Market Update: Friday, July 15, 2016


  • Markets mixed but set to post strong week. Domestic equities are little changed in early trading after the Dow and S&P 500 both moved higher into record territory yesterday; helped by strong earnings from Dow component JP Morgan, rising oil prices, and expectations for added monetary stimulus overseas. Better than expected Q2 GDP data out of China buoyed sentiment in Asian markets overnight and pushed major indexes to levels not seen since last November; the Nikkei posted its largest weekly gain in more than six years. European indexes are down in midday trading, however, in the wake of another terrorist attack in France, though off session lows. Broad risk-on sentiment is pushing government debt lower; including U.S. Treasury notes as yields are near 1.59%, and safe-haven currencies, particularly the Japanese yen, have gotten pummeled this week as investors have gravitated back to risk assets. WTI crude oil is moving higher, while COMEX gold is moving lower and is poised for its first weekly decline in the last seven.


  • China activity stabilizes on government stimulus. Late last year and early this year, China’s erratic policy responses to a weakening economy, sagging property prices, and plunging equity markets added to the list of global imbalances. Since then ‒ in the wake of a large dose of fiscal and monetary stimulus ‒ China’s economy has stabilized. Q2 GDP, reported last night, posted a 6.7% year-over-year gain, exceeding expectations (+6.6%) and matching the Q1 reading. June data on industrial production, retail sales, bank lending, and money growth followed the same pattern as GDP beating expectations and accelerating from May. Markets are now asking what happens after the stimulus fades?
  • Retail sales exceed expectations in June; consumer spending will be a big plus for Q2 GDP. Retail sales excluding gasoline, autos, and building materials raised a better than expected 0.5% in June and rose 7.4% in Q2 after a 2.8% increase in Q1. While the quarterly pattern is distorted, the retail sales data in Q1 and Q2 suggests 5%+ consumer spending growth in 1H 2016,which is well supported by record household net worth, a solid labor market, rising wages, low interest rates, and rising home prices. Q2 GDP is due out at the end of July.
  • Consumer prices edge higher, led by services. Headline CPI rose 1.0% year over year in June, while core CPI rose 2.3%. Beneath the surface the CPI for services (2/3 of CPI) have posted a 2.8% gain over the past year while the CPI for goods (1/3 of CPI and largely driven by gasoline prices) fell 2.0%. As we anniversary the worst of the oil price declines in Q3 and Q4, the goods category will turn positive and drive headline inflation close to 2.0% or higher.
  • Lots of post Brexit data next week plus a big week for earnings. July (post Brexit) readings on manufacturing, homebuilders sentiment, and initial claims next week will compete for attention with more than 100 earnings reports from S&P 500 companies and the Republican National Convention. It’s a quiet week for the Fed ahead of the July 26-27 Federal Open Market Committee (FOMC) meeting, but the European Central Bank’s (ECB) meeting will be watched closely, as it’s the first post Brexit meeting for the ECB. The week ends with a meeting of the G-20 Finance Ministers in China.
  • More “better than feared” results from the big banks. The latest crop of bank earnings suggests traditional banking is healthy with solid loan growth, generally stable credit quality metrics, and solid expense management. While interest rate pressures remain intense, fundamentals could be near a trough and, as we noted yesterday, financials could be poised to reverse recent lagging performance.
  • Additional new highs. The S&P 500 closed at another new all-time high yesterday, the fourth new high in a row and fifth daily gain in a row. November 2014 was the last time it made new highs four straight days and that streak made it to five in a row. The S&P 500 hasn’t been up six consecutive days this year, in fact, it hasn’t been up six in a row for two years. Should the S&P 500 gain today, it would be higher all five days this week. The last time that happened was June 2014. Taking a step further, should today be higher, then all five days this week will be new all-time highs. That hasn’t happened since March 1998. In fact, that rare feat has only happened 11 times since 1950.
  • Strong week for equities. With a day to go, the S&P 500 is up 1.6% for the week – which would be the third straight weekly gain of more than 1% or more. It had an incredible streak of five in a row coming off of the February lows, with June 2014 the last time it gained 3% or more before that. So far for the week materials, financials, and small caps have led.




  • China: Property Prices (Jun)

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