Daily Market Color

U.S. Equities Fall Off All-Time Highs Following Mixed Economic Data

A packed schedule of economic data paced market activity today, highlighted by housing starts, CPI, and industrial production.  Housing starts exceeded projections, reporting a 2.1% month over month rise yielding an annual increase of 1.21 million.  The figure is the highest level in five months as low interest rates on new job creation continue to support the real estate market. US consumer prices were unchanged for July, in line with expectations.  Yet core inflation (excluding food and energy) disappointed with a 0.088% monthly increase reported, lower than the running average of 0.2% seen throughout the second quarter.  Rounding out the significant data figures released today was industrial production, which saw its largest increase since November 2014 at +0.7%.  Strong growth was reported across all industries, signaling positive momentum to start the second half of 2016.

In addition to the domestic statistics, NY Fed President William Dudley announced that a September rate hike is not out of the picture, and the US central bank will have to closely monitor global economic data over the next few months.  The statement shifted the futures odds of a FOMC rate hike to 18% for September (twice that of yesterday’s probability) and up to 51% by December.  Fed minutes, to be released tomorrow, should provide additional insights into the rate hike conversation.
Overseas, Britain received its first official economic data since the EU referendum, as the Office for National Statistics announced that consumer prices rose 0.6% year-over-year in July, above the 0.5% increase expected.  The report also showed a rise of 4.3% in producer prices, due to a jump in import prices.  The news halted an 8-day rally in the U.K. equity markets while it strengthened the British pound – which had hit a 30 year low vs. the US dollar on Monday.  In Asia, Japan also saw its equity market fall as its currency improved against the dollar.  The dollar’s value dropped to near 100 Yen, reaching the lowest that exchange rate has been at in nearly 3 years, when it last broke below 100.     
All three major US indexes are down a bit less 0.5% for the day, while US Treasury yields and swap rates are up 1-3bps across the curve.  Oil prices continue to rise off of production freeze speculation, as both WTI and Brent crude are up around 1.25% on the day.

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