US non-farm payrolls rise

Grand jury impaneled in Russia/election probe

Dow sets record on impressive corporate earnings

Trump signs bill sanctioning Russia, Iran and North Korea

US considers trade action against China

Greenspan sees bond bubble

Global equities edged higher this week amid continued strength in US markets as another impressive earnings season unfolds. The Dow surpassed the 22,000 mark during the week, aided by a tailwind from a weakening US dollar and supportive US economic data. The euro rose to an 18-month high, acting as a headwind for shares of European multinationals but supporting commodity prices. West Texas Intermediate crude oil prices broke above the $50-per-barrel barrier at midweek, but eased to end near $49, down slightly from last week’s $49.65. The yield on the US 10-year Treasury note slipped three basis points on the week to 2.27%. Volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), declined to 9.9 from 11.0 a week ago.

MACRO NEWS

Another solid US employment report

US labour markets remained tight in July, with the unemployment rate slipping to 4.3%, matching a recent 16-year low. The economy added another 209,000 jobs, handily exceeding the 180,000 six-month average. However, despite solid job growth, wages remain restrained, with average hourly earnings holding steady at a 2.5% annual growth rate. The upbeat data should keep the US Federal Reserve on course to begin shrinking its balance sheet in the next few months and for another rate hike before year’s end.

Russia probe ratchets up

Special counsel Robert Mueller has empanelled a grand jury in Washington, D.C., to investigate Russian interference in the 2016 US presidential election, according to the Wall Street Journal. This indicates the probe is entering a new phase and suggests it could last for months.

Dow reaches new milestone

One thousand points isn’t what it used to be, accounting for a move of less than 5% at present levels, but markets took note of this week’s milestone nonetheless as the venerable Dow Jones Industrial Average broke and closed above the 22,000 mark for the first time. Solid corporate earnings and a weakening US dollar are providing a favourable backdrop for equities amid slow-but-steady economic growth and low inflation. The growth/inflation combination could keep the Fed from tightening monetary policy more quickly than expected.

Trump reluctantly signs sanctions bill

US president Donald Trump, fearing that a veto would be overridden by Congress, this week signed a sanctions bill that targets Russia’s energy and defence sectors. Trump’s objections to the bill stem from his belief that it encroaches on the executive branch’s authority to negotiate. Reacting to the bill, Russian Prime Minister Dmitry Medvedev declared that a full-fledged trade war has been declared against Russia.

Russia also ejected 755 US diplomats and seized two diplomatic properties. The bill also includes sanctions on North Korea and Iran.

US scrutinizes China’s IP practices

The Trump administration is considering taking trade action against China and is discussing launching a probe into Beijing’s insistence that foreign companies transfer technology to local Chinese subsidiaries and partners. The administration could launch a “Section 301” action, which allows the president to impose duties on products from countries that use unfair trade practices. An announcement had been scheduled for Friday, but was cancelled by the White House without explanation. Trump also this week linked trade with lack of progress on restricting North Korea’s nuclear program, suggesting the potential for trade restrictions with China unless it takes action to restrain its neighbour.

Greenspan more worried about bonds than stocks

Former Fed chairman Alan Greenspan opined this week that we are experiencing a bubble, not in stock prices, but in bond prices. Real long-term interest rates are much too low and are therefore unsustainable, he said. Greenspan sees a return to 1970s’-style “stagflation,” or poor economic growth and rising inflation. “That is not good for asset prices,” he warned.

Czech central bank first in Europe to hike rates

While the Bank of England and the European Central Bank have been contemplating shifting to less accommodative monetary policy stances, the Czech central bank took action on Thursday, raising its main policy rate from 0.05% to 0.25%, its first hike since 2008. Rising wages and shrinking economic slack were factors behind the rate boost. Meanwhile, the BOE voted 6–2 on Thursday to hold rates steady. Markets have been on high alert since a close 5–3 vote at the June BOE meeting to leave rates unchanged raised the spectre of an interest rate hike sooner than the market had anticipated.

Venezuelan crisis intensifies after vote, arrests

Following a disputed election for a new legislative body last weekend, in which voting tallies were reportedly manipulated, and the arrest of two high-profile opposition leaders, Venezuelan president Nicolas Maduro faces increased pressure both from within Venezuela and without. The United States placed sanctions against Maduro, freezing any assets he holds in the US, and barred Americans from doing business with him. Also, anyone doing business with the newly elected legislative superbody will also be subject to US sanctions.

EARNINGS NEWS

According to Thomson Reuters I/B/E/S, with 75% of the companies in the S&P 500 Index having reported, Q2 earnings are expected to increase 11.8% compared with a year ago. Excluding the energy sector, the earnings growth estimate dips to 9.2%. Revenues are expected to increase by 5% compared with Q2 2016, and 4.1% excluding energy.

All the Best and have a great week ahead

Stuart

CEO

Farringdon Group

+60 3 2026 0286