Quietly Higher
The major domestic equity indexes closed higher last week after a modest pullback on Friday followed a series of new closing highs set earlier in the week. Within the S&P 500, the real estate sector outperformed, while energy shares fell sharply as concern about global growth prospects seemed to grow.
Stocks got off to a good start Monday, as traders welcomed some apparent progress in U.S.-China trade negotiations at the G-20 summit last weekend. Semiconductor stocks were particularly strong after President Trump agreed to ease a ban on sales of chips to Chinese telecommunications giant Huawei Technologies. The large-cap indexes added modestly to their gains on Tuesday, when White House Trade Advisor Peter Navarro told CNBC that talks with China were heading in “a very good direction,” although he cautioned that a deal “will take time and we want to get it right.”
The week’s economic calendar was relatively light but seemed, initially, to confirm that growth was slowing globally, a pattern that traders had seemed to welcome in recent weeks because it could point toward a dovish turn in monetary policy and lower interest rates from the Fed. Manufacturing gauges released Monday indicated weak or even contracting activity in many regions, although most U.S. readings surprised modestly on the upside. Gauges of U.S. service sector activity, released Wednesday, were mixed, and ADP’s survey of private payroll gains in June came in somewhat below consensus expectations.
On the other hand, Friday’s June payrolls report from the Labor Department came in well above expectations, suggesting that the U.S. economy maintained considerable momentum. Traders who weren’t celebrating a long holiday weekend (probably junior ones) seemed uncertain about how to interpret the news. Stocks fell back in the first two hours of trading, as worries apparently grew that the Fed would not cut rates as much as investors hoped it would in the second half of the year. Stocks recovered a portion of their losses later in the day, however, as traders may have reconsidered some of the underlying data in the report. Average hourly earnings gains came in a bit below expectations, and weekly hours worked moved back to near a two-year low.
Longer-term U.S. Treasury yields moved higher (and prices lower) following the positive jobs news, with the yield on the benchmark 10-year U.S. Treasury note jumping roughly 10 basis points over the previous trading day’s close.
Overseas, the pan-European STOXX Europe 600, the UK’s FTSE 100, and the exporter-heavy German DAX all rose slightly last the week amid increased hopes that the ECB will supply fresh rounds of monetary stimulus to keep the region’s slowing economies afloat. Stocks got a further boost and bonds rallied after the IMF’s Christine Lagarde was nominated to be the next ECB president. She is expected to continue the loose monetary policy of current President Mario Draghi when Draghi leaves the bank at the end of October.
Chinese stocks posted a weekly gain, as traders reacted with relief to the temporary cease-fire on tariffs struck by President Trump and his Chinese counterpart Xi Jinping last weekend, but the absence of any news about the resumption of talks tempered optimism about a lasting solution. Japanese stocks also rose last week, with the Nikkei 225 gaining 2.21 percent.
From the headlines…
The U.S. Department of Labor reported that our economy added 224,000 jobs in June, far more than the 165,000 economists were expecting, while the unemployment rate edged slightly higher to 3.7 percent and wages grew at an annualized pace of 3.1 percent. Still, the news might not be as good as the top-line number suggests.
If the ability to learn from mistakes is an essential quality in a great leader, then Christine Lagarde has the potential to be an excellent president of the European Central Bank.
Despite the market boom, too many are still struggling to get by.
Yields on sovereign debt have dropped to multiyear or record lows in many places across the globe, but in China they are roughly where they were at the start of the year.
The U.S. has entered the longest economic expansion in its history. How much longer can it run?
The U.S. trade gap widened in May despite a new round of tariffs on Chinese goods.
The president has two new Fed nominees – one conventional and one not.