U.S. and International Equities
U.S. Markets Finish Higher
The U.S. major market indexes finished higher to begin the second half of 2022 as large technology names provide leadership. As inflation and Federal Reserve (Fed) policy remain the major themes for 2022, investors appear to be optimistic as commodity prices show signs of pulling back, supporting the Fed’s monetary policy objectives. 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 mixed. Developed international equities finished the week lower as the Eastern European conflict continues to add uncertainty. In addition, the European Central Bank remains steadfast on increasing interest rates amid a potential slowdown. China business service conditions in June expanded at their fastest pace in almost a year. Nevertheless, COVID-19 concerns are renewed in China as Shanghai infections increase the most this week vs. the past three weeks.
Fixed Income Mixed
The Bloomberg Aggregate Bond Index finished lower this week as the 10-year U.S Treasury bond yield reclaimed the 3% level. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, had a strong week as stocks rebounded.
Commodities Mostly Lower Following a Tough June
Natural gas prices rebounded sharply this week as the commodity posted its worst month this June in over three years. The U.S. Energy Information Administration reported Thursday that domestic natural gas supplies rose by less than expected, causing traders to take long positions in the commodity. In addition, the major metals, gold, silver, and copper, finished lower for a fourth straight week.
Down on the Farm…
Over the past few years, prices for agriculture products have increased sharply given the global pandemic and related supply-chain issues, weather, and the Eastern European conflict. A palm oil export ban was recently lifted in Indonesia causing a drop in its price. In addition, there have been sharp drops in canola as well as soybean oil prices. High vegetable oil prices have seemed to reduced demand and thus prices.
Wheat prices for future delivery have come off their high. Prices for wheat were $1,000 per metric ton during the middle of June but are currently $837 per metric ton. The price for wheat was highest after Russia invaded Ukraine.
Cotton has lost more than a third of its value since early May. The same price movement can be seen with corn. Corn reached $813.50 during mid-April, now the price of corn is just over $596 per 5,000 bushels. Finally, soybean prices have dropped over 17% for the last three months and over 19% for the month. The Fed’s actions on interest rates could be curbing some of the agriculture inflation.
Economic Weekly Roundup
The Fed released minutes from their June meeting this week. The minutes revealed that members of the Federal Open Market Committee (FOMC) are giving themselves some leeway, stating that “50 or 75 basis point” hikes are appropriate at the July meeting. Supply bottlenecks are still integral for policy makers’ forecasts so shipping data is important to watch for signs of supply chain improvements.
May Factory Orders Solid
New orders for U.S.-manufactured goods increased more than expected in May. The Commerce Department stated this week that factory orders rose over 1.5% in May after increasing over 0.5% in April. May’s report surpassed economists’ expectations. This report counters recent data showing a softening in the economy. Moreover, May’s report seems to illustrate that demand for products remains strong even as the Fed aggressively tightens interest rates.
Weekly Employment Report
Initial claims for unemployment insurance for the latest week came in higher than the prior week and slightly missed economists’ expectations. The readings still remain historically low despite the recent uptick. Continuing claims, which still remain near record lows, increased slightly from the prior week and also missed economists’ consensus estimates. The data still continues to illustrate a very tight labor market, a culprit of the present inflationary climate.
June employment increased by just under 400,000 new jobs, a slightly lower clip from May. The participation rate dipped to 62.2% in June from 62.3% in May. The labor market remains extremely tight as the unemployment rate remains stubbornly low at 3.6%. This rate has remained unchanged for the fourth consecutive month.
The following economic data and potentially market-moving events are slated for the week ahead:
- Tuesday: NFIB Small Business Index (June)
- Wednesday: Consumer Price Index (June), Treasury budget (June), Federal Reserve Beige Book
- Thursday: Weekly Initial and Continuing Unemployment Claims, Producer Price Index (June)
- Friday: Retail sales (June), capacity utilization (June), industrial and manufacturing production (June), business inventories (May), University of Michigan Sentiment (July), export/import prices (June)
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