat in May. Expectations for the headline number are much lower, based on a drop in both gasoline prices and auto sales. These are not great numbers, but if they come in as expected, they would moderate concerns about a slowdown.
The industrial production report—a measure of output at factories, mines, and utilities—is expected to show growth of 0.3 percent, along with a 0.2-percent rise in manufacturing output. The headline growth number includes strong utility growth due to warm weather around the country, so it could provide some upside risk. On the other hand, it also suggests that the manufacturing number may be a more accurate indicator of the health of the economy as a whole.