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Stocks Fluctuate, Treasurys Trade Flat Following Weak Manufacturing Data

Economic data released today was highlighted by durable goods orders for May, which displayed a weaker than expected overall level down 1.1% (-0.4% expected).  Declines in defense aircraft orders represented the largest negative (-31%) in the Commerce Department’s report, while a 0.6% jump in machinery and 1.2% rise in vehicle orders offset some of the overall decline.  Core capital goods orders fell 0.2% MoM (+0.5% expected), representing the largest monthly decrease of 2017.  Shipments of core capital goods similarly dropped 0.2% last month, indicating further weakness in business investment during the second quarter.  An initial rally in US stocks tapered off following the sub-par data, and major indices closed mixed on the day with the Nasdaq down 0.3% while the DJIA and S&P 500 posted marginal gains.  Oil started the week on a positive note, with WTI and Brent crude up roughly 1% for the session to $43.50/barrel and $45.95/barrel, respectively.

Another busy week of Fed Speakers got kicked off this morning with Federal Reserve Bank of San Francisco President John Williams, who reaffirmed his support of the committee’s current path of interest rate hikes.  “Gradually raising interest rates to bring monetary policy back to normal helps us keep the economy growing at a rate that can be sustained for a longer time,” Williams stated.  He then went on to explain his expectation for a future rise in consumer prices back towards the Fed’s target, dismissing the recent shortfall in inflation as short-lived.  “Some special transitory factors have been pulling inflation down,” Williams said. “But with some of these factors now waning, and with the economy doing well, I expect we’ll reach our 2 percent goal some time next year.”  Tomorrow, investors will hear further Fed-speak from Janet Yellen via the Conversation with Lord (Nicholas) Stern, President of the British Academy, in London.  US Treasurys held within a tight range throughout the day, and the yield on the 10-year note is closing the session near 2.14%.

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