Sentiment fell to the lowest level in nearly a decade. The data fell short of all estimates by a wide margin with perhaps the decline in future expectations most riveting.

According the University of Michigan sentiment survey, the decline was largely based on the large surge in inflation and the proliferation of the Delta variant. According to the director of the report, “the extraordinary surge in negative economic assessment reflects an emotional response, mainly from dashed hopes that the pandemic would end soon.”

Primarily because of Covid, 36% respondents expect a decline in the jobless rate, down from 52% the prior month, despite record job openings. This decline is a major reason as to why consumers became decidedly downbeat about their income prospects as such fell to a seven-year low.

Regarding inflation, consumers expect inflation to rise to 3.0% over the next five to ten-year, up from 2.8% last month and matching the highest level since 2013.  Prices are expected to rise by 4.6%, a minor pullback from the 4.7% in July, a multi decade high.

Equites were flat on the data but Treasuries advanced about a ½ point back to pivotal technical levels. The discussion of tapering, which was all but a “done deal” by October is now questioned.

What will happen this week?

The economic calendar is comprised of retails sales, numerous housing indicators, the Minutes from the recent Fed meeting and several manufacturing indices.

Last night the foreign markets were down. London was down 0.96%, Paris down 0.85% and Frankfurt down 0.39%. China was up 0.03%, Japan down 1.62% and Hang Seng down 0.80%.

The Dow should open nominally lower on weak Chinese data and the spread of the coronavirus delta variant. CNBC reported there is growing support with in the Fed to announce the tapering of bond purchases in September. The 10-year is off 1/32 to yield 1.28%.

And then there is Afghanistan. The Administration stated Afghanistan is not in our national interest. How will this be interpreted? Is this just noise or something of considerable significance? I think the latter. In every dimension we are living in a multi polar interdependent world.


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