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Investing Specialists

U.S. Consumers Remain on Strike

Hopefully, their boost in savings will start to burn a hole in the economy's pocket.

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Markets this week were remarkably tame despite more saber rattling out of Russia, as Europe sinks closer to a deflationary environment. In fact, prices were down in Spain for July and only up 0.3% for the eurozone. That's not month to month; that is year over year. That, in turn, got the bond market excited with the prospects of the European Central Bank doing something new. The yield on the U.S. 10-Year Treasury sank back to 2.33% from 2.40% a week ago. Ultrasafe German bond yields also fell. This, in turn, buoyed U.S. and emerging equity markets. European equity markets did less well as more worries about the Russian/Ukrainian situation surfaced. The fear is that Europe, which is already not doing that well, will be hit the hardest by sanctions imposed on imports from Russia and the retaliatory effects of reduced exports to Russia. Lower rate talk and geopolitical issues also drove commodities generally higher, though oil prices remained remarkably subdued.

Economic news out of the United States was generally bullish, including improved pending home sales, Goldilocks-like home price increases and an upwardly revised (and higher quality) GDP report for the June quarter. However, new home sales slipped again and consumers continued to boost their savings rate at the expense of current consumption. I don't believe this skinflint behavior, which is in its seventh month, can continue for much longer.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.