Stock markets held up better than we might have expected last week given the continued hawkish tone from Federal Reserve governors and weaker oil prices. In the past, either of these would generally have been enough to sink world markets. But last week, U.S. and European markets were each down less than 1%, and emerging markets fared slightly worse, falling over 2%.
Commodities were down on higher oil inventory and lack of any production agreement among major producers. A stronger dollar on Friday really did not help matters. Interest rates were up, and bonds were down for the week. The 10-year U.S. Treasury bond yield increased to 1.63% from 1.59% for the week, with rates moving higher after Federal Reserve Board Chair Janet Yellen's speech on Friday along with another governor's comments that there could still be as many as two rate hikes this year.
US Rate Rise: Yellen Guarantees Nothing
Not much really mattered this week except the expected speeches out of Jackson Hole, Wyoming, where the Fed governors were attending the annual economics symposium sponsored by the Federal Reserve Bank of Kansas City. The comments coming out of the meeting were a bit more hawkish than expected. But even the hawks noted that their decisions would continue to be data-driven and that nothing was guaranteed.
That is especially true given how a lot of the economic data continues to give mixed signals. Last week, new-home sales looked stunningly strong in July, making an eight-year high. This is in direct contradiction to permits for new single-family homes that faltered earlier in the month. The data was clearer-cut for the sales of existing homes that continued to drift lower.
Back on the bright side, durable goods orders improved sharply in July, which was welcome news for this beleaguered sector. Markit purchasing manager data suggested that manufacturing was still growing modestly, but not as fast as it was a month ago. While the housing and manufacturing data is important, next week's news on auto sales, consumer spending, and employment will be far more influential on market activity.
Unfortunately, August employment data has been exceptionally volatile and subject to a lot of revisions and it will be the last employment report before the Fed's September report. A strong report, over 250,000 jobs added, would likely force the Fed's hand into a rate increase. However, less than 125,000 jobs added and all bets are off. The consensus forecast is for about 180,000 jobs. If that forecast is right, other economic data, including consumption and inflation data as well as world events, will take on greater significance.
