In the markets:

U.S. Markets:  

Positive signs on the inflation front helped the major benchmarks finish the week with solid gains. Smaller-cap stocks outperformed, narrowing their significant year-to-date gap with large-caps. The Dow Jones Industrial Average added 491 points finishing the week at 34,838, a gain of 1.4%. The technology-heavy NASDAQ Composite rose 3.2% to 14,032. By market cap, the large cap S&P 500 gained 2.5%, while the mid cap S&P 400 added 3.5%. The small cap Russell 2000 rebounded 3.6% following 4 consecutive weeks of losses. In August, the Dow and Nasdaq pulled back -2.4% and -2.2%, respectively. By market cap, the S&P 500 gave up -1.8%, mid caps fell -3%, and small caps fared the worst down -5.2%.

International Markets: 

Major international markets finished the week in the green as well. Canada’s TSX rose 3.6%, while the United Kingdom’s FTSE 100 gained 1.7%. France’s CAC 40 and Germany’s DAX added 0.9% and 1.3% respectively. In Asia, China’s Shanghai Composite rose 2.3%. Japan’s Nikkei finished up 3.4%. As grouped by Morgan Stanley Capital International, developed markets added 1.8%. Emerging markets gained 1.9%. The month of August was a difficult month for international markets. Canada and the UK declined -1.6% and -3.4%. France and Germany retreated -2.4% and -3%. China and Japan declined -5.2% and -1.7%. Developed markets finished the month down -3.9%. Emerging markets fell -6.6%.

Commodities:  

Precious metals finished the week to the upside with Gold rising 1.4% to $1967.10 per ounce and Silver adding 1.35% to $24.56. The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, gained 2.4%. West Texas Intermediate crude oil jumped 7.2% to $85.55 per barrel. In August, Gold pulled back -2.2% while Silver retreated -0.6%. Copper fell -4.6% while oil managed a gain of 2.2%.

U.S. Economic News: 

The number of Americans filing first-time claims for unemployment benefits fell to its lowest level in four weeks last week. The Labor Department reported initial jobless claims fell by 4000 to 228,000. Economists had estimated new claims would total 230,000. Meanwhile, the number of people already receiving jobless benefits rose by 28,000 to 1.73 million. That’s the highest level since early July. Josh Shapiro, chief U.S. economist at MFR Inc. stated, “The still low level of initial claims has been providing evidence that, despite well-publicized layoffs in tech and other sectors, and reports of reduced numbers of on-line job postings, most companies have either been hiring or holding onto employees and seeking other ways to cut costs. However, with credit conditions tightening and the full effects of significantly tighter monetary policy yet to be felt, overall labor market conditions are likely to cool.”

The number of job openings fell to a 28-month low as the labor market continues to cool off, the Labor Department reported. Job listings dropped from a revised 9.2 million to 8.8 million in July, as companies scale back hiring in response to worries about an economic slowdown. The reading is the fewest number of job openings since March of 2021. Economists polled by the Wall Street Journal had forecast job listings to total 9.5 million. The reading was inline with the Federal Reserve’s goal of slowing down hiring to bring down inflation. The central bank has consistently stated too many open jobs and not enough qualified workers could keep upward pressure on wages and make it harder to tame inflation. Meanwhile, the number of people quitting jobs sank to 3.5 million—its lowest level in two and a half years. Job openings fell the most in white-collar jobs and professional businesses. They also declined for health care and government positions. Listings rose in information services such as media as well as transportation. Chief economist Bill Adams of Comerica stated, “While most Americans who want a job have one, it is not as easy to find new work as a year ago. Hires and quits are back to their pre-pandemic levels, and job openings are falling rapidly.”

The U.S. added just 187,000 new jobs in August adding to mounting evidence of a cooling labor market. Hiring was largely concentrated in health care, hotels and restaurants, and construction. Employment fell sharply in transportation (34,000) owing to the bankruptcy of trucking giant Yellow. The information sector also showed a 15,000 decline because of the Hollywood strike. The slower hiring rate lifted the unemployment rate from 3.5% to 3.8%. Fresh evidence of a cooling labor market and a recent slowdown in inflation should keep the Federal Reserve from raising interest rates again anytime soon. “The Fed couldn’t hope for a better report in their fight against inflation,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. Chief economist Bill Adams of Comerica added, “The Fed got its dream jobs report with cooler labor demand, more labor supply, and slower wage growth.”

The number of home transactions in which a contract has been signed, but not yet closed, ticked up for the second month in a row. The National Association of Realtors reported its pending home sales index rose 0.9% in July. The figures exceeded economists’ expectations for a 0.5% fall. Still, transactions were down 14% from the same time last year. “The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home buying offers,” said Lawrence Yun, chief economist at the NAR. Economists track pending home sales for an early indication of future homebuying activity.

U.S. home prices rose in June with the ‘Windy City’ leading the nation in home-price gains, according to the latest data from S&P Case-Shiller.  The S&P CoreLogic Case-Shiller 20-city home-price index rose 0.9% in June, its fourth consecutive gain. The broader national index rose 0.7% but remained flat over the past year. Home prices grew the most on an annual basis in Chicago, Cleveland and New York, according to the Case-Shiller report. Despite an average 30-year mortgage rate of over 7%, buyer demand hasn’t dried up. A persistent lack of home listings has pushed up home prices, as buyers are faced with a limited number of homes on the market. The West Coast continued to lag the rest of the country as home prices fell the most in San Francisco and Seattle. Overall, home prices have held up amid a sharp rise in interest rates by the Federal Reserve to reduce inflation. “We recognize that the market’s gains could be truncated by increases in mortgage rates or by general economic weakness, but the breadth and strength of this month’s report are consistent with an optimistic view of future results,” Craig J. Lazzara, managing director at S&P DJI, said.

The cost of goods and services rose a mild 0.2% in July lifting the overall increase in prices over the past year to 3.3%, the government reported. The so-called core PCE rate of inflation also increased 0.2% last month. The core rate omits volatile food and energy costs and is viewed by the Federal Reserve as a better predictor of future inflation trends. The rate of core inflation over the past year edged up to 4.2% from 4.1% in the prior month. A slowing rate of inflation this year and sporadic signs of a cooling labor market could induce the Fed to freeze its benchmark interest rate at current levels (5.25% to 5.5%). The Fed meets again in September to determine its next move.

Confidence among the nation’s consumers retreated markedly in August, close to levels signaling an impending recession. The Conference Board reported its index of consumer confidence fell to 106.1 from a revised 114 the prior month. Economists had expected a reading of 116. In the report, the part of the survey that tracks how consumers feel about current economic conditions fell to 114.8 this month from 153 in July. A gauge that assesses what Americans expect over the next six months dropped to 80.2 from 88. The August reading is just above the 80 level that historically signals a recession within the next year. Dana Peterson, chief economist at The Conference Board stated, “Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular.”

International Economic News:  

Less than one-third of Canadians have “High Trust” in their government according to research conducted by the Public Health Agency of Canada (PHAC). The report entitled “Use Of Public Health Measures, Advice And Risk Assessment Survey" was conducted seeking out the opinions of 6,200 people across Canada and nine Federal focus groups. The new report says that: "Trust, particularly in the government and health care sector, is central to the effectiveness of public health measures.” It adds: “While respondents have a lot of trust in hospitals and health care workers, trust in the federal government (e.g., the Public Health Agency) is much lower." The research asked Canadians to express their trust level in institutions and entities using a 1 to 10 scale, with 10 being the highest. Responding to a question about the Federal Government, just 32% of Canadians said they had "high trust". The only people who scored lower in "trust" than the Federal Government were large media companies and celebrities.

Business confidence in the United Kingdom jumped to an 18-month high of 41% in August despite high inflation and the ongoing cost of living crisis. According to Lloyds, it was the highest level of business confidence since February of 2022, just before Russia’s invasion of Ukraine. On a regional level, confidence increased across ten of the twelve UK regions and nations, with only Yorkshire & the Humber and the East Midlands reporting lower sentiment. London, the South East and the South West recorded the biggest monthly increases, as well as having the highest levels of confidence. Business sentiment was largely driven by a more upbeat view of the wider economy, after the latest interest rate rise from the Bank of England (BoE) was a hike of 25 basis points and not the 50 point increase some firms had expected.

France is to become one of the leading green nations in Europe, economy minister Bruno Le Maire announced this week, adding that ramping up green industry investments – while keeping public spending in check – will be one of the country’s top priorities. “The [inflationary and energy] crisis is behind us; times of reconquest are ahead. We are getting back on track with our economic policy,” Le Maire said. The minister set out a series of economic priorities necessary to both balance the books and provide leeway for investments in industry decarbonization and innovation. “Our economic results are bulletproof,” he added, claiming the French economy had performed better than that of Italy, Germany and Spain since 2017.”

Unemployment in Germany rose more than expected in August, showing cracks in what had been until now a very resilient labor market. The Federal Labor Office said that the number of people out of work increased by 18,000 in seasonally adjusted terms to 2.63 million. Analysts had expected that figure to rise by only 10,000. The seasonally adjusted jobless rate remained stable at 5.7%. The German economy - Europe's largest - stagnated in the second quarter, showing no sign of recovery from a winter recession remaining one of the world's weakest major economies. Germany's economic situation is currently being portrayed as "the sick man of Europe," a term coined by Berenberg economist Holger Schmieding in 1998.

In Asia, the United States is not seeking to decouple from China’s economy or hold it back, Commerce Secretary Gina Raimondo told senior Chinese economic officials the week. “The US-China commercial relationship is one of the most globally consequential, and managing that relationship responsibly is critical to both our nations and indeed to the whole world,” Raimondo said. “I want to be clear that we do not seek to decouple or to hold China’s economy back,” she added. Chinese Premier Li Qiang said he hoped the two countries can strengthen communication and maintain the health of US-China economic relations. “Only through dialogue can we understand each other’s concerns, find common ground and increase the possibility of cooperation,” he said.

Bank of Japan board member Toyoaki Nakamura said it was premature to tighten monetary policy, as recent increases in inflation were mostly driven by higher import costs rather than wage gains. The central bank will take time to determine whether it can raise interest rates as it waits for evidence that a sustained economic recovery will eradicate Japan's deflationary mindset, he said. "The key is for the economy to keep recovering," Nakamura said, when asked about the conditions for ending negative interest rates. "Once there's a general feeling Japan's deflationary mindset has been eradicated, we won't need yield curve control. But we're not there yet," he added. His remarks contrast with those of board member Naoki Tamura, who signaled the chance of a policy tweak early next year, suggesting there was no consensus within the nine-member board on how soon the BOJ can scale back its massive stimulus.

Finally:  

The purchasing power of today’s homebuyers has taken a big hit as mortgage rates sit at their highest point in more than 20 years. The latest report from real estate broker Redfin shows that a homebuyer with a $3000 monthly budget can only afford a $429,000 home with a 30-year mortgage at 7.3%. That buyer has lost $71,000 in purchasing power over the past year. In December of 2020, that same buyer could have afforded a $629,000 home.

 (Sources:  All index- and returns-data from Norgate Data and Commodity Systems Incorporated; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)