After a couple of weeks of uncertainty and crisis, global equity markets got what they needed to resume an uptrend. Chinese authorities delivered a pristine, +7.0% annualized second quarter GDP beat and several more rounds of liquidity for troubled equity markets, while the Shanghai Composite appeared to calm down. Iran and the US brokered an historic deal to put Tehran’s nuclear program on ice in exchange for sanctions relief. Just a week after the Greek referendum rejected Europe’s terms for a new bailout, the leaders of Greece accepted even harsher terms. The irony has been lost on nobody and political forces on all sides are struggling over terms, however markets clearly like the idea of leaving behind Greek headline roulette. The dollar soared, with EUR/USD headed for four-month lows around 1.0800, and USD/JPY back at 1.2400. Fed officials reiterated they were at the very cusp of rate hikes, followed close behind by the BoE, as Governor Carney said the decision on rate tightening would come into focus near year end. WTI crude is back near $50 and gold is at five-year lows below $1,150. Treasury curves flattened as buyers congregated at the long end for both US Treasury and German Bund markets. The US benchmark 10-year yield declined some 5 basis points on the week. For the week, the DJIA added 1.8%, the S&P gained 2.4%, and the Nasdaq surged 4.3%.

The June US advanced retail sales report zigzagged lower from the decent May gain. June retail sales were -0.3% and May retail sales were revised downward to +1.0% from a previous estimate of +1.2%. Eight out of 13 categories reported a sales drop. The June PPI report supported the narrative of accelerating US inflation levels, with all components of the report topping expectations. Note that the headline y/y PPI measure remains in negative territory, but the trend of a gradual uptrend toward positive growth remains on track. The New York Fed’s Empire State manufacturing survey rebounded in July, rising to +3.9 from -2 in June.

The NAHB index of homebuilder confidence for July hit levels last seen in November 2005, at the height of the housing bubble, flat with the adjusted June level. Housing starts in June rose 9.8% to a 1.17 million annualized rate from a revised 1.07 million in May that was stronger than previously estimated. Multifamily starts jumped 29%.

Fed Chair Yellen gave her semi-annual Congressional testimony on Wednesday and Thursday. Yellen basically repeated her well-known stance, reiterating that while the FOMC would most likely begin tightening rates later this year, it was the expected path of interest rates that really mattered not the size or timing of the first hike. “We are close to where we want conditions to be for a rate increase, and where the economy can not only tolerate higher rates but will need them,” said Yellen. On the jobs front, Yellen again noted that labor market conditions are not yet consistent with full employment and said some slack remains in labor markets. Ahead of Yellen’s testimony, Fed dove Williams reiterated that September was a very plausible time to begin rate hikes.

Continue reading “Futures Levels & Economic Reports 7.21.2015”