U.S. stocks were little changed last week while bond yields rose after the Federal Reserve was noncommittal about the timing of its next monetary policy move.
All three major equity indexes finished the week about unchanged in another quiet mid-summer trading session. Government bond yields rose about 6-7 basis points on the long end as prices gave back some of their gains from the previous week. The benchmark 10-year Treasury note ended the week at 1.58%, versus 1.51% the prior week.
The minutes of the Fed’s July monetary policy meeting, released last week, provided little guidance on when the central bank may resume raising interest rates. “Members generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labor market and economic activity,” the minutes said. While “the prompt recovery of financial markets following the Brexit vote and the pickup in job gains in June had alleviated two key uncertainties about the outlook,” the minutes added, “members judged it appropriate to continue to leave their policy options open.” That announcement undercut comments made the day before by New York Fed President William Dudley, who said the economy was strengthening and that a rate hike at the Fed’s next meeting in September “is possible.”
Indeed, U.S. economic reports released last week were mostly positive. Industrial production for July jumped by a stronger than expected 0.7%, its second straight increase and its biggest advance in two years. Leading indicators were also better than expected, rising 0.4% following June’s 0.3% increase. In the housing sector, indicators were mixed. Housing starts rose a little more than 2% to an annual rate of 1.2 million, beating forecasts, although that was down from June’s 5.1% gain. Building permits held largely steady at 1.15 million, while the National Association of Home Builders confidence index for August rose a bit to 60 from 59. On the inflation front, consumer prices were flat for July. Jobless claims continued to tick downward. Two regional Federal Reserve bank indexes were mixed. The Philadelphia Fed’s business index moved into positive territory in August while the New York Fed’s index fell back into negative terrain.
Outside the U.S., stock and sovereign bond prices were mostly lower. The Stoxx Europe 600 and Germany’s DAX both fell about 1.6% for the week but other major national indexes dropped even more. Japan’s Nikkei 225 fell 2.2% despite a report showing that the Bank of Japan is poised to be the biggest shareholder of 55 companies in the index within the next two years; the central bank has been buying exchange-traded funds to try to boost the economy. So far that’s not working: second quarter GDP rose at an annualized rate of just 0.2%, or basically flat. In the bond market, benchmark 10-year German and Japanese government bond yields crept closer to zero; the yield on the bund jumped eight basis points to -0.03% while the Japanese bond rose two bps to -0.09%.
Reports/dates/facts/links worth paying attention to over the next week:
1. August 22: Chicago Fed national activity index for July.
2. August 23: New home sales for July.
3. August 24: Existing home sales for July.
4. August 25: Weekly unemployment claims; durable goods orders for July; the Kansas City Fed hosts its annual monetary policy symposium in Jackson Hole, Wyoming.
5. August 26: Second quarter GDP, first revision; Federal Reserve Chair Janet Yellen speaks at Jackson Hole symposium; University of Michigan consumer sentiment index for August, second reading.
First Perspectives 