Risk appetite had no chance since the end of the month, maximum profits pass, and most U.S. companies still complain about problems finding workers and persistent supply chain problems. U.S. stocks were dragged down by a major lack of Amazon and cautious comments from former FDA chief Scott Gottleib, who wouldn’t be surprised if we were generally infecting up to a million people a day. Right Now.
It seems unlikely that big technologies will get a new catalyst here, so many investors seem to be prepared to be cautious as Wall Street sets out to find out how far the economy will make substantial progress in the job market recovery.
The Fed Chairman of St. Louis, James Bullard, stated that the Fed should shrink in the fall and finish shrinking early next year. He added that the Fed should have the option to change interest rates if inflation does not go down next year. The Fed’s split will continue to grow, but the market will not react unless strong changes come from Clarida, Brainard, Waller or Evans.
Wall Street was also surprised by Amazon’s disappointing results. The pandemic boom for Amazon is over and this rare lack of profit is likely to be a buying opportunity for investors. Retail growth had to slow at some point and investment in the future should be positive for the long-term value of the shares.
Current economic data does not really give a clear picture to financial markets. Most notable was the 1.0% increase in personal spending in June, above the 0.7% consensus. Personal income was also slightly positive, which bodes well for the robust American consumer.
The cost of employment in the second quarter rose 0.7%, a loss from the 0.9% estimate, but this was hampered by a tight labor supply. None of the current data suggests wages are about to skyrocket and that means the Fed will be on standby for the next few months.
The main PCE deflator rose 0.4%, a loss of 0.6%, but that hardly means inflation has peaked. The Fed’s preferred measure of inflation, year-on-year Core PCE rose 3.5%, which was below the consensus estimate of 3.7%. Given the softer-than-expected inflation readings and modest earnings gains, the Fed may hold on to the transitional writing for a while longer.
The July final reading of the University of Michigan sentiment improved from 80.8 to 81.2, while expectations also rose from 78.4 to 79.0. Inflation surveys moderated with a one-year decline of 4.7% and a 5-10-year outlook of 2.8%. The American consumer is strong and this will not change or even give an increase in the current delta variant across the country.
The dollar mixed as risk aversion continued to be the dominant topic during the last trading day of the week. The greenback is slightly higher, while Treasury yields declined as Chinese sales deepened, Amazon’s negative profits, growing concerns about the delta variant and headwinds against the exit market in bag.
This article is for informational purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its subsidiaries, subsidiaries, directors or administrators. Leverage trading is high risk and not suitable for everyone. You could lose all your funds.