Market Perspective for August 8, 2016

The U.S. markets opened in record territory following Friday’s better-than-expected monthly employment report, though the advance paused by midday as investors assessed weaker Chinese trade data.

This week’s earnings will illuminate consumer trends as the retail sector kicks off two weeks of heavy reporting. Kohl’s (KSS), Nordstrom’s (JWN), Macy’s (M), Coach (COH), Michael Kors (KORS) and online retailer Alibaba (BABA) are all scheduled to report. Most department stores are down considerably from March levels, despite the rise in consumer spending, due to competition from e-commerce.   Disney (DIS) will also report quarterly earnings this week and is expected to deliver encouraging numbers after three hit blockbuster movies during the quarter, though the ESPN division could potentially drag on profits.

Monthly retail sales figures for July are due out Friday. The average forecast calls for a 0.4 percent increase from June (0.2 percent ex-autos). The latest University of Michigan Consumer Confidence Survey and the U.S. producer price index (PPI) are also scheduled to be released on Friday. Consumer confidence is expected to rise, while the PPI is expected to slow considerably from June’s 0.5 percent increase to 0.1 percent.

China will release a number of economic reports for the month of July this week. On Sunday night, the country revealed a spike in the trade surplus due to an uptick in exports and a drop in imports. Later this week, new loan and inflation data will be out. Investors are closely watching credit growth following a recent bounce in real estate, which has prevented GDP from slowing, driven by an unprecedented rise in mortgage lending.

Oil prices rallied on Monday after hedge funds loaded up on short positions in anticipation of a move into the $30 range. This short-term rally should peak in the $43 to $45 per barrel range. In addition to rising gasoline inventory, there is still a large amount of “floating storage,” oil tankers filled to the brim and parked offshore at major oil ports around the world.

Investors adopted a wait-and-see attitude to start the week, but positive earnings and strength in the consumer sector will reinforce the bullish implications of the strong July jobs report. The Atlanta Fed raised its GDPNow target for the second quarter to 3.8 percent based on the recent slate of positive economic reports and further upside surprises could push estimates past 4 percent. Foreign central banks are accommodative as well, providing a bullish backdrop for the markets. New Zealand’s central bank meets Wednesday and is expected to cut interest rates. It is the last major central bank policy meeting this month.



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