The much hyped speech of FRB Chair Yellen has come and gone with little impact. Yellen’s remarks were similar to that of the July FOMC Minutes which showed the Committee growing more aware that labor markets are approaching full employment albeit the “underutilization of labor resources still remains significant.”
Some are interpreting the FOMC Minutes as hawkish. The Minutes unexpectedly stated the Committee is closer to agreement on an exit strategy from aggressive stimulus, raising the possibility that it might increase rates sooner than anticipated.
Has an improving job market and cheaper borrowing costs revived the residential real estate market? Home construction rebounded in July by the greatest amount since November, rising by 15.7% to a 1.09 million annual rate. Permits also exceeded expectations, rising by 8.1% to a 1.05 million pace thus suggesting housing should remain robust for the intermediate future.
Stocks rose on a light volume rally, the result of a possible easing of global tensions. It was reported Russia made some inroads in “difficult” talks in Berlin and Kurdish/Iraqi forces made significant progress against militants, retaking control of that country’s largest dam.
Stocks quietly rose yesterday amid optimism that tension between Russia and Ukraine will ease and American airstrikes will push back militants in Iraq. The question at hand are geopolitical risks waning or is this just a pause. Obviously all hope the former.
Approximately 15-16 years ago the prevailing view on Wall Street is that the business cycle was dead. The global economies had entered into a New Paradigm where this newly created multipolar interdependent world would make war and conflict prohibitly expensive under the simple guise that economics is the primary motivation of behavior. The purse is more powerful than the gun. Valuations skyrocketed partially upon this view.
Will tension continue to rise between the East and the West, tensions that will increase the scope and degree of economic sanctions against Russia? If sanctions are increased, what impact will these sanctions have upon global growth?
Comments from the Polish government stating Russia is on the verge of invading Ukraine spooked stocks. Putin is showing no sign of backing down since last week’s tightened sanctions as Russia is massing even more troops on its neighbor’s border.
Perhaps “the dog days of summer” is an accurate description of yesterday’s trading until a late afternoon geopolitical inspired rally that pushed equities higher. All markets were quiet, volume subdued, an environment perhaps amplified by the lack of any significant headlines until the 3:00 P.M headlines.