U.S. and International Equities
Markets Finish Lower
Markets finished lower for a third straight week. The S&P 500 Index is down more than 8% from its mid-August peak after the index rallied 17% off its mid-June low. Federal Reserve (Fed) Chairman Powell’s foremost commitment to fighting inflation caused investors to take risk off the table. The AAII Investor Survey showed that the percentage of bulls fell almost 6% in the prior week to 21.9%, marking an eight-week low and the 41st consecutive week below the 38% historical average.
Fixed Income Lower
The Bloomberg Aggregate Bond Index finished the week lower along with high-yield corporate bonds, as tracked by the Bloomberg High Yield index. Bonds lost ground, following last weeks’ selloff, as investors reassess the direction of rates given last week’s hawkish comments.
Amid continued energy supply concerns in Europe from the Eastern European conflict, natural gas finished lower this week. The metals had poor performance as global demand remains a concern amid the softening economic landscape in China and Europe. West Texas Intermediate oil lost ground again this week as U.S. gasoline prices are set to decline for a 12th straight week, a major benefit for consumers.
Down on the Farm…
Bloomberg reports that agricultural costs in the U.S. have increased by 18% this year, representing the largest jump ever, as the world looks to the U.S. for agriculture exports given the Eastern European conflict which is adversely affecting Black Sea grain shipments. Corn and wheat prices, which have come down from highs reached in May, are up over 8% and 3% respectively, over the past month.
Economic Weekly Roundup
Eurozone inflation reached 9.1% for the month of August, largely driven by rising energy prices. Food and alcohol, clothing, household appliances, cars, and services all rose year-over-year and accelerated from last month. The elevated inflation print increases the odds of the European Central Bank (ECB) materially raising rates next week.
China’s Manufacturing PMI contracted for the second consecutive month but rose slightly from last month, while Non-Manufacturing PMI declined but remained in expansion. Composite PMI declined month-over-month as the economy continues to show signs of weakness driven by zero-COVID-19 lockdowns.
Weekly Employment Report
Initial claims for unemployment insurance for the latest week came in below the prior week while, continuing claims increased from the prior week. Labor market conditions remain tight even though there are signs of slowing job growth increasing layoffs, and higher unemployment.
August payrolls increased by 315,000 as the unemployment rate ticked up to 3.7%. The labor market is moving in the right direction for policymakers. An uptick in unemployment along with a modest increase in the participation rate means that the labor market in August was less tight than it was in the prior month.
The following economic data and potentially market-moving events are slated for the week ahead:
- Tuesday: PMI composite (Aug), ISM services PMI (Aug)
- Wednesday: Federal Reserve Beige Book, trade balance (Jul)
- Thursday: Weekly initial and continuing unemployment claims, consumer credit (Jul)
- Friday: Wholesale inventories (Jul)
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