U.S. and International Equities
All major market indexes ended the shortened trading week lower. The real estate sector was the only sector that ended in the green despite commercial real estate risk and rising interest rates. Developed international equities detracted given concerns over the economic climate in Europe following weak economic reports from Germany. Communication services performed relatively well this week as Meta released Threads, a rival to Twitter, this week. The new platform received much fanfare as 70 million subscribers signed up for the service one day after launch.
Fixed Income Lower
The Bloomberg Aggregate Bond Index finished lower for the third straight week following Powell’s hawkish congressional testimony two weeks ago and this week’s FOMC minutes. High-yield credit ended the week in the red.
Default activity was elevated again in June and raised the high-yield bond and leveraged loan default rates to an all-new 2-year high. Specifically, five companies defaulted and seven completed a distressed exchange during the month totaling $4.8 billion in bonds ($2.1 billion default, $2.7 billion distressed exchange) and $4.3 billion in loans ($2.6 billion default, $1.7 billion distressed exchange). For context, a monthly average of $8.7 billion of bonds/loans have been affected by default/distressed exchange activity in 2023 versus $2.6 billion across 2021/22 and $4.1 billion post-Great Financial Crisis (2010-today).
Energy prices ended mixed this week. The major metals (gold, silver, and copper) finished the week higher. Gold prices this week rebounded after reaching more than a three-month low two weeks ago, as traders are concerned about the metal’s prospects amid the Federal Reserve’s hawkish outlook.
Economic Weekly Roundup
June U.S. Manufacturing
June manufacturing activity shrank for the eighth consecutive month, as the ISM Manufacturing report posted its lowest reading since May 2020. Highlights from the June ISM Manufacturing report on Business: Future demand appears sluggish as new orders continue to decline. Employment in manufacturing declined in June as firms dial back demand for labor as the economy slows. Purchasing managers indicated they are in a buyers’ market as raw material prices fell in June. New export orders also declined in June as international economies, such as Germany, are weakening.
June Germany Manufacturing
Germany’s manufacturing sector contracted at the fastest rate in more than three years last month. Moreover, the decline also marked the fifth straight month of contraction. Consistently weaker demand is the main driver of the recent decrease in manufacturing output as traditional customers across Europe and the U.S. have reduced purchases in recent months. Investors should know that although this contraction signals greater worries for global demand and highlights issues within the manufacturing sector, firms have not yet begun large-scale cost-cutting measures.
Weekly and Monthly Unemployment Reports
Initial claims for the latest week came in above economists’ consensus expectation and higher than the prior week. Meanwhile, continuing claims, which are tallied with a one-week lag relative to initial filings, were below both the prior week’s levels and economists’ expectation. The labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the Fed’s tighter monetary policy.
US government data showed employers added 209,000 jobs in June, below expectations but still a healthy pace of employment growth. The unemployment rate dipped to 3.6%.
The following economic data is slated for the week ahead:
Monday: Wholesale Inventories (May), Consumer Credit (May)
Tuesday: NFIB Small Business Index (Jun)
Wednesday:June Consumer Price Index, Hourly Earnings (Jun), Average Workweek (Jun)
Thursday: Weekly Initial and Continuing Unemployment Claims, Producer Price Index (Jun), Treasury Budget (Jun)
Friday: Export/Import Price Index (Jun), Michigan Sentiment (Jul)
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