U.S. and International Equities
Major Indices Show Modest Weekly Declines as Delta Worries Mount
All major markets finished lower as the investor concerns over the Delta variant, Federal Reserve (Fed) tapering, and policy risk grew. The S&P 500 index was down each day of the holiday-shortened week, along with the prior Friday, posting its first run of 5 consecutive down days since February of this year. Developed international markets, as represented by the MSCI EAFE Index, outperformed the other major market indexes, although still posting a modest weekly decline.
Consumer Discretionary Shows Resilience with Weekly Gain
Consumer discretionary was the only S&P 500 sector that managed to finish the week up, buoyed late in the week by home building and housing-related retailers. Despite posting the largest weekly decline real estate remains the top-performing sector in 2021. Financials, communication services, and energy are all also leaders each with around 30% gains year to date.
Fixed Income and Commodities Recap
Natural Gas Soars, Bonds Post Modest Gains
The Bloomberg Barclays Aggregate Bond Index continued its modest rebound this week, as market concerns about weaker growth grew, but the year-to-date returns are still negative. Credit, as represented by the Bloomberg Barclays Credit Index, was the top-performing bond index this week and managed to get back into the green year to date. Natural gas again rallied, following a strong showing last week, as Hurricane Ida after-effects continued to limit potential future supply.
Economic Weekly Roundup
Delta, Supply Chain Issues and Inflation Weigh, Jobs Boost
Global growth, as measured by composite PMI, took a hit from COVID-19 and related supply chain issues. The global economy slowed during August but remained firmly in expansionary territory as the Composite PMI dipped 3.1 points to 52.6. Supply shortages, the spread of the Delta variant, and related supply-chain challenges were the primary drivers of the slowdown. Europe’s strong composite PMI at 59, led by Germany and Italy, was buoyed by high vaccination rates and a delayed reopening. China’s composite PMI tumbled 5.9 points to 47.2, its first contraction since April 2020, amid tighter pandemic restrictions. For comparison, the U.S. composite PMI slipped 4.5 points to a still-solid 55.4.
Producer inflation remained elevated with the headline Producer Price Index (PPI) rising 0.7% month over month in August, compared to the consensus forecast of 0.6% and July’s 1.0% increase. The year-over-year increase of 8.3% is a new series high (inception in 2010) and above the 7.8% reading the prior month. Supply chain bottlenecks, materials shortages and a tight labor market continue to put upward pressure on wholesale prices. But a peak in producer inflation may be near based on the supplier deliveries, order backlogs, and prices paid components of the Institute for Supply Management (ISM) manufacturing index.
Jobless claims continued to decline with initial claims for unemployment insurance, reported by the Labor Department, setting another pandemic low at 310,000. The reading was far better than economist’s expectations of 335,000, but continuing claims fell short of expectations while still declining from the revised prior week. Initial claims’ renewed decline since the middle of July helped to quell some fears about the labor market following the disappointing August jobs report. However, the reading still comes about 100,000 claims higher than the average for the pre-Covid-19 months of 2020.
Other highlights from this week’s economic calendar included:
- At its September monetary policy meeting, the European Central Bank (ECB) announced that it was leaving policy interest rates unchanged but it will “moderately” slow the pace of asset purchases. Yields on German Bunds were unchanged after the announcement which was largely reflected market expectations
- Federal Reserve’s (Fed) beige book showed sentiment declining, consistent with recent readings on consumer sentiment, but still elevated overall compared to typical mid-cycle levels.
The following economic data is slated to be released during the week ahead:
- Monday: August Treasury budget
- Tuesday: August CPI, hourly earnings, and average workweek
- Wednesday: August export/import price index and industrial/manufacturing production statistics
- Thursday: Weekly initial and continuing unemployment claims, August retail sales, July business inventories
- Friday: September University of Michigan sentiment
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