July 6 New York

Pinestone Investments

The DJIA plunged by 158.13 points to 21320.04 while the S&P 500 Index fell by 22.79 points to 2409.75.  The Nasdaq Composite Index plummeted by 61.392 points to 6089.464 while the Nasdaq 100 Index declined by 50.911 points to 5597.905.  The yield on 10-year Treasuries rose by 4.3 basis points to 2.366 percent after falling 2.7 basis points Wednesday.  The rate is higher by 22.9 basis points since June 26.  German 10-year yields climbed to their highest level in 18 months in a sign that a hawkish shift by central bankers is penetrating the market.  The yen strengthened against the U.S. dollar by 0.04, closing at 113.22.  WTI crude futures added 39 cents to settle at $45.52 a barrel.  Rising U.S. production dampened the enthusiasm over declining crude and gasoline stockpiles.  Crude has held below $50 a barrel for six weeks.  Central banks from Asia to Europe and the U.S. have struck a more hawkish tone in the past few weeks as they seek to remove nearly a decade of accommodation.  The rise in yields has started to weigh on equity markets just as data show growth in the American economy may be moderating.  ECB officials considered removing a pledge to increase bond-buying when they met last month.  Oil pared losses after an industry group was said to report big declines in U.S. crude and gasoline stockpiles that have remainded stubbonly high during this summer driving season.  The day’s news reflected the ongoing debate over whether prices are more reflective of actions undertaken in U.S. shale fields, or by an OPEC-led push to balance the market with production cuts elsewhere.  A divided Federal Reserve policy committee couldn’t reach an agreement in June on the timing of when to begin shrinking its massive balance sheet, according to minutes of the meeting.  “Several preferred to announce a start to process within a couple of months,” the minutes of the June 13-14 meeting released on Wednesday in Washington showed.  “Some others emphasized that deferring the decision until later in the year would permit additional time to assess the outlook for economic activity and inflation.”  The minutes indicated that the committee wants to begin the balance-sheet process this year.  The Fed said in June it would runoff maturing principal payments on Treasuries initially at $6 billion per month, increasing by $6 billion every three months over 12 months, until it reaches $30 billion.  For agency and mortgage-backed securities debt, the cap starts at $4 billion, and rises by $4 billion every three months until it hits a $20 billion a month.  Yellen begins her semi-annual testimony on Congress on June 12 before the House Financial Services Committee.  Inflation has remained almost continuously below the central bank’s 2 percent target for more than five years.  The minutes said “most participants viewed the recent softness” in inflation indicators “as largely reflecting idiosyncratic factors.”  They added those trends weren’t likely to persist in the medium term.  On the other side of the Fed’s dual mandate, the jobless rate declined to a 16-year low in May of 4.3 percent, beneath most Fed officials’ estimate of the maximum use of labor resources.  The U.S. Labor Department releases the June employment report Friday.  And Friday G-20 summit in Hamburg starts.  U.S. President Donald Trump is expected to hold his first meeting with Russia’s Vladimir Putin as well as meet his Chinese counterpart Xi Jinping.

Kazuhide Matsuishi

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