Here’s The Asset Guidance Group Outlook for the Week Ahead… 

attention this week, including U.S. inflation numbers and FOMC member speeches. A
cool CPI report on Thursday could reinforce the economic soft-landing thesis and the
potential end of the Fed’s rate-hiking cycle. Treasury auctions on Wednesday and
Thursday may put additional pressure on bond prices after last week’s selloff and
corresponding spike in long-term rates. Other U.S. releases include consumer credit,
small business sentiment, and August’s preliminary consumer sentiment. Earnings
season is winding down but look for announcements from Disney and UPS to potentially
move the needle. Overseas, it’s a busy week for China with trade data and inflation
figures against the backdrop of slowing growth and more potential government
stimulus. Today, the Bank of Japan Summary of Opinions is released after last week’s
surprise policy decision on yield curve control. In the UK, economy activity has held up better than expected given such high inflation. But with more rates hikes looming in the fall, Friday’s Q2 GDP numbers might be the growth peak for this year. Lastly, the light European calendar includes industrial production and investor sentiment readings. [1]

Recapping Last Week

U.S. economic data continued to point to a soft landing, but a surprise downgrade to the country’s long-term credit rating left equity indexes lower for the week. The Nasdaq Composite Index fell 2.85%, while the S&P500 fell 2.25% and Russell 2000 lost 1.2%. Ten of 11 S&P500 sectors lost ground, paced by a 3.8% drop in technology after mixed earnings results. Sluggish iPhone sales sank Apple shares by nearly 5% while smartphone chipmaker Qualcomm plunged 6%. The energy sector advanced 1.25% as Saudi Arabia extended production cuts by one month, which helped lift crude oil futures. Treasury yields soared at the long end after Fitch Ratings cut the long-term U.S. default rating to AA+ from AAA, citing “expected fiscal deterioration over the next three years”, along with an erosion in financial governance and  repeated debt ceiling standoffs. The inversion between 2- and 10-year Treasury yields narrowed to the smallest spread since May, while the U.S. economy continued to display a wide gap between hard data and sentiment surveys. Job growth in July was below expectations but moved towards more sustainable levels, while average hourly earnings came in above estimates at +0.4% MoM and +4.4% YoY. Labor productivity jumped 3.7% in Q2 after a decline the prior quarter, but unit labor costs rose just 1.6% after surging 3.3% in Q1. Factory orders increased 2.3% in June on
strong demand for  transportation goods, and business spending on equipment rebounded. However, the ISM surveys revealed a drop in demand, with manufacturing PMI still in contraction and services slipping from 53.9 to 52.7 in July. Overall, the data
suggests the Fed may hold rates steady yet higher for longer, but it is a long seven weeks until the September meeting. Further hikes are not out of the question.  Internationally, the Bank of England raised rates 25bps to 5.25%, slowing from the previous 50bps hike as
inflation forecasts eased and the economic outlook dimmed. Australia’s central bank decided to hold rates  unchanged and provide further time to assess the impact of policy tightening thus far. In Europe, annual inflation is expected to dip to 5.3% in July from 5.5% according to the flash estimate, but high food prices remained a concern. The preliminary Eurozone GDP estimate showed a 0.3% expansion for Q2. Finally, China’s factory activity contracted in July for both the government and private-sector surveys, while the Caixin services PMI jumped due to summer travel. [2]

Chart of the Week:

Long-term Treasury yields grabbed attention last week with breakouts above key
resistance levels. For the 30-Year Treasury Index (TYX), technicians may have
anticipated the move up to $43, corresponding to a yield of approximately 4.30% on
the 30-year Treasury bond, based on the prior consolidation. The distance between support and resistance can form an assumption of expected movement should there be a breakout, either down through prior support at $38 (3.80%) or conversely up through $40.50 (4.05%) as was the case last week. On the heels of strong economic data and the Fitch downgrade, TYX reached a YTD high of $43.26 (4.326%) before pulling back Friday. The speed and magnitude of this move in yields is worth noting as it can hold important implications on the macro level. Click here to view chart. [3]

Sources: [1] [2] [3] tdainstitutional.com tdainstitutional.com; Any performance data reported by Asset Guidance Group, LLC has been grouped and reported by kwanti.com, imported from TDAmeritrade Institutional, Risk categories as scored by Grable-Lytton test and grouped by like risk tolerance levels; NOTE: individual account performance grouped solely by model classification type in terms of risk tolerance. Individual portfolios include equivalent equities exposures via like models, but many may hold additional investments like structured notes, fixed income investments such as CDs, bonds, and other individually preferred securities. 1-Week risk score denotes overall performance of all AGG client portfolios grouped together by like-risk tolerance scores not by identical investment allocations; [4] [5] Macro Monday (tdainstitutional.com);

*All other Asset Guidance Group analysis, www.stockcharts.com; All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Chart from Indeed’s Hiring Lab.

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