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Weekly Economic Update – 8/15/2022

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*Recapping Last Week* – August 15, 2022

U.S. equities rose for a fourth straight week, boosted by long-awaited positive news on inflation. The Russell 2000 Index jumped 5%, while the S&P500 and Nasdaq Composite gained 3%+. All 11 S&P500 sectors finished positive, led by a 7%+ recovery in energy and solid performance from financials, materials, and communications. Crude oil recouped part of the prior week’s huge losses, rising 4% as recession fears eased. Treasury yields inched higher, supported by the idea that a Fed pivot remains unlikely at this juncture despite the softening CPI and PPI reports. U.S. consumer prices were unchanged MoM in July, while producer prices fell for the first time in 2 years, largely due to plunging gasoline costs, which have fallen roughly 30% from their June peak. Shelter expenses remained problematic, but overall, the relief was welcomed by weary consumers. Future inflation expectations also fell, according to a New York Fed survey, and import prices dropped 1.4% in July. Consumer sentiment lifted to a 3-month high on an improved outlook but remains low by historical standards. In other news, U.S. worker productivity declined sharply for a second consecutive quarter as high unit labor costs suggested that wage pressures should keep inflation elevated. The jobs market remained tight, but unemployment claims ticked up to 262K as more companies announced job cuts and slowed hiring. Internationally, the UK’s Q2 GDP contracted by 0.1%, less than expected but revealing the toll the cost-of-living crisis is taking. In the European Union, industrial production increased 0.6% in June as capital goods manufacturing jumped. Finally, China’s new bank lending plummeted in July and broad credit growth slowed as the real estate crisis weighed on consumers. Exports remained strong however, sending the country’s trade surplus to a record $101B, and inflation continued to lag other large economies even as pork prices spiked.

* The Week Ahead* – August 15, 2022

Traditionally, August’s final weeks are slow as traders squeeze in their final vacations before the kids head back to school. Although the U.S. economic calendar is lighter compared to recent activity, there will be two important releases mid-week. Wednesday’s publication of the FOMC’s July meeting minutes will be scrutinized as committee members have been publicly pushing back against the perceived dovishness from Chair Powell’s press conference. The retail sales report for July is expected to confirm that consumer spending is weakening as personal savings dwindle and credit balances grow. Additionally, Walmart and Target will report earnings after both companies warned last month of shrinking margins and rising inventories. Other events of note include housing starts and existing home sales, industrial production figures, and regional manufacturing updates. Overseas, inflation and GDP data will be in focus. In the UK, CPI may touch 10% YoY, pressuring the Bank of England to raise rates more aggressively. Retail sales on Friday will shed further light on the situation for British consumers. In Europe, economic sentiment and flash GDP readings highlight a sparse docket. Lastly, in Asia, Japan releases preliminary Q2 GDP and July CPI, while China issues retail sales and industrial production reports.