Hey folks we have a holiday shortened week coming up here in the US markets. We have gone over 400 trading days without a 2% drop in the S&P which is very stretched. July is traditionally a slightly bullish month historically but after the run we’ve had this year we can expect some price consolidation so a smaller pullback over the summer months should be expected. Get my take on the current markets in this week’s round-up.
MARKET SOUND BITES
Markets recorded modest gains in a light news week during what seemed to be a bit of a lull in market activity ahead of second-quarter earnings reports. The banking sector featured prominently as the Feds is considering significantly lighter additional capital requirements for banks than regulators originally proposed. This was followed by the Fed’s announcement that all 31 of the large U.S. banks in its latest round of stress testing remained above their minimum capital levels, potentially allowing them to return capital to shareholders in the form of dividends and buybacks.
On Friday morning, the Bureau of Economic Analysis released the May data for the core personal consumption expenditures (PCE) price index, which showed that prices excluding food and energy rose 0.1% from April. Core PCE is the Fed’s preferred measure of inflation, so markets welcomed the deceleration from April’s upwardly revised 0.3% pace as an indication that a September Fed rate cut is more likely.
Yields on longer-term Treasuries increased over the course of the week. Heightened expectations for a September Fed rate cut led to a slight decrease in short-term Treasury yields, resulting in a steeper yield curve.
In Europe, slower increases in fuel and food prices drove the harmonized rate of inflation lower in France and Spain in June, according to preliminary data. In France, the annual rate fell to 2.5% in June from 2.6%; in Spain, inflation dropped from just over a one-year high of 3.8% to 3.5%. And in Germany, the jobless rate rose to 6.0% in June, the highest level in just over three years, from 5.9% in May. And German business confidence weakened to 88.6 in June from 89.3 in May as expectations in manufacturing and trade worsened.
In Japan, despite heightened expectations that authorities would again step in to stem the yen’s sharp decline, which has been driven by the wide U.S.-Japan interest rate differential, only verbal intervention was forthcoming. On the economic data front, investors focused on the Japan’s core consumer price index print for June, which showed inflation rose 2.1% year on year, more than consensus expectations and accelerating from 1.9% in May.
And finally, in China, stocks weakened as a light economic calendar and concerns about the slowing economy curbed risk appetite. Industrial profits at large companies edged up 0.7% in May from a year earlier, the National Bureau of Statistics reported, down from April’s 4% gain. Looking ahead, investors will watch out for China’s official purchasing managers’ index, to be released on Sunday, followed by the private sector Caixin factory survey on July 1.
Enjoy This Week’s Round-Up
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Trade Smart !
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