Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
U.S. equities finished last week in positive territory, bouncing back from losses incurred earlier in the week. The yield on the U.S. 10-year Treasury finished the week at 1.45 percent following the Fed’s decision to keep short-term interest rates unchanged. The dollar recorded gains and oil was higher, with WTI crude finishing the week up almost 3 percent.
Fed Chair Jerome Powell reiterated that he believed the U.S. economy had already surpassed the central bank’s goals for inflation, and said a "reasonably good" September jobs report would suggest that the economy is strong enough to endure a reduction in Fed bond purchases. Accordingly, expectations for Fed tapering have been pulled forward, and half of the FOMC members predict a least a first rate hike by year-end 2022.
There was a lot of attention last week on the evolving situation with China’s Evergrande. One of China’s biggest property developers, Evergrande, is saddled with $300 billion in debt and is struggling to pay creditors. Like Lehman Brothers, which filed for bankruptcy with over $600 billion in debt and whose collapse was the tipping point of the 2008 financial crisis, markets are worried that Evergrande’s demise could send shock waves through the Chinese economy and global markets.
We received several reports on the U.S. housing market last week. Housing starts, new home sales and building permits came in better than expected, while existing home sales essentially matched expectations. The four-month high in home sales may suggest that demand is stabilizing, and builders are making more headway on backlogs.
In the week ahead, we have a busy economic calendar. On Monday we get Durable Goods Orders. On Tuesday we see Wholesale Inventories and the Consumer Confidence Index. Consumer confidence fell to a six-month low in August, due to concerns around the Delta variant and inflation. Mid-week we get Pending Home Sales, then on Thursday we see second quarter GDP, which is expected to come in at 6.7 percent. Then we finish the week with a host of data points, including Personal Income, Personal Spending and the University of Michigan Consumer Sentiment number.
Also this week, investors are set to closely monitor developments in Washington, D.C., as lawmakers race to pass legislation to avoid a government shutdown by the end of the month and debate raising the debt ceiling.
As always, will be watching and reporting back to you next week. Thank you.
