Markets weathered additional indications that global interest rates are moving higher while the world’s most powerful leaders met at the G20 meeting in Hamburg. The S&P 500 rose 0.1% as the MSCI ACWI fell 0.2% and The Bloomberg BarCap US Aggregate Bond Index slid 0.4% because of the increase in rates.
The focus of the week was the Federal Reserve releasing their minutes from its last meeting. The minutes indicated that some Fed governors are concerned about creating too much incentive to take risk by leaving rates too low for too long. Others worried about low and declining inflation. The Fed seems divided over the timing of the balance sheet wind-down and how quickly to raise rates. Market estimates suggest one more hike is likely this year, but only by a slim margin.
The US economy gave a boost to governors favoring rate increases by producing 222,000 jobs, which was well above expectations. Wage increases were slightly below expectations, but still healthy, and average hours worked increased as well.
In Europe, the release of the ECB’s minutes pushed debt yields higher with policymakers moving closer to capping the massive quantitative easing program. Banking stocks were lifted by EU’s approval of the €5.5bn bailout of Italy’s ailing Monte die Paschi di Siena bank. The euro area manufacturing sector PMI rose to its highest level in over six years contributing to the stable manufacturing growth globally.
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:
According to the minutes from the Fed’s June meeting, policymakers were increasingly split on the outlook for inflation and how it might affect the future pace of interest rate increases. Also, the committee seems divided on the unwinding of the balance sheet with several officials wanting to announce a start by the end of August while others wanted to wait until later in the year. The committee also said equity prices were elevated and questioned why financial conditions had not tightened despite recent rate rises.
The JP Morgan Global Manufacturing PMI remained unchanged at 52.6 in June, signaling a further solid and steady improvement in manufacturing operating conditions. The average reading over Q2 as a whole was 52.7, slightly below that for Q1 at 52.9. Manufacturing input cost inflation meanwhile eased for a fifth straight month from January’s five-and-a-half year peak, mainly reflecting lower global commodity prices (notably oil).
The G20 meeting of the world’s most powerful leaders reflected the ongoing adjustments in the political landscape. The post-summit official communication on trade policy reflected new language calling for trade to be both free and fair. Including language on fair trade was widely seen as an adjustment to reflect the Trump administration’s focus on improving the U.S.’s performance in global trade.
Fun Story of the Week
NBC News is trying to catch top-rated ABC news for the highest rated nightly news broadcast. (Yes, my millennial friends, people still watch the evening news.) One way to pick up some gains is to trick TV-ratings firm Nielsen into classifying low-rated nights as a different show. For example, on the Friday before Memorial Day, when few people tune in, NBC titled its show the “NBC Nitely News” instead of “NBC Nightly News”. The change caused Nielsen to list the shows differently and NBC Nightly News ended up with higher average viewership by excluding its lowest rated weekly broadcast.
NBC isn’t the only network that engages in this practice. While NBC leads with 14 name changes this TV season, CBS has aired the “CBS Evening Nws” 12 times and ABC has aired “Wrld New Tonite” seven times. It seems a bit ironic that even news organizations are trying to slant information to their own favor.
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S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large and mid-cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.