Despite improving economic data, the S&P 500 finished the week flat. Solid global PMI’s continue to move interest rates higher around the world. 10-year yields in Germany hit an 18-month high, and the 10-year U.S. Treasury finished the week at 2.39 percent. Just 11 days ago the benchmark U.S. rate was at 2.13 percent.
In an ironic twist of fate, a sitting communist president comes out in support of free trade in a direct jab at protectionist rhetoric originating from the U.S. president at the G20 economic summit in Hamburg, Germany. This summit comes at a time when world trade is accelerating and growth prospects around the world look better than they have in several years.
Today’s employment report reflects that reality. The labor department reported today that the U.S. created 222,000 jobs in June, which was much better than Factset consensus of 177,000. The disappointing part of the report was wage growth at only .2 percent month-over-month. The U.S. economy continues to grow at a steady pace.
Normally at this point in an economic expansion inflation would be accelerating, and the Fed would be raising rates to combat it. However, this cycle has been marred in a battle against deflation. Fear of a Japanese-style deflation has haunted U.S. and European markets for the past several years. However, these fears appear to be unfounded. We may finally be at the point where deflation is no longer a fear, and global interest rates are starting to signal that the expansion is accelerating.
While the G20 summit will dominate headlines over the next few days, we doubt that anything said or debated will do anything to derail this slow and steady economic expansion in the coming months.
Our Takeaways for the Week
- Interest rates are starting to reflect the global economic expansion
- Protectionist rhetoric has placed the U.S. on the opposite side of the globalization table from the rest of the G20