The Market Today

Oil Adds to Inflation Story; Services PMIs Ahead


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Service Sector PMIs: Today’s economic calendar will bring the June Markit Services PMI final revision at 8:45 a.m. CT, followed by the June ISM Services Index at 9:00 a.m.  Both indices are expected to remain at elevated levels.  Focus will be on supplier deliveries, prices, and the employment indices.


24 HOURS OF MARKET ACTIVITY

Stocks Hold Near Records as Oil Prices Rise on Lack of Production Consensus from OPEC: U.S. investors returned from a holiday break to mixed global trading that included another gain for U.S. oil prices. While the U.S. economic calendar is relatively quiet this week, there were several important data announcements earlier from the EU. Germany’s DAX was down 0.3% and leading declines across the continent following data showing an unexpected decline for industrial orders in May and a larger-than-expected drop in economic confidence in July. Mitigating those disappointments, retail sales picked up slightly more than expected across the Eurozone in May and June PMI data from across the bloc, released while the U.S. was on holiday, was slightly stronger than anticipated. Oil prices, however, were the greater focus. U.S. WTI jumped in its first trades of the week after Brent climbed Monday on news OPEC+ had walked away from production negotiations for the time being. U.S. WTI was 0.8% higher near $76 a barrel, a high since 2018, due to the lack of agreement among the major oil producers for a production plan from August. Treasury yields, nonetheless, dismissed crude’s price gains. The span of the curve was flat at 7:20 a.m. CT; the 2-year and 10-year yields were holding at 0.236% and 1.422%, respectively.


NOTEWORTHY NEWS

ICYMI – July 2, 2021 Weekly Market Recap: The S&P 500 set a record each day last week and the Treasury curve continued to flatten. In the lead up to Friday’s payroll report, more chatter from Fed officials exhibited comfort with beginning to taper monthly bond purchases later this year. Updates on home prices provided no indication of a pullback in the breakneck pace of appreciation, although pending home sales surprised expectations by rising to a four-month high. Separate reports provided a mixed picture of what to expect out of Friday’s payroll data from the BLS. ADP’s private payroll gain beat expectations. Despite some state volatility, jobless claims showed general improvement. And June’s ISM Manufacturing report pointed to the first contraction in employment since November. Similarly, the signal from June’s official payroll report was not cut and dry. The headline jobs gain of 850k handily beat expectations but was artificially inflated by seasonal adjustment issues related to the education sector. The 662k private jobs recovered, however, pointed to a continued recovery, although more than half of the gain came from leisure and hospitality and retail had a strong month. Wage growth and hours worked both cooled. In a weaker household report, unemployment rose unexpectedly to 5.9%. While the report will allay fears of further slowing following some previous weakness, it’s unlikely to sway any opinions at the Fed. For the week, the S&P 500 gained 1.8% and the 10-year yield fell 9.9 bps to 1.422%, a low since March 3. Click here to view the full recap.


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