Summer Doldrums Set In as Inflation Pressures Persist

Markets appear to be entering the summer doldrums. The bulk of earnings season is over, and while the economic calendar remains busy, it is dominated by secondary data related to inflation, housing, and retail sales. Overnight reports from Asia suggested struggling economies and persistent inflation, while North American data pointed to a potentially stronger economy but continued inflation pressures. There was no major change in the Middle East situation over the weekend.

US index futures are mixed, with NASDAQ futures up 0.3% and Dow futures down 0.3%. In Asia, the Nikkei gained 0.7%, while the Hang Seng rose 1.3%. European markets are slightly lower, with the DAX and FTSE both down 0.1%.

Commodity markets are broadly positive. Crude Oil is up 0.1%, trading near $82.50/bbl, while Brent Crude has gained 0.1%, climbing toward $87.50/bbl. Gasoline is down 0.3%, trading near $3.15/gallon. Gold has advanced 0.3% to trade near $4,450/oz, Copper is up 0.6% near $6.65/lb, and Silver has gained 1.0%.

In currency markets, the USD Index is down 0.2%. The Euro has gained 0.2%, while the Loonie is up 0.1%. Treasury yields have continued to climb, with the US 10-year Treasury note yield moving above 4.70% and the US 30-year Treasury note yield approaching 5.30%.

Economic reports have highlighted persistent inflation pressures and mixed global growth. Canada’s consumer price index increased 3.0% v. Street at 2.9% and the previous 2.8%, indicating that inflation rose more than expected. The US Empire State Manufacturing Index came in at 20.6 v. Street at 11.0, suggesting stronger-than-expected manufacturing activity.

Japan’s GDP report pointed toward stagflation, with annualized GDP growth of 1.1% v. Street at 2.0%, while the GDP deflator inflation component rose 2.6% v. Street at 2.4%. In China, retail sales increased 0.6% v. Street at 1.5%, while industrial production rose 4.5% v. Street at 5.0%, with both reports coming in weaker than expected.

Looking ahead, earnings season for US retailers gets underway this week, headlined by Home Depot on Tuesday, TJX on Wednesday, and Walmart on Thursday. This week’s economic calendar is dominated by US housing reports and international inflation numbers, with flash PMI reports also due.

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