Busy Week Closes Out in a Lukewarm Session…..
U.S. equities finished mixed, but very near the unchanged mark, in a bumpy session that saw moves above and below the flatline. Another dose of positive economic data was unable to overcome the palpable uneasiness surrounding the persistent uncertainty regarding the timing, size and scope of a highly-anticipated new round of U.S. fiscal relief with the stalemate on Capitol Hill continuing. Retail sales, ex-autos, came in stronger than expected, industrial production continued to recover, Q2 productivity jumped, and consumer sentiment unexpectedly improved. In equity news, Applied Materials posted upbeat Q3 results and Q4 guidance, while Dow member Apple and Google are being sued by Fortnite creator Epic Games on app store guideline disputes. Treasury yields were mixed and the U.S. dollar resumed a soft patch, while gold was lower after a volatile week and crude oil prices dipped. Europe finished lower and markets in Asia closed out the week mixed.
The Dow Jones Industrial Average rose 34 points (0.1%) to 27,931, the S&P 500 Index inched nearly a point lower to 3,373, and the Nasdaq Composite declined 23 points (0.2%) to 11,019. In moderate volume, 716 million shares were traded on the NYSE and 3.5 billion shares changed hands on the NASDAQ. WTI crude oil shed $0.23 to $42.01 per barrel and wholesale gasoline gained $0.01 to $1.24 per gallon. Elsewhere, the Bloomberg gold spot price fell $10.57 to $1,943.14 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.2% to 93.13. Markets saw gains for the week, albeit slight, as the DJIA rose 1.8%, the S&P 500 increased 0.6% and the Nasdaq Composite advanced 0.1%.
Retail sales data mostly above forecasts in July, August consumer sentiment improves modestly…..
Advance retail sales for July rose 1.2% month-over-month (m/m), versus the Bloomberg forecast of a 2.1% increase after June’s upwardly-revised 8.4% jump. Last month’s sales ex-autos increased 1.9% m/m, compared to expectations of a 1.3% rise and June’s favorably-revised 8.3% gain. Sales ex-autos and gas were up 1.5% m/m, compared to estimates of a 1.0% increase, and June’s reading was adjusted upward to a 7.7% rise. The control group, a figure used to calculate GDP, rose 1.4% m/m, compared to projections of a 0.8% increase and versus June’s upwardly-adjusted 6.0% advance. Sales of clothing and health and personal care both rose solidly, while sales at electronics and appliance store surged over 20% m/m. Auto sales were lower, along with building materials and sporting goods, while nonstore retail sales—including online activity—grew modestly m/m and were up sharply y/y.
The August preliminary University of Michigan Consumer Sentiment Index improved slightly to 72.8 versus expectations of a dip to 72.0 from July’s 72.5 reading. The surprising increase for the index came as the current conditions component deteriorated by a smaller amount than projected and the expectations portion of the survey unexpectedly improved. The 1-year inflation forecast remained at July’s 3.0% rate, and the 5-10 year inflation forecast ticked higher to 2.7% from the prior month’s 2.6% level.
The Federal Reserve’s industrial production rose 3.0% m/m in July, matching estimates, and versus June’s upwardly-adjusted 5.7% gain. Manufacturing output rose 3.4%, continuing the solid rebound from April’s record drop, and utilities output grew 3.3%. Mining production also gained ground, increasing 0.8%. Capacity utilization improved more than expected to 70.6% from the prior month’s downwardly-revised 68.5% rate, versus forecasts calling for an improvement to 70.3%. Capacity utilization is 9.2 percentage points below its long-run average, but 6.4 percentage points north of the low set in April.
Manufacturing and retail sales data have been positive and painted a recovery picture to help the markets, but unemployment remains painfully elevated and still has a long road back to pre-pandemic levels.
Preliminary Q2 nonfarm productivity jumped by 7.3% on an annualized basis, versus expectations of a 1.5% increase, and following the favorably-revised 0.3% decrease seen in Q1. Unit labor costs also surged, rising by 12.2%, versus the forecast calling for a 6.9% gain. Unit labor costs were revised higher to an increase of 9.8% in Q1.
Business inventories fell 1.1% m/m in June, matching forecasts, and versus May’s unadjusted 2.3% drop.
Treasuries finished mixed, as the yield on the 2-year note lost 2 basis points (bps) to 0.14%, the yield on the 10-year note was flat at 0.70%, while the 30-year bond rate ticked 2 bps higher to 1.45%.
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