U.S. Markets:  U.S. stocks ended the week mostly lower as investors weighed positive economic reports with concerns over global supply chains and an inevitable tightening in monetary policy.  The small-cap Russell 2000 managed a slight gain, but the rest of the major indexes finished the week lower.  The Dow Jones Industrial Average ticked down 0.1% to 34,585, while the technology-heavy NASDAQ Composite fell a half percent to 15,044.  By market cap, the large cap S&P 500 gave up -0.6%, the mid cap S&P 400 fell -0.3%, and the Russell 2000 rose 0.4%.

International Markets:  The vast majority of major international markets finished the week down as well.  Canada’s TSX declined for a second week, down -0.7%, while the United Kingdom’s FTSE 100 retreated -0.9.  On Europe’s mainland, France’s CAC 40 and Germany’s DAX ended down -1.4% and -0.8%, respectively.  In Asia, China’s Shanghai Composite reversed most of last week’s gains falling -2.4%, but Japan’s Nikkei finished the week up 0.4%.  As grouped by Morgan Stanley Capital International, emerging markets shed -2.1%.  Developed markets fell -0.8%.

Commodities:  Precious metals sold off despite clear signs of inflation in the economy.  Gold ended the week down  2.3% to $1751.40 per ounce, while Silver dropped a larger -6.5% to $22.34.  Energy moved higher.  West Texas Intermediate crude oil rose 3% to $71.82 per barrel.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, plunged -4.6%--a four-week low.

U.S. Economic News:  The number of Americans filing first-time applications for unemployment benefits rose last week, one week after hitting a pandemic low.  Initial jobless claims rose 20,000 to 332,000 in the week ended September 11th.  Economists had expected new claims to total 318,000.  This latest report is the first since the extra federal benefits for the unemployed expired on September 6th.  Meanwhile, the number of people already collecting benefits, known as “continuing claims”, fell by 187,000 to 2.67 million.  That number is currently at a pandemic era low.  Other than taking into account Hurricane Ida analysts were at a loss for the slight uptick in claims.  Thomas Simons of Jefferies LLC wrote in a note, “Demand for labor remains extremely strong, so there is no fundamental reason why we would see claims move higher.”

Small businesses continue to struggle with major shortages of both labor and supplies according to a closely-followed survey.  The National Federation of Independent Business (NFIB) reported small-business owners were a bit more optimistic about the economy last month, but record shortages of materials and workers are having a significant impact on sales and profits hindering the economic recovery from the pandemic.  The NFIB reported its optimism index rose 0.4 point to 100.1.  Economists were expecting a reading of 99.0.  The lack of supplies stems from major disruptions in global trade tied to clogged ports and rail stations coping with large backlogs.  While the supply bottlenecks are expected to ease, the labor shortage could prove to be a more difficult issue.  Half of all small-business owners said they could not fill open positions—the highest level in the 48-year history of the survey.

The recent surge in prices at the consumer level leveled off in August, however analysts don’t believe Americans are going to get much relief from higher prices anytime soon.  The Bureau of Labor Statistics reported its index of consumer prices climbed 0.3% last month.  Economists had estimated a 0.4% rise.  Over the past year, the rate of inflation stands at 5.3% in August—down a tick from July.  It was the first slowdown since last October.  Aside from the brief oil-driven spike in 2008, consumer prices have risen this year at the fastest pace in three decades.  Another closely watched measure of inflation that omits food and energy, so-called “core inflation”, rose just 0.1%.  That was the smallest increase since February.  

Sales at U.S. retailers rose sharply in August, a sign that consumers continued to spend despite the media reports of an uptick in the spread of the ‘delta-variant’ coronavirus.  The Census Bureau reported retail sales increased 0.7% last month.  The consensus forecast was for a -0.7% decline.  Sales advanced in almost every major retail category in August, and they rose an even stronger 1.8% if autos are excluded.  Compared to the same time last year, retail sales were up 15%.  Some analysts were quick to point out that part of the increase reflects the higher prices consumers are paying, particularly for groceries and building materials.  Chris Low at FHN Financial summed up the report noting, “All in all, this was a solid showing by U.S. consumers, expected by no one, suggesting the economy continued to hum in August.”

Business activity in the New York-region soared this month according to the New York Federal Reserve.  The NY Fed’s Empire State business conditions index surged 16 points to 34.3 the regional bank said this week.  Economists were expecting a reading of only half that.  The new orders index jumped 18.9 points to 33.7, while the shipments index soared 22.5 points to 26.9.  Both prices paid and prices received were at or near record highs in September.  And business leaders expect the strength to continue.  The sub-index of what the business leaders expect for the next 6 months also came in very positive.  

International Economic News:  A study by the Fraser Institute this week reported Canada has dropped out of the top 10 most economically free countries in the world.  Canada now ranks 14th out of 165 countries assessed in the annual survey, part of a continuing downward trend since 2016, says the report, Economic Freedom of the World 2021.  “Due to higher taxes and increased regulation in Ottawa and the provinces, Canadians are less economically free, which means slower economic growth and less investment in Canada,” said study co-author Fred McMahon.  “Where people are free to pursue their own opportunities and make their own choices, they lead more prosperous, happier and healthier lives.”  The annual report is produced by the Fraser Institute, in co-operation with the Economic Freedom Network, a group of independent research and educational institutes.

Across the Atlantic, inflation in the United Kingdom soared to a nine year high last month, with consumer prices rising 3.2% over the past year.  The Office for National Statistics reported August’s reading was an increase of 1.2% over the 2% annual rise in July.  On a monthly basis, the increase was the sharpest since records began in 1997.  Hugh Gimber, global market strategist at JPMorgan Asset Management wrote in a note to clients, “Following sharp spikes in inflation across the Atlantic in recent months, the UK economy has now come to the inflation party.”  Furthermore, Gimber noted there were signs inflationary pressures were increasingly broad based across many sectors of the economy.

On Europe’s mainland, French Foreign Minister Jean-Yves Le Drian said France is immediately recalling its ambassadors to the United States and Australia as retaliation over Australia’s cancelled submarine deal.  He said the cancellation by Australia of a big contract to buy French conventional submarines in favor of U.S. nuclear-powered subs is “unacceptable behavior”.  France had been working on the deal since 2016 and is set to lose over $100 billion now that Australia has chosen to go in a different direction.  A White House official said the Biden administration has been "in close touch with our French partners" on their decision.

The DIW Economic Institute reported the German economy will grow more slowly than expected this year as supply chain problems and shortages of raw materials keep a lid on the industrial recovery.  However, its economists expect a strong rebound next year.  The DIW trimmed its growth forecast for this year to 2.1% from a previous 3.2%, but predicted a jump to 4.9% in 2022 assuming production constraints lift towards the end of the year.  The institute expects growth to normalize at 1.5% in 2023.

In Asia, China’s second-biggest property company Evergrande is facing its own “Lehman moment” as it suddenly can’t service its $300 billion in debts, according to analysts.  As Evergrande’s troubles continue to grow, the pressure on China’s real estate sector is being felt far beyond just a single developer.  August data released this week suggested national home sales by value had tumbled 19.7% year-over-year, the largest drop since April 2020.  Michael Pettis, a professor of finance at Peking University stated, “It seems that we may have already started the financial distress process.  As the risk of insolvency increases, the behavior of sales agents, homebuyers, suppliers and other stakeholders changes in ways that further undermine revenues and raise expenses.”  To the shock and dismay of bond holders, the Beijing government has not stepped in to save Evergrande (yet), causing many to reassess their prior belief that the government would be there as a backstop.

Japan cut its economic outlook for the first time in four months as broken global supply chains dampened the confidence of the nation’s consumers.  In its monthly assessment, Japan’s Cabinet pointed to domestic and overseas virus situations as evident downside risks to the country’s economic recovery.  Among key economic elements, the authorities downgraded their view of production for the first time in 17 months, and private consumption for the first time in four months.  Together with chip shortages and slowing recoveries in major economies such as China, the government report raised the possibility of production cuts spreading to other sectors beyond carmakers.

(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.)