Timothy D. Carkin, CAIA, CMT Senior Vice President
U.S. markets took Monday off to celebrate the 240th anniversary of our “Brexit.” Equity markets started the week by selling off while digesting cautious tones from the Bank of England. That news was counteracted Wednesday with a surprisingly positive ISM Service Index reading and was reinforced with a surge in non-farm payrolls on Friday. As the week came to a close, the S&P 500 had rallied 1.3 percent, nearing its all-time high set last May. International equity markets have not fared so well, falling one percent. The U.S. 10-year Treasury note set a new low on July 6 of 1.368 percent. The juxtaposition of the highs in equities and the lows in yields illustrates the markets’ concerns regarding global growth and the relative strength of the U.S. economy. The U.S. dollar also strengthened 0.7 percent relative to major currencies.
Strength at Home
This morning, the Department of Labor non-farm payroll numbers surprised the market with a reading of 287,000 for June, handily beating consensus expectations of 180,000. While this number is a solid blowout, it follows an equally surprising miss to the downside last month, which was revised even lower. These readings make great headlines, because the month-to-month numbers can bounce around. However, as you can see in the chart below, the average has trended down in recent months. The Fed will definitely be watching for solid readings in July and August for confirmation of a stable recovery in employment growth before they can consider a rate hike.
On the international front, the news has been weighing down the markets. Today’s U.K. consumer confidence reading, the first since the “Brexit” vote, experienced the sharpest drop in two decades. The chief of Bank of Italy said public intervention may be necessary to prevent problems impacting confidence in their banks. Japanese business confidence came in and recorded another drop in June, taking it further into negative territory. As global investors look for a safe haven, U.S. Treasury bonds have rallied, leading to new lows in yields.
Our Takeaways for the Week:
- U.S. equity markets are at highs and bond rates fell to new lows
- Globally, slowdown fears show the U.S. is the best place to be now