Fall in Oil Prices and Weak Data Weigh on Risk Assets

Both US stocks and Treasurys are selling off marginally to open the week as investors react to hawkish Fed comments and the latest mixed bag of economic data.  Several Fed officials spoke out following Friday’s disappointing GDP report, and the general consensus is that the Fed doesn’t view it as a game changer.  Dallas Fed President Kaplan said a rate hike is still “very much on the table” at the next FOMC meeting in September due to the fact that growth data will likely be revised and that there are two more employment reports due out between now and then.  NY Fed President Dudley and San Francisco Fed President Williams were more vague regarding timing, but both officials downplayed the implications of Friday’s GDP report and said that interest rate hikes remain possible in 2016.
 
In terms of new data today, a report showed US manufacturing activity slowed in July off the back of falling new orders and declining employment.  The ISM report showed a 0.6% decline to a reading of 52.6 last month.  Although the index remained in expansionary territory for the fifth straight month, it was down from a 53.2 reading in June and missed the 53.0 economists were expecting.  A separate report showed construction spending declined 0.6% to the lowest level since June 2015, the third consecutive monthly decline for that indicator. 

A drop in oil prices has also weighed on risk assets.  WTI and Brent crude fell 4% and 3%, respectively, off the back of renewed supply concerns.  WTI fell 15% in July, the worst monthly loss in a year.  The Dow and S&P 500 are both down close to 0.25%, while the tech-heavy NASDAQ is up 0.30%.  Treasury yields and swap rates are currently up two to six bps across all major maturities.