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Weekly Market Commentary

March 11th - March 15th

Weak December Retail Sales were revised lower from -1.2% to -1.6%.  The critical Control Group was revised from -1.7 to -2.3% and is expected to weigh on the next estimate of Q4 GDP.  The January report showed a welcomed comeback however, at 0.2% and 0.9% when excluding the underperforming auto sector.  The Control Group was ahead of the consensus range at 1.1%. 

Durable Goods Orders for January were also ahead of low expectations at 0.4%.  Commercial aircraft spending was the key driver.  Excluding transportation, the reading declined by -0.1%.  Constructions spending jumped by 1.3% in the month and capital spending advanced 0.8%. 

Consumer prices were subdued in February with the CPI reading up 0.2% and Core reading up less than estimated at 0.1%.  The Core consumer inflation measure stands at 2.1% on a year-on-year basis, a tick over the Fed target.  Producer Prices were equally benign with Core PPI reported at 0.1% for the month and 2.5% annually.

The rise in petroleum prices were a major component of a 0.6% reported increase in Import Prices in February.  On a year-on-year basis, the price of imports is still lower by -1.3%.  Export Prices increased at the same 0.6% level for the month and are flat at +0.3% over the past year.

British parliament voted down Prime Minister Teresa May’s plan for an exit from the EU for a second time, intensifying political turmoil and business uncertainty in the UK.  The clock is ticking on a Brexit deal scheduled for month end.  In a case of truth being stranger than fiction, Prime Minister May will be afforded an additional opportunity to make her case to Parliament for a third time next week to try to sway the vote.  Britain may be tied up in complex negotiations for another year if Ms. May’s deal fails again next week.

The S&P 500 staged a solid recovery this week advancing 2.9% to 2,822.  The NASDAQ was strong as well increasing by 3.8% to 7,688.  The risk on environment did little to move bond yields as the bellwether 10-Year U.S. Treasury yield declined 4 basis points to 2.59%.

The much discussed FOMC March meeting will take place over two days next week.  No rate increase is anticipated.  Notable economic releases next week include Existing Home Sales and Factory Orders.

 

Weekly Market Commentary

March 4th - March 8th

New jobs growth slowed to only 20k in February as employers apparently struggled to find properly qualified candidates in a tight labor market.  The well below consensus estimate figure comes on the back of two exceptionally strong months revised to 311k in January and 227k in December.  The headline unemployment rate ticked down to 3.8%  Under-employment pulled back to 7.3%, likely due to the reversal of the impact of the government shutdown on the prior reading.  Average Hourly Earnings continued a gradual higher trend to an annualized 3.4%.  Despite the cooler than expected new jobs level, employment remains strong, potentially nearing the illusive measure of full employment and the gradual pace of wage growth is advantageous for consumers while not raising red flags on inflation from our perspective.

The U.S. trade deficit in goods hit a new record high of $891 billion in 2018 from a combination of rising imports and some falling exports (soybeans and other farm products) in retaliatory moves relating to new trade tariffs imposed by the U.S.  The unexpected falloff in export demand in December is likely to reduce the final estimate of Q4 GDP.  Slowing vehicle sales in January and February highlight a potential downdraft from December retail sales to roll over into 2019 data. 

The ISM Non-Manufacturing report exceeded forecasts at 59.7.  Business Activity / Production and New Orders were key components of strength.  Nonfarm Productivity was also higher than expected at an annual rate of 1.9% through December.  Output rose 3.1% outpacing the 1.2% rise in hours worked meaning it took less time to produce more.  Productivity remains a key area of focus as the increases can offset rising wages to prevent a squeeze of company profit margins.

New Homes Sales posted a stronger than expected data point after a slew of weak reports.  Sales increased 3.7% in December at a 621k annual pace, coming in at the high end of the consensus range. 

The 10-Year U.S. Treasury yield sustained a downward trajectory in a flight to quality shift to the safety of Treasuries.  The bellwether was down 12 basis points on the week to close at 2.63%.  The S&P 500 declined each of the five trading sessions as well, finishing the week off by -2.2% to 2,743.

Notable economic releases next week include January Retail Sales and Durable Goods Orders, CPI and PPI inflation, and Import / Export Prices.

 

Weekly Market Commentary

February 25th – March 1st

Q4 GDP was reported stronger than anticipated at 2.6%.  The strong fourth quarter averages to a 3.1% rate of growth for 2018, the highest calendar year level in the current economic expansion.  Personal Consumption, the largest component, grew by 2.8% driven by health care, financial services, insurance and other non-durable goods and services.  Business investment accelerated by 6.2% driven by equipment, software and research spending.  In addition to delaying the release of the report, the Government shut down is estimated to have reduced Q4 GDP by a marginal 0.1% although the Commerce Department cautioned that the full effects cannot be completely quantified.

Fed Chairman Jerome Powell testified before Congress this week, reiterating a patient approach to future monetary policy changes, stating “this is good time to be patient and watch and wait and see how the situation evolves.”  He referenced muted inflation in conjunction with a U.S. economy facing “crosscurrents and conflicting signals.”  He indicated that wage increases were not troubling from an inflation standpoint in an environment of strong employment. 

Housing Starts for December slowed once again tied in part to wild fires in the west.  The report showed an increase of 1.08mm units, below the revised prior month reading of 1.21mm and forecast of 1.26mm.  Building Permits data was stronger however, at 1.32mm, ahead of consensus and inline with the prior monthly reading. 

Renewed optimism for a trade deal with China was partially offset by the break down in finalizing a denuclearization-sanction reduction deal with North Korea.  The S&P 500 flatlined for much of the week before finishing 0.4% higher at 2,803.  The 10-Year U.S. Treasury yield closed higher by 10 basis points at 2.75%.

Notable economic releases next week include New Home Sales, Nonfarm payrolls and Average Hourly Earnings. 

 

Weekly Market Commentary

February 19th – February 22nd

The minutes of the Federal Reserves January FOMC meeting revealed the decision to adopt a “patient” policy given declining inflation concerns and weakness in global economic growth.  Additionally, they provided more clarity on its balance sheet reduction policy, forecasting the balance to decline to $3.5 trillion, at which time is would begin to reinvest the proceeds of maturing MBS assets into Treasury securities.

Existing Home Sales declined by 1.2% in January, representing the third consecutive monthly decline.  The seasonally adjusted annual rate is now 4.94 million units, which is down 8.5% from a year ago.  The slowdown in housing appears to be troughing though, as moderating home appreciation, lower interest rates, and still steady employment gains should boost affordability in the coming months.  Some early anecdotal evidence was seen in the MBA Mortgage Applications report that increased by 3.6% for the week.

Preliminary Durable Goods Orders for December increased by 1.2%, but missed the consensus estimate of 1.7%.   Additionally, Capital Goods Orders non-defense Ex Air declined by 0.7%, missing the forecast increase of 0.2%, while the prior month was revised down to -1.0%, from the original -0.6%.  Overall, it was a disappointing report and presented further evidence of a global manufacturing slowdown and offered additional cover for the Federal Reserve to refrain for further rate hikes.

The S&P 500 Index closed up 0.65% at 2,792 for the week.  The 10-Year U.S. Treasury yield closed down by 1 basis point at 2.65%.  Markets were buoyed by positive news stories concerning progress in the trade negotiations with China.

Notable economic releases next week include the advanced release of 4Q18 GDP, several regional manufacturing indexes, final reading Durable Goods, and Housing Starts and Pending Sales data.

 

Weekly Market Commentary

February 11th – February 15th

Inflation reports were subdued through January.  The Consumer Price Index (CPI) was reported flat for a third straight month.  Core CPI increased modestly at 0.2% for a fifth straight month, as anticipated.  Housing, food and new vehicle costs were modestly higher.  Gasoline prices and airfares declined.  Producer Prices (PPI) were equally benign, declining -0.1% for a second month in a row.  Both Import and Export Prices were also well below forecasts.  Excluding petroleum, Import Prices dropped -0.5% in the month for a -1.7% year-on-year change, the weakest in over two years.  Export prices declined -0.6% during the month and -0.2% for the year.

The delayed Retail Sales report from December surprised to the downside falling well short of expectations.  The -1.2% decline was the lowest reading in nine years.  The Control Group of categories that flow directly to GDP measurement fell even more at -1.7%, the largest drop since 2001.  The report will certainly reign in expectations for the (also delayed) Q4 GDP growth measure.  A pullback in consumer confidence in December in conjunction with the government shutdown and trade disputes appear to have weighed on spending more than was anticipated.

The JOLTS jobs report jumped more than expected to a new high for the dataset (going back to 2000) showing 7.3mm job openings.  This is a 29% year-on-year rate of growth in openings.  Available positions in constructions, health care-social assistance, leisure and hospitality spiked. 

Perhaps rattled by the government shutdown, small businesses reported a lower level of optimism through the NFIB survey for a fifth straight month.  The 101.4 reading is high from a long-term historical perspective, but the lowest since the 2016 presidential election. 

A pending government shut down on Friday at midnight was averted with an approved spending bill including compromise on border security spending, however President Trump declared a national emergency in order to divert funds from elsewhere in the government to bolster plans to build a border wall.  Despite the back and forth on spending and trade negotiations, equity markets held on to solid gains earned during the week.  The S&P 500 Index closed up 2.5% at 2,775 and NASDAQ up 2.4% at 7,472.  The 10-Year U.S. Treasury yield closed up by 3 basis points at 2.66%.

Notable economic releases during the holiday-shortened trading week next week include Durable Goods Orders, Existing Home Sales as well as the release of minutes from the latest FOMC minutes.

 

Weekly Market Commentary

February 4th – February 8th

The ISM Non-Manufacturing Index declined modestly in January as was broadly anticipated, however the general longer-term picture of the expansion in the service sector remains healthy.  It has been suggested that the government shut down extended the decline.  Similar to the goods index report of last week, new export orders were the largest declining segment.

ISM Productivity data cooled further.  This is an area we are watching closely as productivity growth will need to advance with wages to avoid a drag on corporate profits and inflation from goods prices passed through to consumers.  An increase in Capex would be a welcomed sign post for productivity. 

Vehicle sales contracted in January, likely to lead to forecast trimming for first quarter personal consumption.  The Bureau of Economic Analysis announced that the delayed estimate of Q4 GDP due to the government shutdown is now scheduled to be reported on February 28th

The 10-Year U.S. Treasury yield finished the week 5 basis points below where it started closing at 2.63%.  The bellwether Treasury traded in a range of 2.74% to 2.62% in a choppy weak.  A pull back in average 30-Year Fixed Mortgage Rates to 4.7% has led to a brisk increase in mortgage applications.  Applications are roughly in line with the 2018 levels as we move into the start of the cyclical selling season. 

Additional speculation on trade talks led to increased volatility in equity markets.  Gains earned earlier in the week were reversed and the S&P 500 closed the week back where it started at 2,707.  The NASDAQ followed a similar path, but held on to a 0.5% gain for the week at 7,298.

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

 

Weekly Market Commentary

January 28th – February 1st

New jobs in January increased by 304k, well ahead of forecasts.  This is the highest level in nearly a year and a new record of 100 consecutive months of job growth.  Average hourly earnings rose 3.2% on a year-on-year basis through January while the December figure was revised upward to 3.3%.  The unemployment rate ticked up modestly to 4.0% as the number of unemployed, including temporarily laid off workers, rose by 175k.  The reported levels of hiring and wage growth should provide support for consumer spending despite lower readings on consumer confidence surveys this week, without stoking inflationary fears. 

A number of reports from the Bureau of Economic Analysis will be delayed due to the government shut down, including the much anticipated first estimate of Q4 GDP.  ISM and PMI Manufacturing Indices were reported and painted a picture of continued growth through January.  The critical domestic new orders component was particularly strong while export orders slowed.

Fed Chair Jerome Powell delivered a market-friendly statement following the FOMC two day meeting this week.  Mr. Powell espoused patience and flexibility with respect to further tightening on interest rates.  In a separately issued statement the Fed further appeased traders noting a willingness to adjust the run off of the Fed balance sheet predicated on economic and financial developments. 

The U.S. Treasury yield curve remains flat with the spread between the 2-Year (2.51%) and 10-Year U.S. Treasury (2.68%) at 0.17%. 

The S&P 500 snapped back strongly closing out the month of January with a return of over 7%, the strongest January monthly return in 30 years.  Despite a pullback for stocks early in the week led lower by the earning report from cyclically-sensitive Caterpillar, the equity market regained its legs leading the S&P 500 up by +1.6% to close at 2,706 and NASDAQ +1.4% to 7,263.

PMI and ISM Services Indices and Productivity will be released next week in a light week of economic reports.  Hopefully we’ll see some of the delayed data begin to be released as well. 

 

Weekly Market Commentary

January 21st – January 25th

A stopgap spending agreement was reached by President Trump and congressional leaders to reopen the U.S. government for three weeks while negotiations over border security measures and funding continue.  The signing of the bill puts a temporary end to the longest shutdown in U.S. history. 

Existing Home Sales disappointed in December declining -6.4% to a 4.99 million annualized rate, the lowest in three years.  Available inventory dropped month-over-month from 3.9 months of supply to 3.7. 

Easing regional manufacturing reports continued with the Richmond Fed showing weakness in orders and backlogs and Kansas City Fed orders bouncing back to flat from the negative reading a month ago. 

U.S. stocks opened the holiday-shortened trading week giving back some of the gains from the last five positive trading sessions.  Investors reacted negatively to the IMF reduction to its 2019 global growth estimate along with a decline in economic growth reported from China at the slowest annual pace since 1990.  The S&P 500 closed the final trading session nearly where it started the week at 2,664, off by -0.2%.  The NASDAQ followed a similar trajectory over the week, edging higher by 0.1% to 7,164.  The 10-Year U.S. Treasury Bond yield pulled back by a fraction of percent to 2.75%. 

Notable economic releases scheduled for next week include a first estimate of Q4 GDP, employment and payrolls data along with updated PMI and ISM manufacturing reports.  The FOMC will meet next week as well with no rate change announcements expected. 

 

Weekly Market Commentary

January 14th – January 18th

Headline Producer Prices (PPI) rose less than expected in December at 2.5% on a year-on-year basis.  Core PPI rose by 2.7% relative to a 2.9% consensus estimate.  Energy prices pulled back (as expected) by 5.4% while food rose 2.6%.  Airline fares and wireless services both exhibited price weakness within the services segment.  There were small declines in the prices of cars and light trucks.  The PPI figures paint a modestly more dovish picture of inflation than the CPI reading last week. 

Retail Sales and Housing Starts figures were not available this week as the partial government shutdown dragged on for a fourth week.  The view into Q1 GDP expectations will begin to cloud the longer critical data sets remain unavailable.  Economic growth will be dampened by the shutdown the longer the power struggle in Washington persists. 

A decline in mortgage rates will increase buying power for potential home buyers.  Combined with a significant pull back in home price appreciation, headwinds may begin to subside in the beleaguered housing market. 

U.S. crude oil production hit a new record, approaching 12 million barrels per day.  With the U.S. production taps wide open, we aren’t expecting much price appreciation from the current $53.72 level. 

Soft data in China, no movement on trade negotiations and no end in sight for the U.S. government shutdown weighed on investors early in the week, but equity markets found their way into positive territory and stayed there.  For the week, the S&P 500 Index gained 2.8% to 2,670 while the NASDAQ advanced 2.7% to 7,157.  The 10-Year U.S. Treasury Bond yield rose 8 basis points to 2.78% with the spread between the 2-Year and 10-Year Treasuries widening modestly this week to 0.16%.

Markets will be closed in the U.S. on Monday in observance of the Martin Luther King Jr. holiday.  Notable economic releases scheduled for next week include Durable Goods Orders, Housing data and regional manufacturing indices. 

 

Weekly Market Commentary

January 7th – January 12th

December’s CPI numbers came in largely as expected…benign.  Headline CPI  (YoY) dropped -0.30% to 1.90% as oil prices declined 10% for the month.  Supply dynamics coupled with a sudden fear of global economic slowdown had speculators looking for cover.  Core CPI (excluding food and energy) was unchanged at 2.20%, meeting expectations. 

Over the past week, Fed Chair Jerome Powell softened his tone when discussing monetary policy plans.  He emphasized a data dependent, flexible approach on both rate moves and balance sheet reduction which the markets received favorably.  On Wednesday, the Fed minutes confirmed this outlook lowering their median GDP forecast to 2.3%.

The ISM Non-Manufacturing Index fell short of economists’ forecasts coming in at 57.6, still comfortably in expansionary territory.  Rising new orders suggest that growth outside the manufacturing sector remains healthy.  Due to the government shut down, some key economic reports are unavailable this week including Factory Orders. 

The JOLTS report showed a modest decrease in the number of available jobs, decreasing to 6.88 million.  There was a noticeable decline in the “quits rate” (voluntary separations) for lower paying jobs indicating a decrease in confidence of availability of replacement positions. 

Mortgage rates have pulled back along with Treasury yields hitting their lowest level in eight months.  The average 30-year fixed rate mortgage fell to 4.51%, higher than year ago levels of 3.95%, but lower than the 5% level that cooled home sales and the trajectory of rising property values. 

The S&P 500 Index finished the week up 2.5% at 2,596 concluding its best 10-day rally in a decade.  Since Christmas Eve, the index has risen over 10%.  The 10-Year U.S. Treasury Bond yield followed the risk-on sentiment finishing the week at 2.70%, up 0.02%. 

Notable economic releases next week include PPI, Housing data and Retail Sales, assuming the soon-to-be longest U.S. government shut down in history does not further delay statistical data releases. 

 

 

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