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07/08/2016
Market Update

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The so-called Big Three credit-rating agencies (Moody’s, Standard & Poor’s Global Ratings and Fitch Ratings) unanimously downgraded the U.K.’s AAA credit rating following last Friday’s Brexit vote, while the European Union’s rating was downgraded by Standard & Poor’s. Such downgrades can affect a government’s cost of borrowing money in the international financial markets; countries with lower credit ratings tend to pay higher interest rates.
This Week
  • The so-called Big Three credit-rating agencies (Moody’s, Standard & Poor’s Global Ratings and Fitch Ratings) unanimously downgraded the U.K.’s AAA credit rating following last Friday’s Brexit vote, while the European Union’s rating was downgraded by Standard & Poor’s. Such downgrades can affect a government’s cost of borrowing money in the international financial markets; countries with lower credit ratings tend to pay higher interest rates.
  • Consumer confidence advanced in June to its highest level since October 2015. Consumer spending drives over two-thirds of the economy, and the rebound in confidence suggests that Americans remain cautiously optimistic about short-term economic growth.
  • Personal spending and incomes both rose in May, by 0.4% and 0.2%, respectively, indicating a continued awakening of demand following a sluggish start to the year.
  • Exports fell by 0.2% in May due to declining auto sales and capital goods exports, pointing to weakened business investment. Imports rose by a sharp 1.6%, with consumer goods particularly strong, signaling increased retailer confidence.
  • Initial jobless claims rose by 9,000 to 268,000 for the week ending June 25; the four-week moving average was unchanged, foreshadowing a positive payrolls figure for June. The continuing claims figure offered further optimism, declining by 20,000 to 2,120,000 in the week ending June 18.
  • Manufacturing growth accelerated to healthier levels in June, according to the Institute for Supply Management, with new orders a key source of strength. A similar report from Markit also depicted an improving expansion, albeit at a lower level.
  • Case-Shiller’s 20-city adjusted home price index registered a lukewarm 0.5% in April, suggesting moderating growth. Still, the supply of available homes remains tight, which puts upward pressure on prices.
  • Despite an upward revision, U.S. first-quarter gross domestic product grew at its weakest rate in a year. While the U.S. exported more goods and services than previously thought, total business investment fell by the most in six years (as a result of slumping oil prices) and American consumer spending crept along at the slowest pace in two years.
  • Eurozone unemployment remains high, having only declined by 0.1% to 10.1% in May; however, a 1% drop from a year earlier demonstrates slow and steady improvement in the labor market.
  • Consumer prices in the eurozone crept higher by 0.1% in the year-over-year in June. The sluggish price growth of goods and services points to weak demand, which is partially to blame for the lack of inflation in the last two years (with the main culprit being lower energy prices).
  • Industrial production in Japan plummeted by 2.3% in May (the first decline since February) and fell by 1.8% in the year over year; chemicals excluding drugs declined most notably. Japan was hit by an earthquake in mid-April, which was likely responsible for the lower-than-expected reading in May.

 

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