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Markets Continue to Trudge Up the Escalator


Today's financial recap and tomorrow's financial outlook.

Early this morning, the UK reported that consumer prices fell 0.3% in July, and were up 1.6% from a year ago. The annual price increase was down from 1.9% in the month prior and below the 1.8% expected. This caused global sovereign rates to decrease substantially, specifically UK Gilts and German Bunds. In addition, the British sterling was the worst performing currency today, falling 0.66% versus the US dollar. The dollar was very strong today thanks to declines in the sterling, euro, and yen.

US stocks rose overnight and continued to steadily inch higher throughout the day. By the end of the session, the S&P 500 (SPX) was up 0.5%. Energy stocks were a notable underperformer today due to an increasing stockpile at Texas refineries, which is crimping demand for raw crude. Oil producers whose operations are primarily in the Permian basin were the most hard hit. Utilities was the strongest group today with all 30 securities in the sector posting gains, almost all of which were larger than 1%. High yield bonds continue to perform very strongly and have now retraced almost half of the widening from last month.

Consumer prices rose 0.1% in July, down to a 2.0% rate from a year ago. Both were inline with expectations. It was the 14th straight month of consumer price increases. Core prices remained steady at +1.9% from a year ago. In a separate report, the Bureau of Labor Statistics found that wages were flat in July and unchanged from a year after adjusting for inflation. Housing starts shot up 15.7% in July to an annualized rate of 1.093 million, well ahead of the 965K expected. Building permits were similarly strong at 1.056 million, better than the 1 million expected. Homebuilder stocks were the top performers up in the S&P 500, up more than 2% in today's trading as a group.

Tomorrow's Financial Outlook

There are no significant economic reports scheduled for tomorrow, only the weekly report of mortgage applications from MBA. The minutes of the FOMC meeting from three weeks ago will be released in the afternoon. In its rate decision, the FOMC continued to stress that there was a considerable amount of slack in the labor market, but upgraded its assessment on inflation to acknowledge the diminishing risks of inflation running below its 2% goal. Investors will be watching closely to see if the recent increases in inflation have altered the Fed's generally dovish view.

Two significant catalysts are due to be reported overnight. The Bank of England will release its minutes from two weeks ago. It was widely anticipated by market participants that the central bank's Monetary Policy Committee (MPC) would include more than one member dissenting from keeping rates on hold at 0.5%. That risk is even more acute due to the 15bp rally in the 5yr Gilt since the meeting actually took place. Reserve Bank of Australia (RBA) Governor Stevens will give a semi-annual testimony on monetary policy to his country's parliament. Recently, the RBA has been stuck in the quandary of having an excessively high exchange rate that is hurting Australia's raw materials exports, but its labor market have continued to improve and put upward pressure on prices. The Australian dollar has been very volatile this year.

A few important companies are scheduled to report earnings tomorrow. These include Target (TGT), Hewlett-Packard (HPQ), Lowe's (LOW), Staples (SPLS), and L Brands (LB). American Eagle Outfitters (AEO), Hain Celestial (HAIN), PetSmart (PSMT), and Madison Square Garden (MSG) are also scheduled to report.

Twitter: @Minyanville

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