The Market Today

Today’s Calendar – Small Business Confidence Rebounds Despite Setbacks in Washington: The July NFIB Small Business Optimism index showed an unexpected bounce in business confidence, the first monthly improvement in the index since January.  Small business owners must be very optimistic in the current economic environment for confidence to have risen despite the recent failures of Washington to implement legislation.  In fact, firms expecting a better business climate rose from +33 to +37 while the outlook for higher sales rose from +17 to +22.  Along with that, expectations for hiring rose from +15 to +19 matching the highest level since 2003.  However, owners citing difficulty in filling those positions rose from +30 to +35, the highest level since 2000.  Despite the difficulty in filling vacant positions, the number of owners expecting to raise wages fell from +18 to +16.  Also of interest to the Fed, the percentage of small businesses raising prices rose from +1 to +8, the highest reading in two years.  At 9:00 a.m. CT, the JOLTs Job Openings and Labor Turnover report is scheduled to be released.

 

Overnight Activity – Stocks Soften as Currencies and Yields Remain Calm in Relatively Quiet Overnight Session: Sovereign yields are hovering near unchanged in another quiet overnight session. Currencies remain quiet and global equities have weakened in both Asia and Europe. European equities turned sharply lower in the last couple of hours after a more mixed session in Asia. An index tracking shares in the Asian-Pacific came close to eclipsing its cycle high but pulled back after softer-than-expected trade data from the world’s second largest economy. Data showed a slower pace of growth in both imports into and exports out of China. In the absence of much else, trade data was also the focus in Europe. Germany’s exports fell 2.8% MoM (exp. +0.2%) while imports dropped 4.5% (exp. +0.2%). Sovereign yields in Europe were mostly higher but only modestly so. Yields in France and Germany were less than 1 bp unchanged. Treasury yields are flat and near their lows of the day. Equity futures are weaker. The Dollar has drifted lower for a second day but is clinging to most of its gains following last Friday’s payroll data.

 

Yesterday’s Trading Activity – Dow Keeps on Keeping On with Ninth Straight Record Close: U.S. stocks climbed Monday with the Dow advancing for a tenth consecutive session to its ninth consecutive record close. The Dow’s 0.1% gain trailed 0.2% progress for S&P and a 0.5% rise for the Nasdaq. The S&P managed to finish at a new record high for the first time since July 26. Positive movements in the consumer staples stocks offset steep losses within the S&P’s energy sector. Energy faltered as oil prices slipped in a volatile session surrounding reports that Libya’s largest oil field was “back to normal” production and several oil producers were meeting to discuss compliance with the OPEC production cut agreement. The Dollar edged back Monday, paring only a small portion of Friday’s post-payroll jump. A flattening of the Treasury curve was almost imperceptible as the 2-year yield did not move from 1.35% while the 10-year yield lost 0.9 bps to 2.25%.

 

Bullard Sees No Need for Further Rate Hikes: St. Louis Fed President Bullard, who will not vote on policy again until 2019, remains consistent in his stance that there is no current need for any additional rate increases. He said, “The current level of the policy rate is likely to remain appropriate over the near term,” because, “Recent inflation data have surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target.” He also showed no concerns related to the unemployment rate returning to a 16-year low in July. Bullard said, “Even if the U.S. unemployment rate declines substantially further, the effects on U.S. inflation are likely to be small.’’ Nonetheless, he supports “getting going” on normalizing the balance sheet.

 

Kashkari Says Less Immigration, Less Growth: Minneapolis Fed President Kashkari, known for his candid commentary and straightforward responses, didn’t disappoint in his Monday remarks. When asked about a White House proposal on limiting immigration, Kashkari responded, “Do we want economic growth, or not? That’s what it comes down to…Just going to math, if a big source of economic growth is population growth, and your population growth slows, either because you restrict immigration or because you have fewer babies, your economic growth is going to slow.” As to monetary policy, Kashkari previously explained that his most recent rate hike dissent (June) was because of inflation weakness, adding that he was watching wages for an indication that inflation might pick-up. On Monday, he went after companies that have complained about worker shortages, saying “If you’re not raising wages, then it just sounds like whining.”

 

Consumer Credit Expands Less than Expected in June: The Federal Reserve’s most recent data on consumer credit showed total outstanding non-mortgage credit grew $12.4B in June. The result was short of the $15.8B expansion expected and continued the 2017 trend of weaker credit growth. On a YoY basis, total credit expansion has slowed for four consecutive months after June’s 5.7% YoY result – which was the weakest result since September 2012. So far, the average YoY rate of growth in 2017 has been the weakest since 2012. Within the details of the report, both revolving and nonrevolving credit slowed, with the YoY pace of revolving credit growth the weakest since 2015. Stagnant wages and a lack of credit growth continue serve has headwinds for a significant rebound in personal consumption.