Corporate earnings season for 2Q22 is underway, with about 20% of the companies in the S&P 500 reported, providing valuable insights into the health of the US consumer. Overall results have been mixed so far, with major banks generally not seeing a deterioration in credit conditions with the consumer balance sheet still relatively strong. Many banks increased loan loss provisions as risks build with higher prices and tighter economic conditions.
This week the market received some key data on the US housing market; housing starts for June declined by 2.0% to an annualized rate of 1.559 million units, driven by a drop in construction of single family houses as homebuyers struggle with a combination of elevated prices and higher mortgage rates. Building permits, a leading indicator of economic activity, eased to 1.685 million annualized, with the declines in single family starts and permits mostly offset by an uptick in multifamily activity.
The Leading Economic Index (LEI) came in softer, decreasing by 0.8% month-over-month for June. Although the index is still in positive territory at +1.4% year-over-year, the Conference Board indicated that economic growth is slowing and recession risk increasing due to elevated inflation and monetary policy tightening.
The European Central Bank (ECB) hiked interest rates by 50 basis points yesterday, the first increase in 11 years, into a deteriorating economic backdrop to rein in inflation.
Investors are focused on next week’s Federal Open Market Committee (FOMC) meeting taking place on July 26-27. The bond market is expecting the Fed to lift the federal funds rate by 75 basis points.
Next Week:
Chicago Fed National Activity Index, Case Shiller, Consumer Confidence, New Home Sales, Durable Goods, FOMC Meeting, Personal Consumption Expenditures (PCE) Deflator, University of Michigan Sentiment Index
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