Report (Premium Edition) 08-02-2021

Tip: Use this as a quick guide on the short-term direction (1-2 weeks) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.

S&P 5004395.27−0.54%−23.874412.254389.65Bull
Crude (WTI)72.68-1.33%-0.97973.89172.59Neutral
10 Year1.225−0.08%−0.00101.2441.22bear
US Dollar Index91.962−0.14%−0.12892.17191.912bear

Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

REIT Alert: Due to Covid-19, there is a large percentage of people that have not paid rent or mortgages. We are very worried about the effect it could have on real estate investment trusts’ (REITS) value. Even though the sectors may trending bullish, we believe that REITs could have a significant drop in value.

Sector Name5-Day Return1-Month Return3-Month ReturnYTD ReturnYTD Return vs S&P 5003-Year Return5-Year ReturnTrend
 Basic Materials3.00%1.60%1.50%17.80%0.00%44.80%86.40%Bull
 Communication Services-1.50%0.60%4.50%20.80%3.00%76.60%58.20%Bull
 Consumer Cyclical-1.70%0.40%0.50%14.70%-3.10%91.80%164.20%Neutral
 Consumer Defensive0.30%1.70%2.80%7.90%-9.90%44.90%50.10%Bull
 Financial Services1.00%-0.30%0.90%24.90%7.10%36.20%103.70%Bear
 Real Estate0.40%4.40%8.00%26.80%9.00%48.00%41.00%Neutral

Key Drivers for the Week of Aug 2, 2021

TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • Growth threatened from Delta, supply constraints, but should be temporary
  • Central bank meetings: BoE, RBA, BoT, all seen keeping policy unchanged
  • U.S. focus on July jobs report, also ISM manufacturing and services data
  • Treasury unlikely to announce supply cuts to coupons at August refunding
  • Another heavy earnings slate with Alibaba, Eli Lilly, Sony, GM, Kraft Heinz
  • Canada on holiday Monday; employment, building permits, Ivey PMI due
  • Japan PMIs, consumer confidence, auto sales, Tokyo CPI; China PMIs, 
  • Eurozone manufacturing, services, composite PMIs, PPI, retail sales
  • German manufacturing orders, PMIs, industrial production

Stocks & ETF Watch List

Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated monthly to help provide our readers with timely insights. Readers should do their own research before making any investment. In order to make our report easier to read, we are now including the stocks as lists for readers in separate posts.

  • Inflation Stock Picks: List of stocks that we think should perform better in a rising inflation environment. Click here
  • Auto Parts Stock Picks: Auto parts companies are likely to see their stocks rise as the average age of cars and light trucks increased from 11.9 years in January 2017 to 12.2 years in January 2021, according to new data from IHS Markit. Below are the top auto parts companies that investors should buy now before the profits roll in. Click here.
  • Solid Picks: This group of stock/ETF picks is likely to experience growth and perform well into the near future. Click here.
  • Dividend Stocks: List of stocks that have excellent dividends and business performance. Click here.
  • Dividend Growth Stocks: List of stocks that have a history of growing dividends. Click here.
  • Dividend ETFs Picks: This list of ETFs is selected for their ability to pay dividends. Click here.
  • Dogs of the Dow: This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used the price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. Click here.

Week Ahead: Inflation, Debt Ceiling Battle – Market Dip Ahead?

On August 2, 2021

Caution will likely be the word to open in August as traders assess the various cross currents. Bonds were bid on Friday as the Delta virus exacerbated growth uncertainties which gave way to a selloff in equities. 

Additionally, disappointing guidance in many of the tech earnings announcements and China’s regulatory clampdown added to the worries. The slippage in China’s PMIs will be seen as reflecting the loss of momentum. 

The Dollar is trading moderately softer as global markets take a glass-half-full stance. The DXY dollar index ebbed to an intraday low at 91.97, which marks about a half retrace of the gain that was seen on Friday. Currency market ranges have been typically narrow for early-week trading.

Chinese equity markets led a broader rebound in Asian equity markets after hitting a low for the year last week. European stocks and U.S. index futures also posted gains. News that U.S. President Biden’s $1 trillion infrastructure plan will, finally, be advancing to the Senate this week gave sentiment a boost.

But, there remain things for investors to be concerned about: Real estateinflation, and an overdue market correction.

REIT & Real Estate Risk

The House has left for the Summer without extending the eviction moratorium. This means evictions and foreclosures can resume. I believe that this could cause some stock and REITs to dip in the next few months because their occupancy rates will go down. I am reviewing all my real estate holdings and limiting exposure to the sector until 2022.

Inflation risk

Ray Dalio and Larry Summers sat down during the Qatar Economic Forum for an interview to discuss the current state of the economy and future restructuring, and concerns about inflation. Summers worries that policymakers are not doing basic math correctly. Summers says the rate of inflation this Summer was “close to 8 percent,” but isn’t sure if it is 6% or 4.4% annually. Summers continues to warn that economic overheating could lead to a monetary policy response. He warned that “anything can happen,” and no one can predict it.

Two reasons Dalio believes we are facing classic monetary inflation are two. He stated that about 10% of the country’s GDP is held in financial assets. This means that prices will likely rise significantly due to a significant increase in demand. This is worrying because Dalio seems to predict a flow from financial assets to physical assets such as precious metals, commodities, equipment, and real estate, especially land.

Dalio explained that the U.S. would be forced to sell U.S. bonds to foreign investors when Chinese capital markets “becoming more appealing.” Summers is less worried about China’s threat to its Dollar, but he still believes inflation is his primary concern.

On Wednesday, Jay Powell, Chairman of the Federal Reserve, stated that inflation could be higher than previously anticipated. This confirms my earlier understanding that the Fed misunderstands the situation or downplays inflation worries to avoid an inflationary panic. There is no panic. Powell stated that inflationary pressures, which Powell was trying to calm investors, “is something that will pass.” Powell said that the Fed’s $120billion monthly purchases were “not something we are looking at right now.” This means that the Fed will continue to inject liquidity, support inflationary pressures, and inflate bubbles. I expect inflation to rise next year, although it may ease once the Fed signals tapering.

There is a risk that the Fed might have misread the situation. However, the Fed could also be forced to make an abrupt policy shift, creating financial instability. Mohamed El-Erian, an economist, previously stated that this would be like putting the brakes on by cutting quantitative easing and raising interest rates. This could lead to another recession. American and foreign investors could lose faith in the Fed’s ability to steer the economy and monetary ship. This could cause inflation spiraling and could result in the U.S. Dollar losing its credibility. Losing the U.S. dollar’s “safe haven” perception could further undermine its world reserve status and boost competitors such as the Chinese digital Yuan or crypto assets.

Market Dip & Debt Ceiling

Everywhere I look, I see signals that the market is overbought and is long overdue for a correction. It has 179 trading days that have passed since the last 5% S&P 500 drawdown (nothing). This is nothing – only the 15th longest streak in the previous century, and we did over 400 days in recent memory.

The S&P 500 continues to rocket to new levels and hasn’t touched the 200MA since last June, and we think it could correct at any moment. One of those triggers could be a government shutdown due to the debt ceiling.

The deadline has now passed, and Treasury Secretary Janet Yellen is sounding alarms that she believes a default is “unthinkable.”

Right now, it appears that the market and news are ignoring the debt ceiling. However, I think the debt ceiling and/or a government shutdown could cause a much long overdue dip in the market.

There’s plenty on this week’s calendar on which to reflect too. The July jobs report will be the highlight. But ahead of that release, there is today’s July manufacturing ISM, expected to dip slightly to 60.5 from 60.6. June construction spending is penciled in, rebounding 0.4% after the unexpected -03% decline in May.

The earnings calendar remains very heavy following the busiest week of the Q2 season and includes HSBC, Global Payments, NXP Semi, Ferrari, Simon Property, SBA communications, Pioneer Natural Resources, American Water Works, Williams Companies, ZoomInfo, Take-Two Interactive, and Diamondback Energy. The Treasury announces Q3 and Q4 borrowing projections ahead of Wednesday’s refunding announcement.  


This will be another busy week in the U.S. with key data including employment and PMIs, another heavy slate of earnings, and the Treasury’s refunding announcement. Treasury yields closed lower last week, extending July declines amid increasing growth concerns, an easing in inflation worries, and a dovish Fed stance. The 10-year was over 4 bps richer on Friday to hit an intraday low of 1.224% and the 30-year was down 3.5 bps to 1.885%. The 2- and 5-year notes found traction too and declined 1.8 bps and 3.8 bps, respectively, to 0.185% and 0.692%.

Nonfarm payrolls (Friday) are projected to increase 600k in July after gains of 850k in June and 583k in May. Manufacturing jobs should rise 25k after a 15k June increase. The unemployment rate should fall to 5.7% from 5.9% in June and 5.8% in May. Hours-worked is assumed to rise 0.7% after a 0.2% June increase, while the workweek ticks up to 34.8 from 34.7 in June. Average hourly earnings are assumed to rise 0.3% after gains of 0.3% in June and 0.4% in May, as minimum wage workers have been slow to return to the workforce. The y/y wage gain should climb to 3.8% from 3.6%. Employment gains have cooled off in recent months, in part as the recovery has lost some steam, along with speculation the generous unemployment benefits and child care issues are headwinds.

Other data this week include the July ISM manufacturing (Monday) and services (Wednesday) reports for July. They too will be scrutinized for insights on growth, as well as inflation. The manufacturing index is expected to tick down to 60.5 from 60.6 in June and an 18-year high of 64.7 in March. The ISM-NMI index is expected to rise to 61.0 from 60.1 in June. The runup through May left the four highest readings in history. Producer sentiment has remained strong, as vaccines and two massive Q1 stimulus distributions fueled a steep climb in retail sales to a March-April peak, while businesses will face the need to rebuild inventories throughout 2021.

The Treasury announces its August refunding on Wednesday, to include details on the upcoming 3-, 10-, 30-year maturities. We don’t expect any changes in coupon issue size. There has been speculation of such, but we suspect there is enough uncertainty over the debt limit and funding issues to maintain the status quo. The Treasury trimmed the volume of the bills a month ago in order to bring cash balances down to the $450 bln level at the end of July (balances were $501 bln on July 29) ahead of the reintroduction of the debt ceiling. with the mission accomplished, we expect no further changes with this week’s announcement.

The earnings calendar remains very heavy after the busiest week of the Q2 season last week. Eyes will be on the likes of Alibaba after it crashed last week on China’s regulatory crackdown. Healthcare and Pharma will be in the spotlight too. Monday kicks off with HSBC, Global Payments, NXP Semi, Ferrari, Simon Property, SBA communications, Pioneer Natural Resources, American Water Works, Williams Companies, ZoomInfo, Take-Two Interactive, and Diamondback Energy. On Tuesday there is Alibaba, Eli Lilly, Amgen, Sony, Diageo, BP, ConocoPhillips, Activision Blizzard, Eaton, Monster Beverage, Match Group, Prudential, Microchip Technology, Transdigm, Cummins, Zimmer Bionet, Phillips 66, Occidental Petroleum, Verisk Analytics, WEC Energy, Discovery, Ringcentral, Paycom Software, XP, Clorox, Gartner, Xylem, Warner Music, Caesars Entertainment, Devon Energy, Incyte, FMC, Fidelity National, DaVita, and Wynn Resorts. Wednesday has CVS Health, Booking Holdings, Uber, GM, Roku, Emerson Electric, Honda, MetLife, Kraft Heinz, Trane, T. Rowe Price, Excelon, EOG Resources, Electronic Arts, Allstate, Manulife, Marathon Petroleum, ANSYS, McKesson, Sun Life, MPLX, Etsy, CDW, Amerisource Bergen, Vulcan Materials, FleetCor, Fox, Charles River Labs, MGM resorts, GoDaddy, and Apollo Global. Thursday’s reports include Toyota, Novo Nordisk, Moderna, Square, Zoetis, Duke Energy, Cigna, Becton Dickinson, Illumina, Regeneron, Thomson Reuters, ING, BCE, Aptiv, AIG, Sempra, Parker-Hannifin, Trade Desk, ResMed, Motorola, IFF, ViacomCBS, Wayfair, ConEd, Ball Corp, Zillow, BeiGene, Expedia, PPL, Ameren, Kellogg, Cheniere Energy, AMC Entertainment, SK Telecom, Cardinal Health, News Corp, Novavax, Black Knight, Iron Mountain, and Dropbox. Concluding the week on Friday are Dominion Energy, Liberty Broadband, Magna International, DISH Network, Ventas, DraftKings, Liberty Media, Icahn Enterprises.

Canada is closed Monday for a civic holiday. The abbreviated week features the marquee employment report, along with the always interesting trade figures. Building permits for June (Wednesday) and the July Ivey PMI (Friday) are also due out. The employment report (Friday) is expected to reveal a 200.0k gain in July jobs after the 231.0k bounce in June that came as restrictions related to the third wave of virus infections were eased. The unemployment rate is projected to fall to 7.2% in July from 7.8% in June. The trade report (Thursday) is anticipated to show a modest narrowing in the deficit to -C$0.9 bln in June from the -C$1.4 bln shortfall in May. Markets are closed Monday for the Civic Holiday. Broadly, the data continue to track an improving recovery after the proverbial bump in the road seen earlier this year amid increased restrictions related to the third wave. Of course, the rise of the Delta variant is yet another wildcard, with the pace of the recovery through year-end contingent on the extent to which authorities re-impose restrictions on industries. It is another empty slate this week for the Bank of Canada. The flow of data and events continues to support our base case scenario for a further reduction in QE to C$1.0 bln by the end of this year, perhaps as soon as the September announcement.


Covid remains front and center in Asia, as new Delta cases continue to rise in the region, with record high daily case numbers in Malaysia, Indonesia and Thailand. The bearish economic impacts from the variant are adding to the constraints from low inventories and supply chain disruptions to challenge outlooks for strong 2H growth. Indeed, Goldman Sachs cut 2021 growth forecasts for Southeast Asia last week, with Indonesia slashed to 3.4% from 5.0%, and Malaysia to 4.9% from 6.2%. In Japan, new cases hit 10,000 on Thursday for the first time, prompting the lengthening of emergency measures in Tokyo and Osaka. This will not bode well for economic activity in Q3. This week’s calendar is relatively light but features interesting data on production and inflation. China releases its July Caixin/Markit manufacturing and services PMIs. Japan has July manufacturing and services PMIs as well, along with Tokyo July CPI, July consumer confidence, and June consumption figures. Elsewhere, trade, prices, and employment figures are on tap. For central banks, Australia’s RBA and Thailand’s Bank of Thailand meet, though no changes are expected. That would leave the RBA’s OCR rate at 0.10%, and Thailand’s repo rate at 0.5%.

Japan releases the final July manufacturing PMI (Monday) where a dip to 52.1 is expected from the 52.2 in the flash reading and 52.4 in June. But the index has been above the 50 level since February, having been in contraction territory from May 2019 to November 2020. July consumer confidence (Monday) is expected to slip to 37.0 after improving 3.3 ticks to 37.4. July auto sales are due (Monday) as well. July Tokyo CPI (Tuesday) should continue to rise from deflationary pressures since October. We expect the headline index to warm to a 0.2% y/y rate from flat previously, and accelerate to a 0.2% y/y clip from unchanged on a core basis. The final July services PMI (Wednesday) is forecast rising to 47.0 from the flash 46.4, but is down from 48.0 in June. Weakness expected on the back of Covid restrictions. June consumption (Friday) is expected to slow slightly to a 10.5% y/y rate, after sliding to the 11.6% y/y pace in May from 13.0% y/y in April (which was the fastest on record.

In China, the July Caixin/Markit manufacturing PMI (Monday) should dip to 51.0 from 51.3. It’s off from the 52.0 in May but has been above the 50 level since May 2020. The July Caixin/Markit services PMI (Wednesday) is penciled in at an unchanged 50.3, but is down -4.8 points from the 55.1 in May. Both reports reflect the slowing in Chinese activity after leading the world out of the recovery gate last year. South Korea July CPI (Tuesday) should remain steady at 2.4% y/y. Indonesia July CPI (Monday) is estimated edging up to a 1.4% y/y clip from 1.3%, while the contraction in growth should deepen. We see Q2 GDP (Thursday) should falling to a -1.0% rate from the -0.7% pace in Q1. Philippines July CPI (Thursday) likely cooled slightly to 4.0% from 4.1%, while the June trade report (Friday) should see the deficit narrow to $2.5 bln from $2.8 bln. The Bank of Thailand meets (Wednesday) and is seen leaving its policy rate flat at 0.5%, where it as been since the 25 bp rate cut in March 2020.

Australia’s docket has the RBA meeting on Tuesday, where the OCR is expected unchanged at 0.10%. There has been speculation the Bank could increase its QE program to A$6.0 bln per week from the current A$ 5.0 bln, as covid lockdowns in Sydney and elsewhere, slam economic activity. The RBA in the past has said it remains flexible on its QE program. For Data, the July Melbourne Institute inflation gauge (Monday), expected at 0.5% from 0.4% previously. July ANZ jobs ads are due Monday as well. June building approvals (Tuesday) are seen down 4.0% from -7.1% previously, while June housing finance (Tuesday) should drop 1.0% from the 1.9% increase in May. June retail trade (Wednesday) is penciled in at an unchanged 0.1%. The June trade report (Thursday) should see the surplus narrow slightly to A$9.5 bln from A$9.7 bln. New Zealand has the Q2 jobs report, with employment seen rising 0.7% from 0.6%, and the unemployment rate seen at 4.6% from 4.7%.


Eurozone: the ECB’s economic bulletin on Thursday should confirm the central bank’s dovish guidance on the interest rate outlook, but also outline cautiously optimistic growth expectations. The central scenario seems to be that the delta variant may slow the recovery, but not derail it, and indeed, it seems vaccinations have weakened the link between new infections and hospitalizations, and death. That in turn means European and U.S. economies should be able to get through the current wave without the type of lockdown measures that sent economies into recession during earlier waves. Against that background central banks may still decide to take the foot off the accelerator later in the year, although for now the ECB like many others is taking a cautious wait-and-see stance.

Indeed, the ECB is effectively on holiday now and with the next meeting only at the start of September, data releases due this week won’t really change the outlook for monetary policy, especially as the reports are mainly backward-looking. Final PMI numbers are the highlight of the bunch and are expected to confirm very strong growth momentum into the third quarter of the year. The Eurozone manufacturing PMI (Monday) is expected to be confirmed at 62.6, the services (Wednesday) at 60.2, and the composite (Wednesday) at 60.4 (medians all same). Germanys’ manufacturing sector, in particular, is experiencing strong growth and against the background of robust German PMIs, we see German manufacturing orders (Thursday) rising 2.0% m/m (median same) after a correction of -3.7% m/m in May. However, the details of PMIs, but also the unexpected correction in the German Ifo survey highlight that capacity constraints and supply chain disruptions limiting the room for a further acceleration in overall growth for now.

The rest of the calendar is mainly backward-looking. Eurozone PPI inflation (Tuesday) is expected to exceed 10% in July readings but with base effects a key contributing factor and the uptick likely to be transitory. Eurozone retail sales (Wednesday) growth is expected to have decelerated to 1.3% m/m (median 1.8%) from a very strong 4.6% in May while German industrial production (Friday) should have rebounded 0.6% m/m (median 0.5%) from the -0.3% decline in May.

U.K.: the UK calendar this week is light on data. The final June PMI surveys are due, although final readings are not normally of too much interest for markets. The preliminary manufacturing and services PMIs showed an unexpectedly sharply correction from series or near-series record highs that were seen in June, though still showing an overall robust level of continuing expansion. The data didn’t stop the IMF this week from raising its 2021 UK growth forecast to 7.0%, which is their joint-fastest growth projection out of the major advanced economies.

The BoE’s Monetary Policy Committee meets (announcing Thursday), and the Old Lady will also release its latest quarterly Monetary Policy Review, which is likely to come with upward revisions to both GDP and inflation projections. But, despite this and the fact that two MPC members (Saunders and Ramsden) have lately turned relatively hawkish, the consensus expectation is for unanimous 9-0 votes at the nine-member committee to leave both the repo rate and QE total unchanged. The phasing out and upcoming ending of the government’s pandemic wage support scheme is a particular near-term worry for the BoE, given the risk of higher unemployment. The ongoing evolution in the pandemic is also a concern, both globally and domestically. The UK last week saw a pronounced decline week-on-week levels in new Covid cases, although are some factors at play (school holidays, less testing) that suggest this may not sustain.

Switzerland: The calendar this week features the release of CPI inflation data and the latest manufacturing PMI survey, both for July, alongside retail sales for June (all due Monday). The consensus forecast is for headline CPI to edge up to a rate of 0.7% y/y from 0.6% y/y in June. The PMI reading is expected at ebb from June’s 66.7.

U.S. Data Slate: Week of August 2

The first week of August culminates with the July jobs report, where we expect a 600k payroll rise and a jobless rate drop to 5.7% from 5.9%. June reports through the week should reveal a firm factory orders gain led by Boeing, solid wholesale trade figures, and a widening in the trade deficit. Construction spending should post a capacity-constrained June gain. Producer sentiment reports should reveal modest July swings in the ISM and ISM-NMI around elevated levels, as seen in early June sentiment reports.

Week of August 2

The annual GDP revisions revealed surprisingly small tweaks to the growth rates for the major metrics in recent years, despite the potential for big adjustments with pandemic distortions. The net signal from the report was largely contained to the restrained 6.5% headline GDP gain for Q2, which fell well short of the market’s optimistic expectations. The FOMC and CBO adopted remarkably strong estimates in June and July in advance of Thursday’s report, and the Fed will need to sharply trim their 2021 expectations at the September 21-22 FOMC meeting. Many economists adopted a 7-handles for their 2021 GDP forecasts in the aftermath of this year’s second stimulus package, but these will hard to achieve with the Q2 data now on the books. We expect 2021 U.S. GDP growth of 6.1% y/y and 6.3% Q4/Q4, with an apparent “speed limit” for U.S. growth in the 6.5%-7% area due to supply chain constraints.

Construction Spending: 0.8%

Construction spending is expected to grow 0.8% in June, after a -0.3% decline in May, and modest gains of 0.1% in April and 1.0% in March. We expect a 2.1% private residential construction rise after a 0.2% May increase, a 0.1% rise for public construction after a -0.2% May dip, and a -0.8% private nonresidential drop after a -1.1% May decline. We expect construction spending to grow at a 1.9% pace in Q2, after rates of 16.0% in Q1, 10.4% in Q4 and 2.7% in Q3. Construction hours-worked from the jobs report fell -1.1% in June, and construction jobs fell -7k. Construction spending is heavily constrained by capacity limits for labor and land in the residential market, while nonresidential and public construction continues to contract, with geographic and skill differences capping labor migration between sectors. All the housing measures have rebounded to 15-year highs at various moments since Q3, alongside record-highs for the home price measures, which should lock in a construction uptrend at the capacity constraint throughout 2021.

ISM/ISM-NMI: 60.5/61.0

The ISM index is expected to tick down to 60.5 from 60.6 in June and an 18-year high of 64.7 in March, versus an 11-year low of 41.5 in April of 2020, and an all-time low of 30.3 in June of 1980. The ISM-NMI index is expected to rise to 61.0 from 60.1 in June, 64.0 in May, and 62.7 in April. The runup through May left the four highest readings in history. We saw an 11-year low of 41.8 in April of 2020, and an all-time low of 37.8 in November of 2008. Producer sentiment has remained strong, as vaccines and two massive Q1 stimulus distributions fueled a steep retail sales climb to a March-April peak, while businesses will face the need to rebuild inventories throughout 2021, as factories attempt to catch up with demand.

Factory Orders: 0.7%

Factory orders are expected to grow 0.7% in June, with a 0.4% ex-transportation increase. Shipments should grow 0.7%, while inventories rise 0.9%. The forecasts reflect the 0.8% durable goods orders climb with a 0.3% ex-transportation rise and a 2.1% transportation increase, alongside a -3.4% drop in defense orders. Boeing orders surged to a 3-year high of 219 planes in June, after a rise to 73 in May from 25 in April and a 2-year high of 196 in March. The vehicle assembly rate slowed to 8.9 mln in June from 9.7 mln in May. The factory goods I/S ratio should rise to 1.50 from 1.49 in April and May, versus a 19-month low of 1.47 in January. We saw an all-time high of 1.70 in April of 2020. The durable goods I/S ratio likely rose to 1.80 after two months at 1.79, versus a 2-year low of 1.74 in January and an all-time high of 2.39 in April of 2020 for a series extending back to 1992. We expect significant gains in factory orders, shipments and inventories through 2021, as companies scramble to rebuild inventories.

Trade Deficit: -$74.4 bln

The trade deficit is expected to widen in June to -$74.4 bln from -$71.2 bln in May and an all-time high of -$75.0 bln in March. We expect exports to grow 0.9% to $208.0 bln, while imports grow 1.8% to $282.4 bln. The trade deficit should average -$71.6 bln in Q2, after gaps of -$70.9 bln in Q1 and -$66.7 bln in Q4. For 2021, we expect a -$70.7 bln average deficit, versus a -$56.4 bln average in 2020. Oil prices rose through June, hence providing a lift for petroleum sector trade, alongside divergent June swings in vehicle trade after big 2021 declines through May attributable to semiconductor shortages. We expect a -$35 bln bilateral goods balance between the U.S. and China with elevated imports as U.S. businesses rebuild inventories largely with imported goods. We saw a -$43.1 bln all-time wide bilateral gap in October of 2018.

Initial Jobless Claims: 380k

Initial jobless claims are expected to fall -20k to a 380k, after a drop to 400k from 424k in the BLS survey week, versus a 368k cycle-low in the week prior. Claims likely tightened into the July 4th holiday but widened since then due to a counter-swing relative to the auto retooling seasonal pattern, which likely didn’t occur much this year due to semiconductor shortages. Claims are expected to average 392k in July, after averages of 394k in June, 428k in May, and 582k in April. The 424k July BLS survey week reading just overshot last month’s reading of 418k, but was an improvement against the 444k in May, 566k in April, 765k in March, and 847k in February. We assume a 600k July payroll rise, following an 850k bounce in June.

Continuing claims rose by 7k to 3,269k in the week of July 17, following an upwardly revised 3,262k figure. We expect continuing claims to fall -69k to 3,200k for the week ending July 24. The downtrend in the continuing claims data has moderated since March, just as the drop in initial claims has picked up steam. Continuing claims fell -133k between the June and July BLS survey weeks, after drops of -199k in June, -42k in May, -188k in April, -628k in March, -409k in February, -555k in January, and -705k in December.

Employment: 600k

We expect a 600k July nonfarm payroll increase, after gains of 850k in June and 583k in May. We assume a 25k factory jobs increase in July, after a 15k June increase. We assume a jobless rate drop to 5.7% from 5.9% in June and 5.8% in May. Hours-worked are assumed to rise 0.7% after a 0.2% June increase, while the workweek ticks up to 34.8 from 34.7 in June. Average hourly earnings are assumed to rise 0.3% after gains of 0.3% in June and 0.4% in May, as minimum wage workers have been slow to return to the work force. The y/y wage gain should climb to 3.8% from 3.6%. In the last expansion we saw a 3.5% peak for y/y wage gains, in both February and July of 2019, before the pandemic-boost to an 8.0% peak in April of 2020. We expect a robust payroll trajectory in 2021 following the winter lull, thanks to stimulus deposits and vaccines.

Wholesale Inventories: 0.8%/0.7%

Wholesale sales are estimated to grow 0.7% in June, after a 0.8% May rise, while inventories grow 0.8% after a 1.3% May gain as seen in the advance indicators report. Rising commodity prices will lift the nominal measures, as was likely seen in recent months. The I/S ratio should hold steady from 1.23 in May, versus a 6-year low of 1.22 seen in March and April, an all-time low of 1.12 in June of 2008, and an all-time high of 1.66 in April of 2020. The ratio is struggling to climb back toward the pre-pandemic reading of 1.32 in January and February of 2020. Business inventories should rise 0.7% in June, with other component readings of 0.9% for factories and 0.3% for retailers. The wholesale sector has been boosted by the robust recovery in trade with China. International trade is disproportionately captured at the wholesale level of production.

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