August 17, 2020

Weekly Market Commentary August 10th to August 14th 2020

Consumer Prices in the U.S. rose more than anticipated at 0.6% in July; a 1.0% increase on a year-on-year basis. The monthly figure was the same for the Core reading (excluding food and energy) to 1.6% year-on-year. The monthly jump was driven by a 9.3% spike in auto insurance prices (so much for the one-time pandemic discount many provided), 5.4% rise in airfares, and 3.6% for wireless services. The rise in Core CPI was the largest monthly move in decades and will likely be front and center of discussions at the next FOMC meeting. Producer Prices were higher in the month by 0.6% and 0.5% for Core as well, led higher by a recovery in energy and trade service prices.

Weekly Jobless Claims dropped below 1 million (to 963k) for the first time in 20 weeks since the pandemic lock downs. Continuing Claims also decreased. While still remarkably high at 15.5 million, the number of workers collecting unemployment pulled back to the lowest level since early April. The pullback was potentially impacted by the roll off of the incremental $600 per week supplemental stimulus benefit, reduced to $300 per week through the President’s executive order last week after the breakdown of bipartisan stimulus negotiations.

Retail Sales rose by 1.2% in July, the third monthly increase. While the headline number was below consensus expectations, sales growth excluding autos and gasoline was marginally better at +1.5%. Electronics sales (+23%) were far and away the strongest, with clothing purchases increasing by 6%.

The S&P 500 Index broke a seven-day winning streak on Tuesday before advancing further to a new record intraday high, the first since before the shutdown. In a back and forth week, the broad-based U.S index ended only marginally higher by 0.6% to 3,372. The technology-heavy NASDAQ Index finished higher by 0.7%

Selling pressure that had driven up the yield on the 10-Year U.S. Treasury subsided mid-week after a successful $38 billion action of new issue 10-Year Notes. The 30-Year auction did not draw as much interest later in the week. The bellwether 10-Year closed the week higher by 14 basis points to 0.71%.

Key economic releases for next week include housing data on Existing Home Sales, Housing Starts and Building Permits along with the closely watched Weekly Jobless Claims.