Week in Review July 7, 2017
A stronger than expected June jobs report pushed stock prices higher on Friday, enough to boost the major indexes into the green for the week.
NASDAQ gained 1% on Friday to end the week with a 0.2% gain. The Dow rose 0.4% on the week after rising 0.4% Friday, while the S&P 500 was nudged slightly into positive territory for the week following Friday’s 0.6% gain. The Labor Department said nonfarm payrolls rose by 222,000 last month, beating the consensus forecast by more than 50,000, while the April and May numbers were revised upward by a combined 47,000. The unemployment rate inched up to 4.4%, while the labor force participation rate rose a notch to 62.8%. The only down note in the report was a weak 0.2% increase in average hourly earnings, mitigated by a slight gain in average hours worked. European stocks were higher for the first time in five weeks, with the Stoxx Europe 600 gaining 0.2% for the week despite a slight loss on Friday. The major Asian indexes were mixed.
Long-term sovereign bond yields continued to rise sharply on expectations that central banks, primarily the European Central Bank, will be pulling back on stimulus measures. In the U.S., the yield on the benchmark 10-year Treasury note jumped another eight basis points to close the week at 2.38%, up 24 bps in the past two weeks and hitting its highest level in nearly two months. In Europe, the yield on the benchmark 10-year German bund ended Friday at 0.58%, up more than 32 bps over the past two weeks and closing at its highest point since early 2016.
The minutes of the Federal Reserve’s June 13-14 meeting showed a division among Fed members about when the central bank should start unwinding its $4.5 trillion bond portfolio. Immediately after that meeting, the Fed announced that it planned to start the process by letting up to $6 billion in Treasury securities and $4 billion in mortgage bonds run off as they mature, then gradually increase those amounts to $30 billion a month for Treasurys and $20 billion for mortgage-backeds. But the more detailed minutes said that “several” members wanted to start the process “within a couple of months,” while “some others” favored “deferring the decision until later in the year.” Regarding interest rates, “participants generally reiterated their support for continuing a gradual approach to raising the federal funds rate,” the minutes said. The Fed raised the fed funds rate by 25 basis points at the June meeting, with only one dissent.
In addition to the jobs reports, several other economic reports were released last week. The Institute for Supply Management’s purchasing managers’ indexes for June both came in better than expected. The manufacturing index jumped nearly three points to 57.8, well above forecasts, while the nonmanufacturing index, which covers most of the economy, rose a half point to 57.4, almost a point better than the consensus forecast. A separate report from the government said factory orders fell 0.8% in May. Construction spending was flat, led by a 0.6% decline in residential spending. Auto sales continued to show signs that the boom in car sales has peaked. Both GM and Ford reported more than 5% sales declines in June while J.D. Power and Associates said overall industry sales for the first half were down about 2% compared to the same period last year, pushing the industry’s selling pace to its lowest level in three years.
Reports/dates/facts/links worth paying attention to over the next week:
1. July 10: Consumer credit for May.
2. July 12: Federal Reserve Chair Janet Yellen gives her semiannual monetary policy testimony before the House Financial Services Committee; Fed Beige Book.
3. July 13: Weekly unemployment claims; Yellen to testify before the Senate Banking Committee; producer price index for June.
4. July 14: Consumer price index for June; retail sales for June; industrial production for June; University of Michigan consumer sentiment index for July, first reading.