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U.S. Markets:  U.S. markets were mixed, but the headline indices continued to gain ground as the market mostly shrugged off concerns about a renewed spread of the coronavirus.  Within the benchmark S&P 500 index, value stocks outperformed their growth counterparts.  The Dow Jones Industrial Average finished the week up 307 points closing at 35,515, a gain of 0.9%.  The technology-heavy NASDAQ Composite ticked down -0.1% to 14,823.  By market cap, the large cap S&P 500 added 0.7%, the mid cap S&P 400 gained 0.5% and the small cap Russell 2000 retreated ‑1.1%.

International MarketsCanada’s TSX rose 0.2%, while the United Kingdom’s FTSE 100 gained 1.3%.  On Europe’s mainland, France’s CAC 40 and Germany’s DAX added 1.2% and 1.4%, respectively.  In Asia, China’s Shanghai Composite gained 1.7%, while Japan’s Nikkei 225 finished up 0.6%.  As grouped by Morgan Stanley Capital International, developed markets added 1.4% but emerging markets pulled back -0.4%.

Commodities:  Precious metals finished the week mixed with Gold rising 0.9% to $1778.20 per ounce, while Silver retreated -2.3% to $23.78.  Crude oil finished essentially flat following last week’s decline.  West Texas Intermediate crude closed at $68.44 per barrel, an increase of 0.2%.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, finished the week up 1.0%.

U.S. Economic News:  New applications for first-time unemployment benefits fell last week to close to a pandemic low, signaling that fewer people are losing their jobs despite the resurgence in coronavirus cases.  The Labor Department reported initial jobless claims dropped by 12,000 to 375,000, matching the consensus forecast.  New claims had fallen to a pandemic low of 368,000 last month before a temporary increase that was likely tied to seasonal swings in summer employment.  New claims were little changed in most states.  Claims fell the most in New Mexico while California and Michigan posted the biggest increases.  Meanwhile, continuing claims, which counts the number of people already receiving benefits slid by 114,000 to 2.87 million.  Continuing claims are also now at a pandemic low.

It truly is a job-seeker’s market.  The number of job openings in the United States rose to a record 10.1 million in June, the Labor Department reported - the fourth consecutive all-time high.  Economists had expected job openings to rise 9.3 million.  The data is proof the labor market is firming and businesses continue to seek workers.  Also in the report, for the first time in six months, the rate of hiring outpaced the rate of job opening increases.  The number of people hired rose by 697,000 to 6.7 million.  Some economists are starting to anticipate the strong labor market data will allow the Federal Reserve to start tapering its bond purchases this fall.  T.J. Connelly, head of research at Contingent Macro, wrote in a note, “This report might offer the first sign that headwinds like generous unemployment benefits and childcare issues for parents might finally be abating.” 

Optimism among the nation’s small business owners retreated in July after hitting the highest level since the November election last month.  The National Federation of Independent Business (NFIB) reported its index dropped 2.8 points to 99.7.  The survey found business owners are losing confidence in the strength of the economy and expect a slowdown in job creation.  Owners expecting better business conditions over the next six months fell eight points to a net negative 20%.  Still a net 27% of the owners planned to create new jobs in the next three months, only down one point from a record-high reading in June.  Turning to inflation, a net 46% of small business owners reported raising average retail prices.  The NFIB said in its statement, “This is inflation, the question is for how long.”  A net 38% of owners reported raising compensation for workers, down 1 point from June’s record high.  A net 27% expect to raise compensation in the next three months, a 48-year record high reading.

The consumer price index climbed 0.5% in July, matching the consensus forecast.  The reading was down from a 0.9% gain in June.  Over the past 12 months, the rate of inflation remained at 5.4% for a second straight month—a 20-year high.  However, the measure that eliminates the often volatile food and energy categories, so-called “core inflation”, rose a lesser 0.3%.  That measure decelerated to an annual rate of 4.3% from 4.5%, which had been a 29-year high.  The key driver in the moderation of core CPI was used car prices, which rose just 0.2% after surging 30% from March to June.  Federal Reserve officials are remaining patient and view the surprising surge of inflation as “largely transitory.”  Most economists seem to agree but uncertainty remains. 

Prices at the wholesale level surged again, rising sharply in July for the sixth month in a row and offering no evidence that the increase in inflation is near its crest.  The Bureau of Labor Statistics reported its Producer Price Index (PPI) jumped a whopping 1% last month.  Economists had forecast only a 0.6% advance.  In the report, most of the increase was concentrated in services such as airline tickets and hotel rooms amid the surge in travel this summer.  Wholesale auto prices have also risen sharply due to strong demand and because carmakers have been unable to maintain production levels amid shortages of key components.  The pace of wholesale inflation over the past 12 months moved up to 7.8% from 7.3%.  That’s the highest level since the index was reconfigured in 2010, and likely one of the highest readings since the early 1980s.

International Economic News:  Canadian Prime Minister Justin Trudeau is planning a snap election on September 20th to seek voter approval for the government’s costly plans to combat COVID-19.  Trudeau only has a minority government and relies on other parties to push through legislation.  In recent months he has complained about what he calls opposition obstruction.  Trudeau came to power in 2015 with a majority of the 338 seats in the House of Commons, but in 2019 he was reduced to a minority after old photos emerged of him wearing blackface.  The opposition Conservatives, Trudeau's main rivals, maintain that his spending is excessive and will leave future generations hobbled by debt.

Across the Atlantic, Britain’s economy surged in the second quarter as consumers eagerly spent money following the easing of coronavirus restrictions.  The rapid quarter-on-quarter growth rate allowed the economy to recover much of the ground lost over the past two years.  The growth rate was in line with market expectations, although a touch slower than the Bank of England’s forecast of 5% expansion.  Samuel Tombs, UK economist at Pantheon Macroeconomics, said the data showed the UK was “still the straggler” among advanced economies across the whole pandemic despite growing fastest among G7 countries in the second quarter.

On Europe’s mainland, French economic activity ran 1-1.5% below normal levels in July, nearing pre-coronavirus epidemic levels.  In its monthly economic report, the Bank of France confirmed a positive economic trend in the country, notably due to continued improvement in hotels, restaurants, transport, leisure and cultural activities.  In July, the services sector, worst-hit by restrictions, was "increasing significantly" after a return to normal.  The Bank of France expects the French economy to grow 5.8% for the whole year of 2021, 0.2% lower than the current government forecast.

Germany’s Economy Ministry argues that the recent rise in inflation will be temporary as it is largely driven by special effects that should wane at the start of next year.  Germany’s annual consumer price inflation accelerated by more than expected, hitting a 13-year high in July.  In its monthly report, the ministry wrote, “A sustained increase in the inflation rate is not to be expected from today’s perspective.  Currently there are no signs of a wage-price spiral that could lead to permanently high inflation.”  The main factor in the jump in the inflation rate was base effects from a temporary reduction in VAT (value-added tax) rates in the second half of 2020, the ministry maintained.

In Asia, China’s worst coronavirus outbreak in a year has authorities taking drastic measures to limit its spread.  But while locking down cities, canceling flights and suspending trade may bring the virus back under control, those actions risk stalling a precarious recovery.  While the numbers of cases remain small by comparison with recent surges in infections in the United States and Europe, China has aggressively revived its “zero-Covid” strategy.  Those drastic moves have already prompted some economists to slash their growth projections for the world’s second largest economy.  Goldman Sachs analysts forecast China’s GDP to grow by just 2.3% in the third quarter from the previous quarter — dramatically lower than the 5.8% increase they originally expected.

Ninety percent of major Japanese companies expect the country's economy to expand in 2022 on hopes that the fallout from the coronavirus pandemic will subside, a Kyodo News survey showed.  The survey of 111 companies, including heavyweights like Toyota Motor Corp. and Sony Group Corp., also showed companies increasingly joining global efforts to curb greenhouse gases and striving to ensure economic security amid growing tensions between the U.S. and China.  The survey found 75% of the firms expect moderate economic growth next year, followed by 15% that said the world's third-largest economy will expand in 2022.  None of the companies anticipated a contraction.

(Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal,,,,,,,, Eurostat, Statistics Canada, Yahoo! Finance,,,, BBC,,,, FactSet, WE Sherman.)