Friday, August 25, 2023
U.S. and International Equities
The major U.S. market indexes ended mixed following on from three straight weeks of declines. This week, NVIDIA (Ticker: NVDA) delivered better-than-expected top and bottom-line results and increased guidance on the back of artificial intelligence (AI) driven data center strength. Emerging market equities rebounded as Taiwan, India, South Korea, and Brazil’s stock markets had a positive week. However, Chinese equities reached a nine month low.
According to the AAII Sentiment Survey, the percent of bullish investors declined 3.6% to 32.3%, which is well-below the historical long-term average of 37.5%while bearish investors jumped 5.8% to 35.9%, above the 31% historical average. It is the first time in 12 weeks that there have been more bears than bulls (and hence a negative bull-bear spread). Flow data highlighted a third straight week of outflows of from US equities and continued inflows to Treasuries.
Fixed Income Mostly Higher
The Bloomberg Aggregate Bond Index ended the week modestly higher, reversing five straight weeks of declines. High yield bonds also gained ground following last week’s decline as credit conditions tighten and defaults climb.
Since the end of 2021, investment grade (IG) and high yield (HY) bond yields have more than doubled and the incremental increase in coupon payments is the largest since 2010. With a historically low share of IG-rated bonds maturing within the next two years, however, we believe the incremental hit to coupon payments should be manageable, especially when combined with a strong fundamental backdrop.
Oil prices ended lower as the major metals (gold, silver, and copper) finished the week positive. Oil prices are now down for a second weekly loss in a row on improving supply conditions as the economic picture in China, the world’s largest importer of oil, remains weak. Silver had a good week amid recent short covering for the metal given increasing bearish sentiment.
Economic Weekly Roundup
In a highly-anticipated speech at Jackson Hole, Federal Reserve Chairman Jerome Powell made comments concerning economic conditions and monetary policy. Powell noted that the economy has been growing faster than expected and that consumers have kept up spending leading to trends that could keep inflation pressures high. Moreover, Powell also reiterated the Fed’s policy to keep its benchmark rate elevated until price increases are reduced to the central bank’s original 2% target.
July German Producer Prices
July German producer prices declined more than economists expected, which represents their first decline in over two-and-a-half years. In addition, the decline was the sharpest seen since October 2009 as easing energy prices added to the decline in producer prices.
Eurozone / UK Purchasing Manager Index
Eurozone’s August flash PMI declined to its lowest level since November 2020 as the services sector fell into contraction for the first time this year. In addition, the U.K. flash PMI came in weaker than expected, declining to its lowest level since January 2021. This week’s purchasing managers’ indexes complicates the European Central Bank’s decision as they wish to control inflation without causing a recession.
U.S. Existing Home Sales
U.S. existing home sales declined to a six month-low in July as home owners who are locked into lower-rated mortgages withheld from selling their properties while the cost of new mortgages are at highest levels in decades. Home sales declined in the Northeast, Midwest and South, however they increased in the West, where home prices have fallen most sharply in the past year.
Weekly Employment Report
Initial claims for the latest week came in just below economists’ consensus expectation along with the prior week’s print. Meanwhile, continuing claims, which are tallied with a one-week lag relative to initial filings, were above consensus but below the prior week. We believe the labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the Fed’s tighter monetary policy.
The following economic data is slated for the week ahead, in addition to another 170 S&P 500 companies reporting second quarter earnings:
- Tuesday: FHFA Home Price Index (Jun), S&P/Case-Shiller Home Price Index (Jun), consumer confidence (Aug), JOLTS Job Openings (Jul)
- Wednesday: ADP Employment Survey (Aug), GDP (Q2), wholesale inventories (Jul), pending home sales (Jul)
- Thursday: Weekly initial and continuing unemployment claims, BEA Total Vehicle Sales (Jul), personal consumption expenditures (Jul), core personal consumption expenditures (Jul), personal income (Jul)
- Friday: Hourly earnings (Aug), average workweek (Aug), manufacturing payrolls (Aug), private non-farm payrolls (Aug), August Unemployment Report, S&P Global PMI Manufacturing (Aug), construction spending (Aug), ISM Manufacturing (Aug)
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