Now 7 weeks’ old, this rally is showing its age. Can it continue to deliver weekly gains?
Two weeks ago markets were mediocre until Friday’s jobs report offered enough optimism that the economy is still on the right trajectory. At the release of the repot markets surged allowing an advance for the week. This last week the same occurred regarding market activity, but for different reasons.
Through-out the week little data was released to drive market activity drastically in either direction. Come Friday a swath of data came out showing weakness in the economy and the markets jumped…
That is right, they advanced…
With the economy showing short-term weakness, the likelihood of a Federal Reserve Board (FRB) rate hike was reduced.
US Data
Non-farm productivity fell for the 3rd consecutive quarter. This calls into question future employment costs and revenue for corporate America. Continuing the theme of a strong job market, the JOLT’s report came out higher than expected with 5.624M jobs available[1]. Increased opportunities could further increase the participation rate. This factor keeps the unemployment rate slightly elevated.
Then there was Friday… Retail sales didn’t grow month over month in July, consumer sentiment did not meet expectations, and producer prices fell .3% in July[2]. All of these can shift into a positive direction in a short period of time. The soft data was enough to bring optimism that FRB policy will likely remain loose for longer than originally thought.
International
The UK is struggling to raise the bond purchasing they intended. The reservation by sellers is thought to be a reluctance in giving up higher yielding gilts[3]. This difficulty pushes rates even lower as demand (all be it artificial) is outpacing supply.
Eurozone GDP expanded 1.6% year over year during the 2nd quarter. These improvements may be lost in the Brexit process. As it stands today the Brexit may get dragged out as long as 3 years, causing any economic fallout felt to become muddied over time… This is probably the best way to keep the exit from causing a deep immediate reaction.
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[1] www.investing.com – economic calendar
[2] www.investing.com – economic calendar
[3] www.mfs.com – week in review