Stocks Rally in Volatile Week
Stocks experienced a robust week, reversing the prior week's gains led higher by small cap and momentum stocks. Economic data continued to be mixed, with Retail Sales, Jobless Claims, manufacturing and PPI all coming in weaker than expected. Volatility tumbled this week giving back most of the gains seen over the prior two weeks. The VIX declined from 16.5%, back down to the 13% level.
U.S. Empire State manufacturing index dropped 10.9 points to 14.7 in August after jumping 6.3 points to 25.6 in July. The employment component fell to 13.6from 17.1 previously. But the workweek rose to 8.0 from 2.3. New orders slid to 14.1 from 18.8. Prices paid rose to 27.3 from 25.0, with prices received at 8.0 from 6.8. The 6-month business conditions index surged to 46.8 after falling to 28.5 in July. The 6-month employment index rose to 22.7 from 17.1, with capital expenditures doubling to 18.2 versus 9.1, and prices paid at 42.1 from 37.5.
U.S. PPI inched up 0.1% in July with the core rate up 0.2%. The June data were unrevised with the headline final demand index up 0.4% and the core rate up 0.2%. Goods prices were unchanged after a 0.5% June gain, amid a 0.6% decline in energy and a 0.4% rebound in food. Services prices edged up 0.1% following a 0.3% June increase, with transportation/warehousing up 0.5% and trade up 0.2%. The price data remain tame, in line with expectations, and won't give the FOMC reason to move to a more aggressive policy normalization path.
NYMEX crude is up 9 cents at $95.67/bbl, after falling more than $2/bbl on Thursday. A calmer geopolitical backdrop, abundant supplies, and contracting demand all came together to beat oil down to levels last seen in early April. China crude demand fell 6% in July, according to Reuters data, while stagnant growth in Europe has contributed to oil price weakness. The market will eye U.S. production data at 9:15 EDT this morning for a gauge on U.S. demand.
U.S. retail sales were unchanged in July with the ex-auto component up 0.1%, both missing expectations. June's sales were unrevised at 0.2% overall, and 0.4% ex-autos. Excluding autos, building materials, and gas, sales up 0.1% in July after a 0.5% June gain. Auto sales dipped 0.2% after a 0.3% decline in June. General merchandise sales fell 0.5%, followed by non-store retailers which posted a 0.1% loss.
Initial jobless claims bounced 21k to 311k, which was a greater climb than expected, for the week ended August 9.Continuing claims rose 25k to 2,544k for the week ended August 2. Despite the bounce, it's the lowest readings since 2007. The four-week average rose to 296k, more indicative of the claims trend as large swings are typical during this holiday-packed time of year.
Eurozone Q2 GDP on Thursday disappointed as German activity contracted and French growth stalled. Italy meanwhile has fallen back into recession and only strong growth rates in former crisis countries such as Spain, prevented a contraction in overall Eurozone GDP. Still, the weakness in Q2 is partly the flip side of the stronger than expected Q1 number. While confidence indicators do show some weakness, and the balance of risks remains on the downside, we see data in line with the ECB's central scenario of modest but ongoing growth, and do not expect a change in the central bank's wait and see stance.