US Economy and Credit Markets Ended July 21, 2017

The yield curve flattened over the course of the week. Treasuries continued to rise following the previous week in which investors interpreted comments from Fed Chairwoman Janet Yellen's congressional testimony that soft inflation could slow the pace of rate hikes. On Tuesday, longer-term yields fell sharply as Senate Republicans failed to repeal and replace the Affordable Care Act. This renewed doubts that President Trump will be able to get through his fiscal policy agenda, including tax cuts and higher infrastructure spending. The proposed policies boosted yields following the election on higher expectations for inflation, which so far has not manifested itself. Meanwhile, U.S. import prices declined 0.2% in June due to lower fuel prices, matching the consensus estimate. On Thursday, the European Central Bank left its monetary policy unchanged, meaning it would continue its €60 billion-a-month bond-buying-program and leave interest rates steady. ECB President Mario Draghi's comments echoed sentiments of soft inflation, boosting U.S. government bonds on Thursday and Friday. The market viewed Draghi's comments as dovish compared to the comments he made in June hinting that the ECB would gradually reduce its bond purchases once its objectives for growth and inflation were met. In other economic news, June housing starts were 1.215 million annually, topping the consensus estimate. Looking ahead, the Federal Open Market Committee's next meeting is scheduled for July 25-26. Major economic reports (related consensus forecasts; prior data) for the upcoming week include: Monday: July Markit US Manufacturing PMI (52.3M, 52M), June Existing Home Sales (5.58M, 5.62M); Wednesday: June New Home Sales (615K, 610K); Thursday: June Wholesale Inventories (0.2%, 0.4% MoM).
Posted on Monday, July 24, 2017 @ 8:12 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.