The 4th of July Holiday on Sunday allowed us to ease into the week by observing America’s Birthday once more on Monday. This also allowed for this week to be a lighter week of economic releases. The week began with a disappointing Institution for Supply Management (ISM) number which fell to 60.1% in June, down from 64% in May and much lower than expectation of 63.3%. Lack of demand is not the problem, rather companies’ inability to obtain enough supplies on time or to attract enough people to do the work. In normal times, any ISM survey reading above 50% signals expansion and a reading above 60% would normally be exceptional, but these aren’t normal times. Both supply chain and labor shortages are having a major impact on the ISM survey.
A day later brought U.S. job openings which rose slightly in May to a record 9.21 million, reflecting an extremely high demand for labor as the economy fully reopens and businesses scramble to keep up with soaring demand for goods and services. The number of available jobs has set a record for three straight months and even though the U.S. added $850K new jobs in June, there is a still a long way to go before we would see employment at pre-pandemic levels.
Thursday brought us both initial and continuing jobless claims. Initial jobless claims rose by 2K to 373K from the previous week while continuing claims fell from 3.48 million to 3.34 million. Twenty-six states have cut off extra federal benefits in an effort to push unemployed people back to work, but it is still too early to tell whether that will have a big impact. The enhanced federal unemployment benefits are set to expire in all states in September.
As light as the economic calendar was on this shorter work week, the equity and bonds markets saw plenty of volatility. A college professor of mine always used to say that “fear and greed” drive the markets. This week, the markets seemed to be plenty fearful of the delta Covid variant that is fueling worries about the global economic comeback. The Olympics further added to that fear by announcing a ban of spectators at Tokyo’s summer games as Japan declared a state of emergency to curb the spread of coronavirus. The Dow closed Thursday’s session lower by nearly 260 points and the Dow has rebounded strong this morning with an early 375 point increase.
The bond markets saw its fair share of volatility as the 10-Year Treasury Yield fell below 1.30% yesterday. Yields have rebounded early this morning with the 10-Year sitting around 1.35%. A 1.35% 10-Year yield is down over 30bps from this year’s high back in late March. Along with stocks, treasury yields have been volatile this week and mainly falling with the spread of the delta variant dampening overall sentiment.
Next week’s economic release calendar is a little more hefty and noteworthy with Core CPI coming out Tuesday morning followed by the Produced price index Wednesday. Next Friday will bring new retail sales numbers as well the consumer sentiment index. Until then, have a great weekend!
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