U.S. and International Equities
U.S. Markets Finish Higher
The U.S. major market indexes finished lower amid this week’s sharp inflation report. Inflation and Federal Reserve (Fed) policy remain the major themes for 2022. That being said, lower commodity prices could help support economic growth particularly consumer spending, as well as corporate profits.
Amid challenges globally, both developed international stocks (MSCI EAFE) and emerging markets (MSCI EM) finished the week lower. Developed international equities pulled back given recession concerns in Europe. In addition, the European Central Bank remains steadfast on increasing interest rates amid a potential slowdown. Emerging market equities pulled back on concerns of an economic slowdown affecting future demand for Chinese goods on top of an increased number of COVID-19 cases in China.
Fixed Income Mostly Higher
The Bloomberg Aggregate Bond Index finished higher this week as the 10-year U.S Treasury bond yield dropped below the 3% level. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, lost ground as equities struggled.
Commodities Mostly Lower
Natural gas prices rebounded sharply for the second straight week as the commodity posted its worst month this June in over three years. The U.S. Energy Information Administration reported last Thursday that domestic natural gas supplies rose by less than expected, causing natural gas prices to rise. In addition, the major metals, gold, silver, and copper, finished lower for a fifth straight week.
Economic Weekly Roundup
June headline inflation rose over 9% from a year ago. This was above consensus estimates. Key drivers were the large increase in energy prices last month and an increase in transportation costs. June gas prices were up 60% from a year ago and over 10% month over month. Excluding food and energy, the CPI rose close to 6% year-over-year and at a slightly slower pace from May. The Fed will likely hike rates by .75% later this month, especially since the job market is strong enough to support a front-loading of rate hikes.
The Fed Beige Book, which details economic conditions in each Federal Reserve Bank districts, was overshadowed this week in lieu of Wednesday’s CPI report. Per the report, the U.S. economy remains in an expansion mode, but has experienced notable signs of a slowdown over the past month as recession concerns abound. The beige book noted rising prices in many Federal Reserve Bank districts. Some districts reported some moderation in areas like construction supplies.
Weekly Employment Report
Initial claims for unemployment insurance for the latest week came in higher than the prior week and missed economists’ expectations. The readings still remain historically low despite the recent uptick. Continuing claims, which still remain near record lows, decreased from the prior week and were below economists’ consensus estimates. The data still continues to illustrate a very tight labor market, a culprit of the present inflationary climate.
The following economic data and potentially market-moving events are slated for the week ahead:
- Monday: NAHB Housing Market Index (July)
- Tuesday: Building permits (June), housing starts (June)
- Wednesday: Existing home sales (June)
- Thursday: Weekly initial and continuing unemployment claims, leading indicators (June)
- Friday: PMI composite (July), Markit PMI Manufacturing and Services (July)
Next week, over 70 companies report their Q2 earning results
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