Positive Economic Data Lifts Stocks…..

U.S. equities rallied heading into the weekend, but the bounce wasn’t enough to keep the major indexes out of negative territory for the week. The markets digested a host of economic and earnings data. June retail sales rose more than expected, consumer sentiment improved from record lows, July manufacturing output in New York surprisingly jumped into expansion territory, and import price inflation came in cooler than expected. However, not all the data was upbeat as industrial production and capacity utilization came in below forecasts. The Street reacted positively to Q2 earnings season as it started to heat up. Wells Fargo & Company missed expectations but offered favorable net interest income performance and guidance, while Citigroup topped forecasts, along with Dow component UnitedHealth Group. Treasuries were higher following the data, to apply downside pressure on yields, and the yield curve inversion remained intact. The U.S. dollar pulled back somewhat but remained at multi-decade highs following a recent rally. Gold was lower and crude oil prices were solidly higher. Europe was higher to close out the week, while Asia finished mixed, with China and Hong Kong falling after a softer-than-expected Chinese Q2 GDP report.

The Dow Jones Industrial Average rallied 658 points (2.2%) to 31,288, the S&P 500 Index increased 73 points (1.9%) to 3,863, and the Nasdaq Composite rose 201 points (1.8%) to 11,452. In moderate volume, 4.1 billion shares of NYSE-listed stocks were traded, and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.81 to $97.59 per barrel. Elsewhere, the gold spot price nudged $2.60 lower to $1,703.20 per ounce, and the Dollar Index lost 0.4% to 108.10. Markets were lower for the week, as the DJIA shed 0.2%, the S&P 500 fell 0.9%, and the Nasdaq Composite lost 1.6%.

Retail sales top forecasts, import prices cool, July consumer sentiment improves from record low…..

Advance retail sales for June rose 1.0% month-over-month (m/m), versus the Bloomberg consensus forecast of a 0.9% rise, and compared to May’s positively-adjusted 0.1% decrease. Last month’s sales ex-autos also gained 1.0% m/m, compared to expectations of a 0.7% rise and as May’s figure was revised higher to a 0.6% increase. Sales ex-autos and gas were up 0.7% m/m, topping estimates of a 0.1% rise, while May’s reading was adjusted lower to a 0.1% dip. The control group, a figure used to calculate GDP, advanced 0.8% m/m, versus projections of a 0.3% increase, and following May’s negatively-revised 0.3% decrease.

The report showed solid gains for nonstore retailers—including online activity—as well as motor vehicles, furniture, food services and drinking places, and sporting goods. However, sales at gasoline stations led the way, reflecting the surge in gas prices. Building materials, clothing, and health & personal care sales all moved lower.

In other consumer related news, the preliminary University of Michigan Consumer Sentiment Index for July showed that sentiment unexpectedly improved, rising to 51.1 from June’s final reading of 50.0, where it was expected to remain. The index moved off a record low as a continued deterioration in the expectations component of the report was more than offset by solid improvement in the current conditions portion. The 1-year inflation forecast dipped to 5.2% from 5.3% in June, versus expectations that it would hold at June’s level, and the 5-10-year inflation outlook also declined to 2.8%, from 3.1%, compared to forecasts of a dip to 3.0%.

The Empire Manufacturing Index, a measure of activity in the New York region, showed the index unexpectedly jumped back into a level depicting expansion (a reading above zero) this month. The index rose to 11.1 from the -1.2 reading posted in June and compared to estimates of a decline to -2.0.

The Import Price Index rose 0.2% m/m for June, versus estimates of a 0.7% gain, and compared to May’s downwardly-revised 0.5% gain. Versus last year, prices were up by 10.7%, well below forecasts of an 11.4% increase and May’s downwardly-revised 11.6% rise. Import prices excluding petroleum were down 0.4% m/m, versus estimates to rise 0.2%.

The Federal Reserve’s report on industrial production showed a 0.2% m/m decrease in June, compared to estimates of a 0.1% gain, and versus May’s downwardly revised flat reading. The Fed said manufacturing output declined for a second-straight month but even so, it rose at an annual growth rate of 4.2% in Q2. The report also showed mining production rose solidly, but utilities output fell. Capacity utilization dipped to 80.0% from the prior month’s upwardly adjusted 80.3% rate, and versus forecasts of an increase to 80.8%. Capacity utilization is a 0.4 percentage point above its long-run average.

Business inventories rose 1.4% m/m in May, matching forecasts, after April’s upwardly-revised increase of 1.3%.

Treasuries were higher following the data. The inversion of the 2-year and 10-year notes continued, with the markets grappling with what the ultimate impact of an aggressive Fed to fight high inflation will be on the economy.

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