The Market Today
Geopolitical Risk Rises; Supply Chain Concerns Inflated by Weak Chinese Data
by Craig Dismuke, Dudley Carter
Empire Fed – Everything Going Wrong Direction in August: August’s Empire Manufacturing report disappointed expectations falling from +43.0 to +18.3. The details of the report were even more discouraging than the headline figure: new orders plunged after a July spike, shipments fell from +43.8 to +4.4, inventories fell, prices paid remained high, prices received rose further, and the employment indices both fell. On top of those disappointments, the delivery times index rose again, indicating an even slower supply chain.
Market Nerves Grow as Geopolitical Risks and Weak China Data Aggravate Concerns Around Delta’s Spread Harming Economic Recovery: Markets reflect some nervousness among investors on Monday following a weekend news cycle dominated by developments in Afghanistan and a round of weaker-than-expected economic data from China overnight. The Taliban gained control of major cities in Afghanistan over the weekend, including the capital of Kabul, as the U.S. moves forward with plans to end its military presence in the country. The geopolitical concerns compounded growing unease related to the rise of the Delta variant around the world which poses risks to the global economic recovery. China’s latest round of results for activity in July enhanced those economic anxieties overnight. After a report Friday showed U.S. consumer confidence crumbled in early August (more below), retail sales, industrial production, and fixed investment in China last month all rose by less than expected. The MSCI Asia Pacific Index dropped 0.7% after the China data releases, although the biggest declines were seen in Japanese markets following reports that virus states of emergency would be extended in several major cities. Europe’s Stoxx 600 had drifted lower by 0.5%, on track to break a near-record 10-day winning streak, and U.S. futures were weaker by around 0.3%. While the storyline also weighed on oil prices and lifted the Japanese yen, Treasury yields were mostly unfazed. The bulk of the curve was lower by less than 1.0 bps at 7:10 a.m. CT.
ICYMI – August 13, 2021 Weekly Market Recap: Yields rose during the first two days of the week after the Senate passed the bipartisan infrastructure bill, job openings eclipsed 10 million for the first time to set their fifth consecutive record, and several Fedspeakers showed support for tapering asset purchases this year. However, the uptrend reversed Wednesday after July’s CPI report included some evidence that, while inflation metrics remained at high levels, upward pressure in certain categories moderated from torrid paces in previous months. The turn lower in yields that ensued accelerated that afternoon on the heels of an unambiguously strong auction of 10-year Treasury notes reflected intense demand from non-primary dealers. Yields stabilized and rose Thursday as additional Fed officials came out in support of tapering soon, jobless claims continued to improve, and another hot producer price inflation report offset the optimism of the relatively more benign consumer price data. However, a plunge in consumer confidence in a preliminary August report from the University of Michigan pulled yields sharply lower on Friday. The crosscurrent of forces left the 10-year yield down 2.0 bps on the week at 1.28% and shorter yields relatively unchanged. Stocks grinded higher throughout the week, pushing the S&P 500 and Dow to four consecutive records from Tuesday to Friday. Click here to view the full recap.