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Sturdy Consumer Data Lifts U.S. Markets, Strengthens Dollar

Building upon an overall constructive month for economic data for consumers, personal income in the U.S. rose 0.4% in July, while the June figure was also revised higher to +0.3%.  Led by strong demand for automobiles, consumer spending reported an increase for the fourth straight month, a 0.3% growth that was in line with analysts’ expectations.  The news was well-received throughout markets as the S&P 500 approached its record high, erasing a three-day slide.  Treasury prices similarly climbed with the 10-year and 30-year note yields decreasing to 1.58% and 2.24%, respectively, each down 4-5 basis points.  The U.S. dollar appreciated against major currencies, producing a three-week high against the yen at 102 per dollar.  The strengthening currency is a direct reflection of the positive consumer data adding to the probability of a Fed rate hike by year end, which has now increased to over 60%.  Economists are expecting signals for further market direction this Friday following the release of the August employment report.      

Abroad, European officials presented a mixed bag of news so far this week.  On Sunday, the vice-chancellor of Germany, Sigmar Gabriel, claimed talks between the European Union and the United States surrounding the Transatlantic Trade and Investment Partnership (TTIP) had failed.  He further provided that unapproved U.S. demands and concerns over future EU exits were the central reasons why the free trade deal could not be finalized.  In direct opposition, European Union executives dismissed Gabriel’s statements to the public this morning and announced a unanimous mandate among 28 EU member countries to complete the TTIP.  Viewed as a substantial economic step forward for both the U.S. and EU, the TTIP is receiving speculation on both sides as Barack Obama’s term comes to a close.  All major European stock indexes traded lower on the day Monday while the U.K. markets were closed for a public holiday.    
 
Oil prices fell on the day, weighed down by the strengthening U.S. dollar and continued doubt of an agreement among OPEC members to freeze production.  Both WTI and Brent crude prices decreased nearly 1.5%.  All three major U.S. stock indexes are currently up between 0.4% and 0.7%, while swap rates are down 3-7 bps across a flattening yield curve.       

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