U.S. Markets:  The benchmark U.S. equity indexes finished the week to the upside with the technology-heavy NASDAQ Composite outperforming the broader market S&P 500 and narrowly-focused Dow Jones Industrial Average.  The Dow Jones Industrial Average rose 336 points finishing the week at 35,456, a gain of 1%.  The NASDAQ rallied 2.8% finishing at 15,130.  By market cap, the large cap S&P 500 added 1.5%, while the mid cap S&P 400 gained 3.4%; the small cap Russell 2000 lead the pack by surging 5.1%.

International Markets:  Major international markets were also positive for the week.  Canada’s TSX gained 1.5%, while the United Kingdom’s FTSE 100 rose 0.8%.  France’s CAC 40 and Germany’s DAX added 0.8% and 0.3%, respectively, while in Asia China’s Shanghai Composite finished up 2.8%.  Japan’s Nikkei ended the week up 2.3%.  As grouped by Morgan Stanley Capital International, developed markets finished the week up 1.6% and emerging markets rallied 4.2%.

Commodities:  Precious metals rose as inflationary economic reports were released this week.  Gold rose 2.0% to $1819.50 per ounce, while Silver added 4.1% finishing the week at $24.06.  Crude oil retraced all of last week’s decline by surging 10.6% to $68.74 per barrel of West Texas Intermediate crude.  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 4.7%.

U.S. Economic News:  The number of Americans who applied for first-time unemployment benefits rose last week for the first time in over a month, but jobless claims remain near their pandemic lows.  The Labor Department reported initial jobless claims increased by 4,000 to 353,000.  Economists had expected claims to total 350,000.  For perspective, before the pandemic initial jobless claims averaged in the low 200,000’s, spiking as high as 6.9 million during the pandemic.  Claims have been falling ever since.  Meanwhile, continuing claims, which count the number of people already receiving benefits, dipped by 3,000 to 2.86 million.  That number is also at a pandemic low.

The median price of a new home reached a record high last month as buyers appear to be unfazed by the price tags on newly-built homes.  The Census Bureau reported new-home sales increased 1% to an annual rate of 708,000 in July.  The report exceeded expectations, as economists had forecast an annual sales rate of 700,000.  Sales rates varied by region, with the Northeast and Midwest seeing declines of more than 20% compared to last month, while the West posted a 14% gain and the South a 1.3% uptick.  The number of new homes for sale at the end of July increased 5.5% from the month prior, and were up 26% from the same time last year. The inventory in July equated to a 6.2-month supply, representing the highest level of supply in over a year.

Sales of existing homes rose as the inventory of homes for sale grew, giving relief to buyers who had been bidding up prices to excessive levels.  The National Association of Realtors (NAR) reported existing-home sales rose 2% to a seasonally-adjusted 5.99 million in July.  Economists had expected home sales to come in at 5.83 million.  The median sales price of an existing home was $359,900, up 17.8% from the same time last year.  Sales rose in three of the four regions nationally, with the Northeast the only region not to see an increase.  The Midwest saw the largest gain from June, with a 3.8% uptick, followed by the West (up 3.3%) and the South (up 1.2%).

Orders for longer-lasting ‘durable’ goods dipped in July but analysts were quick to note the overall report was positive.  The government reported orders for durable goods ticked down -0.1% last month, predominantly due to a sharp drop in orders for commercial airplanes.  Removing the big-ticket transportation categories, new orders were actually up 0.7% last month.  Citibank economists Andrew Hollenhorst and Veronica Clark said in a note to clients, “The underlying trend of demand for durable goods remains at very elevated levels and should support sustained production into 2022 as supply issues are eventually resolved.”

Spending among the nation’s consumers slowed in July but remained positive as inflation and the delta-variant of the coronavirus weighed on spending.  The government reported consumer spending rose 0.3% last month, matching economists’ estimates.  Analysts note the biggest potential obstacle for the economy is inflation tied to widespread shortages of labor and materials and Fed liquidity.  Consumer spending actually fell 0.1% in July if inflation is taken into account.  The biggest increase in spending in July was on services such as dining out, renting hotel rooms or going on vacation.  Spending fell on goods such as new cars and trucks, clothing and footwear.  The Personal Consumption Expenditures Index—rumored to be the Federal Reserve’s preferred inflation measure, climbed to 4.2% in July—its highest level in 30 years.  

Federal Reserve Chairman Jerome Powell, in his closely-watched speech in Jackson Hole, Wyoming, stated he believed the central bank can begin to “taper” or slow its bond purchases.  Powell said, “at the FOMC’s recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.”  This is the first time Powell has given his personal opinion publicly.  “My view is that the ‘substantial further progress’ test has been met for inflation. There has also been clear progress toward maximum employment,” Powell said.  The Fed is buying $80 billion of Treasuries and $40 billion of mortgage-backed securities each month to put downward pressure on long-term interest rates and boost demand in the economy.  However, Powell was careful not to say when the tapering would begin.  Most market participants rated Powell’s remarks as “dovish” and the market responded positively.

International Economic News:  Following a summer containing heatwaves and forest fires, climate change has been a hot topic among Canadians (pun intended).  However, a new poll from Ipsos suggests they are divided on whether fixing climate change should come at the cost of the country’s economy.  Data from the poll, found that 77% of those surveyed said the country needs to do more to reverse its effects, but a bare majority, 51%, said the federal government needs to “balance economic considerations with environmental efforts.”  A sizeable minority of respondents, 35%, said they believed Canada should do “everything in its power” to fight climate change.

Across the Atlantic, Britain’s post-lockdown economic rebound slowed sharply in August as companies continue to struggle with unprecedented shortages of workers and materials.  The IHS Markit/CIPS flash composite Purchasing Managers Index (PMI) dropped for the third month in a row, sinking to 55.3 from 59.2 in July.  Economists had forecast a reading of 58.4.  The pace of growth was still slightly above the pre-pandemic average but IHS Markit said there were clear signs of the recovery losing momentum after a buoyant second quarter.

On Europe’s mainland, French Finance Minister Bruno Le Maire said France’s economy is “doing well” thanks to a rise in consumer spending.  Le Maire told France 2 television the aim now was for France to return to pre-COVID economic growth levels by end 2021.  France has a 6% growth target for the whole of 2021, which Le Maire reiterated.

German business morale fell for a second month in August, as supply bottlenecks and rising COVID-19 cases drove companies to take a dimmer view of the coming months, a survey showed.  The Ifo institute said its business climate index came in at 99.4, missing an analyst consensus of 100.4 and down from a downwardly revised reading of 100.7 in July.  "The mood in the German economy has clouded over again," Ifo President Clemens Fuest said in a statement.  "Supply bottlenecks for intermediate products in manufacturing and worries about rising infection numbers are putting a strain on the economy."  Concerns were growing in the hospitality and tourism sectors in particular, he added.

In Asia, seven months into the Biden administration his office still has not established a trade policy with China.  U.S. Trade Representative Katherine Tai said the "Biden-Harris Administration and USTR are conducting a comprehensive review of U.S.-China trade policy.”  She acknowledged the significance of the U.S.-China trade relationship, and said the U.S. remains committed to "addressing China's unfair trade policies and non-market practices that undermine American businesses and workers."  

Japan's government maintained its economic assessment for a fourth straight month in August but offered a slightly bleaker view on the outlook than in July.  "The economy continues to pick up but showing some weaknesses as conditions remain severe due to the coronavirus pandemic," the government said in its monthly economic report.  In its outlook, the August report warned of the need to pay attention to "heightening downside risk caused by the pandemic."  The government kept its assessment unchanged for most parts of the economy including consumer spending, which it described as weak mainly due to the services sector.

(Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)