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Weekly Market Commentary

November 12th – November 16th

Consumer prices (CPI) rose 0.3% in October, primarily due to energy costs, which have subsequently pulled back significantly.  Core CPI excluding food and energy increased 0.2% to a 2.1% year-on-year level.  Crude oil continued its pronounced slide on expectations of a 2019 supply glut closing the final trading session of the week at $56.83 per barrel.  

Retail Sales posted a strong start to the fourth quarter at 0.8% in October.  The more critical Control Group measure that factors directly into the personal consumption component of GDP came in at a more subdued 0.3%.  The September Control Group measure was revised down to 0.3% as well.  Autos, building materials and gasoline strength were all contributors to the divergence between headline and Control Group readings. 

Small business optimism remained near 45-year highs in October.  The survey pointed to rising inflation expectations with owners reporting expectations of passing through rising compensation costs. 

BREXIT discussion in the UK came to a boil after simmering for the past two years.  Prime Minister Teresa May continued fighting to get a deal through Parliament amid an exodus of cabinet members and whispers of no-confidence increasing in frequency and volume. 

The yield on the 10-Year U.S. Treasury pulled back throughout the week, closing down 11 basis points to 3.07%.  Bears dominated trading and equities slid further with the S&P 500 closing off by -1.6% at 2,736 and the NASDAQ Composite down -2.1% at 7,247.  Energy stocks, banks and information technology all took their lumps at different points in the week. 

Notable economic releases next week include Housing Starts, Existing Home Sales and Durable Goods Orders.  U.S. stock and bond markets will be closed on Thursday for the Thanksgiving holiday and the NYSE closes early at 1:00pm on Friday.

 

Weekly Market Commentary

November 5th – November 9th

Mid-term elections took place this week with Democrats taking control of the House and Republicans increasing their Senate majority control, in line with projections.  The Federal Open Market Committee conducted their final meeting without a press conference with no rate changes as expected.  In their released statement, the FOMC acknowledged a slowdown in business investment while reiterating that economic growth, job growth and consumer spending are strong.  There were no notable comments to change expectations for an additional 25 basis point hike to Fed Funds at the December meeting.

Job openings declined in the latest JOLTS report to 7.0mm, but the year-on-year increase remains a very robust 12.4% and there continues to be over 1mm more jobs than those seeking them. 

Consumer debt for September was reported lower than expected.  Shoppers paying down credit card debt now may bode well for holiday purchases.  Both the ISM and PMI indices show services have had a strong start to the fourth quarter. 

A large buildup of oil inventories was reported.  Crude oil prices have declined $15 per barrel from the October peak and are now back to March levels.  The ten-day slide to $60 per barrel is the longest consecutive-day pull back since 1984. 

The yield on the 10-Year U.S. Treasury finished the week 2 basis points from where it started at 3.18%.  The bellwether Treasury yield had a range between 3.24 and 3.17% around the Fed statement before settling back down. 

U.S. equities traded through another choppy week with a generally favorable trend.  The S&P 500 closed the week in the black by 2.1% despite a pullback in the final session.  Gains for the NASDAQ were a more modest 0.7%. 

Banks and the bond market will be closed on Monday in observance of Veteran’s Day, while the stock market will be open regular trading hours.  Notable economic releases next week include Retail Sales, Industrial Production, Import Export Prices and the NFIB Small Business Optimism Index. 

 

Weekly Market Commentary

October 29th – November 2nd

New jobs in the U.S. grew by a robust 250k in October, well ahead of consensus estimates.  Hirings were strongest in the manufacturing and business services segments.  Following prior month revisions, the three-month average new jobs were 218k, stronger than the 12-month average 208k indicating positive momentum.  Average hourly earnings expanded on a year-on-year basis by 3.1%, well ahead of the prior 2.8% reading and a new high for this economic expansion.  Unemployment remained historically low at 3.7% and labor force participation ticked up 0.2 to 62.9%.  As expected, the shortage of skilled workers is now driving wage inflation higher.

Productivity in U.S. (non-farm) businesses on the other hand was not as strong.  The measure increased at an annualized rate of 2.2% in the third quarter.  The figure is well below the previously recorded 3% increase, although we haven’t seen a 3-handle on Productivity before that tick up since Q1 2015.  As wage pressures increase, Productivity will need to follow suit or potentially dampen future profits growth.

Personal Consumption Expenditures (PCE) inflation came in at 2.0% at the headline and core readings, right in-line with market consensus and at the Fed target.  Personal Spending remained robust with the September report showing a 5% year-on-year rise. 

The price of U.S. Treasuries pulled back as speculators returned their attention to risk assets sending the yield on the 10-Year U.S. Treasury up by 13 basis points on the week.  The bellwether ended the week at 3.21%.  The spread between 2-Year and 10-Year Treasuries stood at 0.29% in the final session.

The good news for equity markets in October is that the month is over.  After a 10% correction (on intra-day levels) U.S. equities rallied back in the final two trading sessions to close the month with a -7% loss for the S&P 500.  Market pundits have cited rationale for the extended period of volatility on investor concerns over trade tariffs and rising rates, but none of this is new business.  With markets having come so far for so long, trading in October felt like a typical risk off pull back as investors grow cautious about how long the good times can roll.  Stocks continued their recovery through the first two trading sessions of November, pulling back again on Friday following a decline in the shares of Apple.  The S&P ending the week up a positive 2.4% at 2,723. 

Notable economic releases next week include ISM and PMI manufacturing indices, JOLTS jobs data and consumer credit.  The FOMC will hold a two day meeting with no rate announcement expected. 

 

Weekly Market Commentary

October 22nd – October 26th

The first estimate of Q3 GDP was stronger than expected at 3.5% on a year-on-year basis versus a 3.3% consensus estimate.  Following the 4.2% reading in Q2, these are the best two back-to-back quarterly readings since 2014.  Consumer spending was key in the upside surprise accelerating at a 4% pace, surpassing the stellar 3.8% level in the prior quarter.  The drag from trade tariffs was more than offset by a pickup in inventories and government spending increases. 

Durable Goods Orders were up 0.8% in September, driven by strong defense orders, primarily from aircraft spending.  Looking further into the components, orders ex-transportation wasn’t nearly as robust, coming in at 0.1% versus an estimated 0.4%.  Capital Goods Orders (primarily machinery and equipment) were down for a second month in a row, off by -0.1% versus an estimated 0.5%. 

As expected New Home Sales were as weak as the housing data reported last week.  The annualized pace of 553k was a decline of 5.5% from the prior month’s report.  Supply increased modestly by 2.8% in September and prices were relatively flat.

The 10-Year U.S. Treasury yield pulled back in a flight to the safety of Treasury bonds.  The bellwether Treasury closed the week yielding 3.08%, 11 basis points lower than where it started.  The yield curve remains flat at a 0.27% 2-10 spread. 

Large cap U.S. equities gave back all the gains earned year-to-date in another roller coaster week.  The S&P 500 closed down -3.9% to 2,658, modestly below where it started the year.  Investors took profits in a number of large cap technology stocks which had run up earlier in the year.  Consumer staples and utilities stocks remain the safe havens as risk rolls off.

Notable economic releases next week include Non-Farm Payrolls, Factory Orders, Construction Spending and ISM,PMI Manufacturing.

 

Weekly Market Commentary

October 15th – October 19th

A pullback in September Retail Sales made for some eye catching “slowdown” headlines, but looking through to the pertinent details showed consumption remained on track outside of one-time storm impacts.  Headline Retail Sales missed by a substantial margin at 0.1% versus 0.6% consensus as well as the Core reading at -0.1% versus 0.4%.  The pullback was driven by weaker restaurant receipts down by -1.8% which incorporate impact from Hurricane Florence.  Gasoline station revenues declined -0.8% as well.  The positives however, came within the important Control Group measure which excludes restaurants, autos, gasoline and building materials and ties directly to GDP.  The Control Group advanced 0.5% for the month versus a 0.4% estimate.  The estimate makes for a reasonable quarter with July up 0.8%, August 0.0% and September a positive 0.5%.

Housing starts were 1.2mm in September, off by -5.3% in another weak reading.  Hurricane Florence was no help as Starts fell -13.7% in the South, but the Midwest (not impacted by the storm) fell -14% in the month as well.  Building permits were also reported below expectations at 1.24mm, a low not seen since November 2017.  Existing home sales were off by -3.4% in September, a sixth straight monthly report coming in below consensus and the lowest level since November 2015.  New mortgage applications pulled back by a seasonally adjusted 6% while refinancing applications fell 9%.  Average 30-year mortgage rates of 5.1% are weighing on borrowers. 

The latest report of total available jobs reached a new record high of 7.14mm.  The hires-to-openings ratio dropped further to 0.8, the lowest data point in the history of the JOLTs index which began in 2001.  The reading indicates that the number of unemployed workers is well below unfilled positions.  The voluntary quit rate climbed to new high as well.  Additional wage growth can’t be far behind. 

The 10-Year U.S. Treasury yield traded in a range of 3.14 to 3.21%, settling at 3.19% in the final trading session.  Investor sentiment whipsawed between risk on again-off again during the week.  Minutes from the September FOMC meeting struck a somewhat hawkish tone as the latest word addition “restrictive” underwent the usual parsing by market pundits. 

The S&P 500 finished a roller coaster trading week right back where it started at 2,767.  The technology-heavy NASDAQ Index finished down -0.6% after all the risk on/off dust settled within the sector.

Notable economic releases next week include the much anticipated first estimate of Q3 GDP, Durable Goods Orders and New Home Sales

 

Weekly Market Commentary

October 8th – October 12th

U.S. inflation reports were calm and producers remained cautious about passing through cost increases to consumers.  The Producer Price Index (PPI) and Core PPI (excluding food and energy) both increased 0.2% in September as expected.  Most notable increases came from a rise in services costs, airfares and rail freight costs leading to the first increase reported in the last three months.  At a more granular level, PPI excluding food, energy and trade rose more than expected (up 0.4%) an indication that tariffs boosted prices, masked by price relief elsewhere in the data.  The Consumer Price Index (CPI) was reported up 0.1% at the headline and Core levels, missing the 0.2% estimate.  On a year-on-year basis, headline CPI dropped from 2.7% to 2.3% while the Core was unchanged at 2.2%.  Used car and truck prices topped a long list of goods with price declines during the month.  The 3% price decline reported for used cars was the largest in 15 years. 

The NFIB Small Business Optimism survey showed optimism remains at near 45-year highs despite a modest pullback in September.  Owners reported increasing employee compensation and continued challenges with finding qualified workers.

The 10-Year U.S. Treasury gave up 8 bps of yield from the major jump last week closing at 3.15%.  The Yield on the 2-Year U.S. Treasury pulled back 3bps to 2.86% resulting in a modestly flatter 2-10 spread. 

A relief rally in the final trading session on Friday led by technology stocks ended a six-session slide in U.S. equities.  The S&P 500 finished the week off by -4.1% closing at 2,767.  The Dow was lower by -4.2% and NASDAQ by -3.7%.  The equity volatility index (VIX) reached 25, a level not seen since March.  There was ample finger pointing for the cause of the sharp sell offs on Wednesday and Thursday from heightened concerns of global trade tariffs to an overly-active Fed raising rates.  Cooler heads accepted the drawdown as a very normal price correction that has happened time and again throughout the course of history. 

Notable economic releases next week include Retail Sales, Industrial Production, Housing Starts and Existing Home Sales in addition to the release of FOMC meeting minutes. 

 

Weekly Market Commentary

October 1st – October 5th

Unemployment in the U.S. ticked down to a new cycle low of 3.7%, a level not seen since 1969.  Non-farm payrolls for September were below expectations at 134k, dampened by the devastating impacts of Hurricane Florence which led to the evacuation of more than one million people in its path.  The employment impacts were far lower however than those created by Harvey, Irma and Maria last year.  The prior two month’s readings of job creation were revised upward by 87k, more than offsetting the September shortfall.  Wage growth remained at 2.8% year-on-year, a level both hawks and doves appear comfortable with. 

ISM Manufacturing for September came in marginally lower at 59.8 from the very strong 61.3 reading in the prior month.  The Non-Manufacturing Index hit a record high 61.6, well ahead of the consensus estimate of 58.0.  The Business Activity Index component spiked to 65.2 pointing to an acceleration in economic growth.

U.S. Construction spending in August was weaker than anticipated, up a modest 0.1% versus the survey of 0.4%.  For the first time in many years, growth in nonresidential construction spending now exceeds residential…more headwinds for the housing market.

Interest rates in the U.S. broke out to new levels across the curve following the much stronger than anticipated ISM reading and hawkish comments delivered by Fed Chairman Powell.  The yield on the 10-Year U.S. Treasury closed the week at 3.23%, a high not seen since 2011.  The 2-Year yield rose to 2.88% for the first time post-recession.  The yield curve steepened modestly to a 0.35% 2-10 spread.  Average 30-year mortgage rates in the U.S. followed suit hitting the highest level since 2011.

The S&P 500 closed the week off by -0.98% at 2,885.  The higher yields offered by investment-grade corporate bonds are competing for capital with dividend paying stocks.  Technology stocks bore the brunt of the pull back with the NASDAQ Index down by -3.2%.

Next week the bond market will be closed on Monday along with banks for the Columbus Day Holiday, while the stock market will trade for a full five sessions. Investors will be focused on PPI and CPI inflation reports as well as an update on import/export prices.

 

Weekly Market Commentary

September 24th – September 28th

The Federal Open Market Committee raised the short-term Fed Funds rate for the third time this year and eighth time in this economic cycle to a target of 2-2.25%.  U.S. Treasury Yields rose across the curve in advance of the announcement then retreated modestly after forward projections from the Committee were relatively unchanged.  The much-anticipated post meeting statement gave no indication of the Fed planning to pause on rate hikes anytime soon. 

Durable Goods Orders for August fell short of expectations outside of the volatile commercial aircraft space.  The headline reading exceeded consensus at 4.5%, but the ex-transportation figure was a modest 0.1% versus the survey of 0.5%.  Capital Goods Orders, comprised of primarily machinery and equipment, were particularly soft.  The final estimate of Q2 U.S. GDP remained unchanged at 4.2%, as did the critical consumer spending level at 3.8% as expected.  The latest reading of the Consumer Confidence survey hit the highest level since 2000 led by participants feeling that jobs are plentiful.

Personal Income and Consumer Spending figures for August were both fairly moderate.  Income was unchanged at 0.3%, missing an anticipated rise to 0.4%.  Spending declined modestly to 0.3% as well, in line with consensus.  The Core PCE remained right on the Fed’s inflation target of 2%.  As some higher numbers roll off from a year ago, that figure will decline on a year-on-year basis if inflation fails to tick up in the coming month. 

Oil prices hit the highest closing level since 2014.  OPEC left production steady while traders speculate that U.S. sanctions against Iran and outages in Venezuela will lead to supply shortages.  Crude closed the final trading session of the week at $73.44. 

The yield on the 10-Year U.S. Treasury approached a high for the calendar year at 3.11% before settling back down to close the week at 3.05%.  The 2-Year took a similar path reaching 2.85%, closing the week at 2.79%.  

U.S. equities were weighed down by what must now be characterized as a trade war between the U.S. and China.  Talks broke down and the threat of meaningfully higher tariffs between the countries became a reality.  The S&P 500 closed the week down -0.53% at 2,913 after recovering some of the lost ground. 

Key economic releases next week include the Employment Situations, ISM and PMI Manufacturing Indices and Factory Orders.  A number of Fed Governors will will be on the speaking circuit once again to espouse their own take on monetary policy in the week following Chairman Powell’s official statement. 

 

Weekly Market Commentary

September 17th – September 21st

Housing reports were mixed as Starts jumped to an annualized rate of 9.2% in August while the more forward looking Building Permits component showed a decline of -5.7%.  The strength in Housing Starts was led by multi-family units rising in demand as first time home buyers are being squeezed out of the market on price.  Existing Home Sales for August came in lower than expected for a fifth month in a row.  Looking through at the component levels of the data lead us to expect the slowdown in housing to continue. 

Tariffs scheduled to go into effect on Sep. 24th put the U.S. and China squarely on the path to a full-blown trade war.  Following the announcement from the U.S. that the threatened $200 billion in new tariffs on imported Chinese goods will go into effect on Monday, China announced retaliatory tariffs on $60 billion on U.S. imported goods.  The Chinese-imposed tariffs will impact over 5,000 different U.S. goods including machinery, chemicals and farm goods.  President Trump vowed to pose incremental tariffs based on China retaliation totaling an additional $267 billion.  All told, the U.S. tariffs would exceed the $505 billion in Chinese goods imported by the U.S. last year. 

The yield on the 10-Year U.S. Treasury broke back through the 3% level closing the week at 3.06%.  The yield curve steepened modestly during the week with the spread between the 2-Year and 10-Year U.S. Treasury now at 0.27%, up from a low of 0.18% reached last month.  The 2-Year climbed to multi-year highs closing at 2.79%, double the rate it was at the time of the U.S. Presidential election.

U.S. equities seesawed early in the week on macro headlines led by heightened volatility in technology stocks.  Investors brushed off trade concerns sending the Dow Jones Industrial Average and S&P 500 both into new record territory.  The Dow gained 2.25% on the week closing at 26,743 and S&P 500 was up 0.85% to 2,929.

The FOMC meets for their much-anticipated September meeting next week.  Markets have fully priced in a 0.25% increase of the Fed Fund Rates.  Notable economic releases next week include revised Q2 GDP, Durable Goods Orders and International Trade in Goods. 

 

Weekly Market Commentary

September 10th – September 14th

Inflation in the U.S. cooled in August coming in below consensus expectations.  The Core Consumer Price Index (CPI) figures pulled back to 2.2% on a year-on-year basis after creeping higher in prior months.  The headline report was lower at 2.7%.  Modest contraction in medical cost and apparel prices along with only a slight rise in food cost kept prices in check. Both housing and energy prices expanded during the period. 

Retail sales edged up a modest 0.1% in August while the already strong July reading was revised higher to 0.7%.  A slowdown in motor vehicle sales weighed on the August report.  Non-store retailers (e-commerce), gas stations and restaurants sales remained strong.

The JOLTS jobs report showed that job openings meaningfully outpaced hirings.  Openings have increased 11.9% on a year-on-year basis through July while hirings have grown only 3.3%, clear evidence of a skills mismatch.  There are now 11 jobs available for every 10 unemployed individuals in the U.S.  The quit rate hit new highs, a sign that employees are confident in their ability to find a new position.

Oil prices rose during the week with Hurricane Florence making landfall across the southeast and devasting parts of the Carolinas while another tropical storm is projected to hit the Gulf Coast region.  The price of crude oil broke through $70 per barrel before closing the week at $69.

The yield on the 10-Year U.S. Treasury rose 5 basis points during the week to close at 2.99%.  The 2-Year U.S. Treasury rose 9 to 2.79%.  The yield curve continues to flatten in anticipation of an additional Fed Funds Rate hike this month. 

The S&P 500 closed the week up 1.2% to 2,905.  Technology stocks recovered ground lost in the previous week sending the NASDAQ 1.4% higher to 8,010.  Semi-conductor companies felt a reprieve after being one of the harder hit areas of the sector.      

Economic releases will be light next week.  Investors will be paying attention to Existing Home Sales and Housing Starts along with some regional manufacturing indices while waiting for some added clarity on global trade tariffs.   

 

Weekly Market Commentary

September 4th – September 9th

Employment remains strong in the U.S.  August non-farm payrolls came in higher than expected at 201k versus 190k consensus.  The prior two months revision removed 50k resulting in a three-month average of 185k.  Headline unemployment remained unchanged at 3.9%, the lowest since the 1960s.  Underemployment, as measured by the U6, was slightly lower at 7.4%.  The most interesting factor of the report was the 2.9% year-on-year wage growth, up from 2.7%.  Beyond the fact that wages are continuing to show improvement as we have been expecting, U.S. equities digested the news without a major selloff, unlike early in 2018 when wage growth momentarily reached a similar level.

ISM manufacturing came in well ahead of consensus expectations at 61.3, a level not seen since 2004.  New orders, output and employment all expanded in August mostly driven by domestic orders.  Most economists had predicted a slowdown for the month due to protectionist global trade measures and a softening in some of the regional manufacturing data. 

The yield on the 10-Year U.S. Treasury traded within a range of 2.86% to 2.94%.  Risk off sentiment initially weighed on yields as investors seeking the safety of U.S. Treasuries drove prices higher and yields down.  The strong employment report drove rates to the highest point of the week on Friday with the bellwether closing at 2.94%.

A sharp pullback in technology stocks weighed on U.S. equity markets throughout the holiday shortened trading week.  The S&P 500 finished the week down 1.0% at 2,871.  The NASDAQ traded off -2.5% closing back below the 8,000 milestone at 7,902.  More tough talk on global trade weighed on multinational firms in the final trading session.  President Trump announced an incremental $267 billion in Chinese goods identified for tariffs, in addition to the $200 billion slated to go into effect at midnight tonight.

Notable economic releases next week include CPI and PPI inflation measures, Retail Sales, Import/Export Prices and Industrial Production.

 

Weekly Market Commentary

August 27th – August 31st

The second estimate of Q2 GDP bucked consensus and was revised upward from 4.1% to 4.2%.  The very strong report was backed by upward revisions to business fixed investment.  Falling exports with rising imports in July will be a headwind to the start of Q3 GDP, but builds in wholesale and retail inventories from low levels will make up some of the shortfall. 

Consumer Confidence shot to the highest level in 18 years led by a very favorable assessment of the job situation.  A decline in Pending Home Sales added to the raft of recent weak housing data. 

The Core PCE in July was reported right on the Fed’s target of 2% on a year-on-year basis.  Personal Income and Outlays eased slightly adding to a “just right” inflation picture of moderate income and spending growth the Fed will want to maintain.  The yield on the 10-Year U.S. Treasury Bond finished the week within a couple of basis points from where it started at 2.86% after trading up to 2.89% midweek.

Global trade concerns lessened with the U.S. and Mexico reaching an agreement in principal on NAFTA revisions (still requiring Congressional approval) cleverly referred to as HALFTA as the talks did not include Canada.  Pundits talking up the start of another $200 billion in tariffs on Chinese goods beginning on September 6th made the reprieve short-lived. 

The NASDAQ surpassed 8,000 for the first time driven by further gains in large cap technology stocks.  The S&P 500 also broke further into record territory through the 2,900 level before pulling back and closing the week with only a modest gain of 0.2% at 2,901. 

Notable economic releases next week in the holiday shortened trading week include Nonfarm Payrolls, Factory Orders and ISM and PMI Manufacturing Indices.  Several FOMC governors will hold speaking engagements around the country sure to attract ample attention from members of the financial press looking to key in on any new word uttered. 

 

Weekly Market Commentary

August 20th – August 24th

Durable goods orders declined in July, down -1.7% at the headline level with June figures revised downward as well from 1.0% to 0.7%.  Orders for Core Capital Goods (nondefense ex-aircraft) however, showed signs of strength increasing by 1.4%.  Computers and electronics were strong contributors supporting improved business investment.  Weakness came from the typically volatile commercial and defense aircraft area due to “lumpy” order flow. 

Existing Home Sales declined for a fourth consecutive month, down -0.7% during the month of July to a 2.5 year low.  Higher prices, limited inventory and rising mortgage rates have slowed the market leaving housing as a lone outlier of economic weakness.  New Home Sales declined in July as well, down -1.7%.  Supply of new homes for sale however, increased modestly to 5.9 months from 5.7 months.

The end of the Greek bailout occurred this week without much fanfare.  After eight years and 290bn Euros ($330bn), the country must stand on its own amid persistent unemployment and low wages.  Despite continued austerity necessary to close a ballooning budget deficit, the economy is showing signs of growth.  With eye popping headlines like 1,000,000% (unbelievable but not a type-o) hyper-inflation projected in Venezuela by the IMF and an overnight lending rate nearing 20% in Turkey, its understandable that Greece (once the poster child geopolitical concern threatening to dismantle the EU) would be low on the radar.

The yield on the 10-Year U.S. Treasury Bond declined 5 basis points on the week to 2.81%. The FOMC Meeting Minutes signaled another rate increase on the way in the near-term.  The probability of a Fed Funds Rate hike in September is over 92%.  With the spread between the 2-Year and 10-Year Treasury at a mere 19 basis points, a move toward an inverted yield curve will certainly be on traders’ minds.

The current bull market in U.S. equities now stands as the longest in recorded history.  On Wednesday, the S&P 500 broke through the record 3,453 days after hitting a post financial crisis low of 666 on March 9, 2009, surpassing the previous record which ended in the tech bust in March 2000.  The broad stock index has grown in price terms by more than four times since 2009; the NASDAQ index by a whopping six times.  The S&P 500 also broke into new record high territory, closing the week at 2,874.

Notable economic releases next week include the second estimate of Q2 GDP, Personal Income and Outlays and a number of regional manufacturing indices.

 

Weekly Market Commentary

August 13th – August 17th

Retail Sales rose 0.5% in July, more than the 0.1% forecasted, extending personal consumption growth into the third quarter.  June figures were revised down to 0.2%.  Nine of the 13 major categories showed increases, led by clothing stores and food and beverage businesses.  Consumer sentiment remains elevated and a gauge of small business optimism rose in July to the second highest level on record.  The number of small businesses sighting “job openings hard to fill” as a major concern reached a new high as tight labor markets persist. 

Import and Export Prices were soft in July particularly for finished goods.  Producers continue to lack pricing power, absorbing costs and keeping price inflation in check.  Productivity jumped to 2.9% on an annualized basis in July, ahead of the 2.4% estimate.  With 4.1% GDP growth, something in the equation of labor costs and productivity needed to give, which we are now seeing signs of.  Industrial Production came in at the lower end of the expected range at 0.1% in July, while the June reading of 0.6% was revised upward to 1.0%. 

Housing Starts continued to disappoint coming in at 1,168 relative to consensus estimates of 1,264.  Building Permits were in line with expectations at 1,311.  This is an unusual divergence between the two measures.  Given the weakness in Starts in the West Census Region, analysts are citing California wild fires as a likely factor for the gap. 

The yield on the 10-Year U.S. Treasury Bond finished the week very close to where it started at 2.86% after trading within a modest range of 2.84-2.89%.

The S&P 500 navigated the waves of volatility as the tides changed from risk on to off throughout the week.  The benchmark closed up 0.6% at 2,850.  With Q2 corporate earnings season wrapped up investors focused in more on the geopolitical risks unfolding, including the currency devaluation, debt and banking system concerns in Turkey.  The slide in the Turkish Lira has led to rising demand for the U.S. dollar.  While dollar strength in the long-run is good for our economy, in the short-run it will have a negative impact on U.S. companies reliant on overseas exports. 

Notable economic releases next week include Existing and New Home Sales, Durable Goods Orders and FOMC meeting minutes. 

 

Weekly Market Commentary

August 6th – August 10th

Core Producer Price Inflation (PPI) increased modestly in July to 2.7% on a year-on-year basis from 2.8% in June.  The headline figure was a tenth lower than June as well at 3.3%.  Underlying price pressures remained primarily from building materials, transportation and logistics. 

The Consumer Price Index (CPI) advanced 2.9%, with the core reading up 2.4% from last year.  The core number was modestly ahead of analyst estimates, while a drop in energy prices kept the headline report in check.  

The yield on the 10-Year U.S. Treasury declined this week, pulling back Friday as the currency crisis unfolded in Turkey.  The bellwether finished the week down 8 basis points to 2.87%. The yield curve remained flat, at 27 basis points.

The S&P 500 fell 7 points on the week due to the Friday sell-off, which also triggered a 250-point drop in the Dow.  The S&P finished the week at 2,833.

Crude oil slipped midweek on increased U.S. production and the tariff-related possibility of weaker demand from China.  Oil bounced back Friday, but finished the week down around 1% to $67.67 a barrel.

Meanwhile, the odds of four rate hikes in 2018 continued to creep up.  According to a Wall Street Journal survey, 88% of economists believe the Fed will hike rates two more times in 2018.  The CME Group has the probability of this happening at 68%.

Notable economic releases next week include Retail Sales, Housing Starts, Industrial Production, and Export and Import prices, which will be closely watched due to the escalating trade war.

 

Weekly Market Commentary

July 30th – August 3rd

Nonfarm payrolls in July came in at the low end of estimates at 157k, however the strong jobs growth reported in June was revised upward by 35k from 213k to 238k along with an additional positive revision for May by 24k.  The three-month average of 224k jobs paints a very healthy picture for employment.  The headline unemployment rate ticked down to 3.9% from 4.0%.  Wage growth was unchanged at 2.7% meeting expectations.

Personal Consumption Expenditures (PCE) rose in line with consensus for June while coming in a tenth less than expected on a year-on year basis, 2.2% at the headline reading and 1.9% core.  There was nothing in the report to spook Fed watching inflation hawks.

The savings rate in the U.S. was 6.8% in June, a positive sign in conjunction with the strong Q2 GDP first estimate of consumption.  That figure is more than twice what was estimated before the strong GDP details released on Friday.  It is a bit of a head scratcher that savings and consumption improved in tandem with benign wage growth.  None-the-less, the reports deflate the argument made by Fed hawks justifying further tightening on fear of excessive debt leading to imbalances. 

Unfilled Factory Orders reached the highest level in a decade despite a spike in new hirings by manufacturers.  With tightening in the blue color labor market continuing, wage pressure can’t be far off without a major shift in productivity from innovation.  ISM Manufacturing pulled back modestly in July, reported at 58.1 versus a consensus estimate of 59.4, but remains well into expansionary territory.  New orders eased more than expected likely tied to trade policy uncertainty. 

As expected, the FOMC left rates unchanged this week.  The Committee’s statement referenced a strengthening labor market, strong rate of economic activity, growing household spending and business investment.  Translation… more of the same with a gradual rate hike in September. 

The yield on the 10-Year U.S. Treasury bond passed through the 3% level once again at midweek before closing the final trading session at 2.95%.  The continued high volume of new UST debt issuance certainly factored into the move.  The Treasury will issue $78 billion this quarter with a third of it 10-Year maturities.  The U.S. budget deficit is expected to reach $1 Trillion next year.

The S&P 500 rolled through a back and forth week full of earnings reports, finishing with a modest gain of 0.7% at 2,840.

Next week will be light on economic releases beyond updated PPI and CPI inflation figures.

 

Weekly Market Commentary

July 23rd – July 27th

The first estimate for Q2 GDP did not disappoint lofty expectations coming in at 4.1%.  Final Sales were a key driver growing by 5.1%.  Personal Consumption came back strongly as well at a 4% annual rate, the biggest increase since 2014.  Business Fixed Investment was up 7.3% led by structure investment up a whopping 13.3%, intellectual property well ahead of trend at 8.2% and equipment purchases growing by 3.9%.  Housing investment fell 1.1% after a 3.4% drop in the prior quarter.  This is a rock-solid report with strength in the most important key segments.

Durable Goods orders rose less than expected, up 1% in June, but a positive number none-the-less after pullbacks in the first two months of the second calendar quarter.  Civilian aircraft orders rose meaningfully after weighing on results for the past two months.  Orders Ex-transportation increased at a more modest pace for June up 0.4%, while May results were revised from -0.3 to an increase of 0.3.  Capital Goods Orders Ex-Aircraft picked up as well, foreshadowing the recovering in Business Fixed Investment.

Existing Home Sales pulled back for a third straight month.  Inventory shortage, particularly at the lower end of the market, continued to push up prices of homes for sale.  New Home Sales disappointed as well, reaching an eight-month low.  In conjunction with lower than expected Housing Starts and Building Permits last week, housing data has slowed across the board.

Global trade concerns eased modestly when President Trump and EU President Jean-Claude Juncker reached a preliminary agreement to mutually eliminate tariffs on cars.  The U.S. will eliminate steel and aluminum tariffs with the EU agreeing to higher imports of certain commodities, assuming buy in is able to be negotiated across EU member states. 

The yield on the 10-Year U.S. Treasury rose during the week nearing the 3% level once again.  The bellwether Treasury ended the week at 2.96%.  Despite the added level of breathing room at the intermediate part of the yield curve, the spread between the 2-Year and 10-Year Treasuries remains historically tight at 30 basis points.

The S&P 500 finished marginally ahead of where it started the week finishing up 0.57% at 2,818.  Most of the gains earned through midweek were returned in the final two sessions led lower primarily by technology stocks.  The NASDAQ hit a new record high mid-week before a massive decline in shares of Facebook weighed on other stocks in the tech sector. 

The Fed meets next week with no rate decision expected until the September meeting.  Notable economic releases next week include Employment, Factory Orders and ISM Manufacturing Indices.

 

Weekly Market Commentary

July 16th – July 20th

Retail Sales for June were reported in line with expectations up 0.5%.  May results were revised upward from 0.8% to 1.3%.  The control group (retail categories that translate directly to GDP) missed as it was flat for June versus expectations of 0.4% although the shortfall was nearly made up for with an upward revision for the prior month from 0.5% to 0.8%.  Q2 GDP remains on track to meaningfully outpace the first quarter. 

U.S. housing starts missed consensus estimates and hit a 9-month low.  Building permits were reported well below expectations as well declining for a third straight month.  The below consensus reports exacerbate a slowdown in the housing market with low inventories of properties for sale having weighed on existing home sales. 

The yield on the 10-Year U.S. Treasury closed the week at 2.89% within a few basis points of where it started.  The spread between the 2-Year and 10-Year Treasuries remains tight at 0.29%.  The short end of the curve continues to rise with the 3mo UST Bill yield reaching 2% this week. 

The S&P 500 finished the week up by 0.4%.  Corporate earnings season is in full swing giving investors plenty of company specific news to digest in addition to the daily global headlines relating to trade and geopolitical stress. 

Notable economic releases next week include a first look at an initial estimate for Q2 GDP, Durable Goods, as well as Existing and New Home Sales.

 

Weekly Market Commentary

July 9th – July 13th

Producer Prices at wholesalers and retailers are showing signs of pressure in light of increased tariffs.  Year-on-year PPI for June was higher than anticipated at 3.4%.  Core PPI, excluding food and energy, was also higher than consensus at 2.8%.  Consumer prices edged up more modestly showing a continued lack of pricing power for producers.  Year-on-year CPI was in line with consensus at 2.9% and the Core reading was a tick above expectations at 2.3%.  The only signs of price pressure came from medical care and rents.  The readings continue to inch higher, providing the Fed a modicum of cover for tighter rate policy.  Import prices however, pulled back in June after initial spikes in steel and aluminum prices following the initial tariff imposition in March.

The JOLTS job openings report slipped modestly in May while the already strong April figures were revised upward.  Openings continue to outpace hirings and remain larger than the number of active job seekers.  The abundance of openings in April is starting to pull discouraged workers back into the job market to even the balance between job seekers and opportunities, but the skills mismatch remains. 

Consumer credit through May jumped to the highest level in 2018.  Total credit increased by $24.6B, well ahead of estimates, and the prior month was revised upward by $1.0B.  The slowdown in credit card usage after the holiday shopping season appears to be over, despite the fact that credit card rates are at multi-year highs. 

The yield on the 10-Year U.S. Treasury traded within a narrow range of 2.81-2.87%, closing the week at 2.83%.  The spread between the 2-Year and 10-Year Treasuries tightened further to an extremely narrow 24 basis points.  The term premium for bond investors to extend maturity has all but evaporated. 

U.S. stocks rose straight through the initial trading session of the week following continued strength on the employment front reported last week.  Investors’ concerns about trade tensions eased for most of the week as focus shifted to expectations of a strong Q2 earnings season.  The S&P 500 closed the week with a gain of 1.5% at 2,801.  The technology heavy NASDAQ broke further into record territory closing at 7,825 and the Dow edged back above the 25,000 mark. 

Notable economic releases next week include Retail Sales, Industrial Production, Housing Starts and regional manufacturing surveys.

 

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