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Weekly Market Commentary

May 13th - May 17th

Retail Sales in the U.S. fell short of expectations in April at -0.2%, a weak start to second quarter consumption.  This was well off the strong March reading of 1.7% and below the consensus estimate of 0.2%.  The Control Group, which factors directly into GDP, was flat at 0%, well behind the 1.1% in March and the 0.4% forecast.  Auto sales pulled back by -1.1% as was anticipated.  Continued weakness in electronics and appliances was not anticipated however; off by -1.3% in April following a -4.3% decline in the prior month.  A modest increase of 0.7% in department stores and 0.2% in restaurants partially offsets the declines.  The past six months of data have been particularly volatile and trendless.

Industrial Production in April came in at the low end of the consensus range at -0.5%, although the March reading of -0.1% was positively revised to 0.2%.  There were pullbacks across the key components of motor vehicles and parts, business equipment and consumer goods.  Only select hi tech was positive in the month.

Import Prices advanced less than expected in April at 0.2% versus the consensus 0.7% estimate.  Despite a 6.1% increase in imported petroleum prices, a -0.6% decrease in non-petroleum imports more than offset pricing pressure.  On a year-on-year basis the measure declined -0.2%.  Prices of Chinese imports through April were lower by -1.1% over the past year, the sharpest decline in two years.  Bear in mind that tariffs are not included as a component of this measure.  Export prices were below expectations as well at 0.2% for the month and 0.3% over the past year.  An unexpected steep pullback in prices of agricultural equipment was a key driver of the result.  Both reports indicate that inflation continues to remain squarely in check.

Housing Starts and Building Permits recovered from a disappointing shortfall in March providing some positive news in the latest month.  Starts increased by 5.7% at a 1.235 million annualized pace.  Permits were higher by 0.6% to 1.296 million. 

The S&P 500 started off the week with steep losses as risk off sentiment relating to global trade tariffs dominated trading.  The VIX “fear gauge” rose back above the long-term average of 20 before settling back at 16.  A solid recovery later in the week led the S&P nearly back to where it stated at 2,859, a -0.8% change for the week.  The NASDAQ was hardest hit of the major indices (-3.4% in the Monday sell off) given the view that technology-related companies are likely to be adversely impacted in a trade war.  For the week, the technology-centric index closed -1.3% at 7,816.

Softer economic data and ongoing trade tensions sent Treasury yields lower.  The 10-Year U.S. Treasury yield was lower by 7 basis points to 2.39%.  Market participant expectations and the Fed continue to be at odds on a potential rate cut in 2019.  The yield curve inverted once again as the yield on the 10-Year dropped below the 3-Month Treasury by 4 basis points before ending the week within a fraction of a basis point of each other. 

Notable economic releases next week include Existing and New Home Sales and Durable Goods Orders.  The minutes of the latest Federal Open Market Committee meeting will be released as well. 

 

Weekly Market Commentary

May 6th - May 10th

Trade tensions between the U.S. and China escalated throughout the week following tweets from the President threatening to raise tariffs to 25% on Chinese imports.  The levies were put in place on Friday lifting 10% tariffs on $200bn worth of Chinese goods to 25% amid negotiation talks being held in Washington.  Renewed concerns of a prolonged trade war drove “risk off” sentiment resulting in a meaningful pullback in equities and a flight to the safety of U.S. Treasuries.

The Consumer Price Index (CPI) for April was more subdued than anticipated at 0.3%, below the consensus estimate and prior month reading of 0.4%.  On a year-on-year basis consumer inflation rose 2.0%.  The Core reading excluding the volatile food and energy segments was 2.1% as forecasted.  Energy costs rose 2.9% in the month led by a 5.7% increase in gasoline prices while food prices were -0.1% lower.  Two other key components, apparel and airline travel, cited by Fed Chairman Powell as having potential to bounce back were both weaker in the latest report.  Producer Prices (PPI) trailed consensus estimates on a year-on-year basis remaining in line with the March readings of 2.2% headline and 2.4% for the Core.  Prices within the construction sector were higher, driven by new warehouses and industrial buildings and agricultural equipment costs continued to rise as well.  A pull back in other areas such as nursing care, medical imaging and mobile homes offset the increases. 

The JOLTS jobs report showed an increase in the number of positions available in the U.S. to 7.49 million.  The labor market remains tight as there continues to be more jobs available than the number of unemployed Americans.  The ratio of hires to openings hit a new low.  The number of voluntary quits by employees confident in their ability to find a new position rose further while layoffs continued to decline.

The VIX measure of stock market volatility increased in lockstep with rising trade tensions reaching 19.5, close to the long-term historical average of 20, before closing the week at 16.6.  The S&P 500 pulled back on each of the five trading days before recovering modestly in a late session rally on Friday to end the week -2.2% at 2,881.  The technology heavy NASDAQ index declined by -3.0% to 7,916.

The 10-Year U.S. Treasury yield pulled back by 6 basis points during the week to 2.46%.  Bond prices rose in a flight-to-quality to the safety of U.S. Treasuries driving down yields.  The yield curve flattened further ending the week with only a 3 basis point spread between the U.S. 10-Year and 3-Month Treasuries.

Notable economic releases next week include Retail Sales, Industrial Production, Import/Export Prices and Housing Starts. 

 

Weekly Market Commentary

April 29th - May 3rd

Unemployment in the U.S. fell to a new 50-year low in April to 3.6%.  Nonfarm payrolls increased by a very solid 263k, well ahead of consensus.  Revised figures from the prior two months showed a net upward revision of 16k jobs.  The monthly average of 205k new jobs in the first four months of 2019 extends the record long stretch of positive monthly job creation going back to October 2010.  Average hourly earnings grew by 3.2% on a year-on-year basis, in line with the prior month and comfortably in the "Goldilocks" range of neither too hot nor too cold.

Core Personal Consumption Expenditures (PCE) Inflation pulled back to a very modest 1.6%, well below the Fed’s 2.0% target.  Consumer spending data (delayed due to the government shutdown earlier in the year) highlighted weaker spending in February followed by a meaningful pick up in March.   Personal income growth however, remains more tepid.

The FOMC meeting held over two days this week concluded as expected with the Fed Funds rate held steady.  The Fed statement noted improved economic activity and referred to slowing inflation as “transitory”.  Chairman Powell reiterated the Committee’s willingness to let inflation deviate above and below the 2% target disappointing some market participants expecting a hint toward a possible rate cut.

The ISM Manufacturing Index fell in April from 55.2 to 52.7, the lowest reading since October 2016.  The pullback comes from multiple components including New Orders and Production.  While the trend of global manufacturing and trade is slowing, an ISM reading above 50 continues to indicate expansion, albeit at a slower pace. 

Earnings reports drove individual stock volatility and the micro-analysis of the FOMC statement and tone weighed on equities mid-week before a positive final session following the stronger than expected employment report.  The S&P 500 finished the week flat within 0.2% of where it started at 2,945.  The NASDAQ was higher by a similar percentage to 8,164.

The 10-Year U.S. Treasury yield closed 2 basis points higher on the week at 2.52% after trading in a range of 2.56-2.45%.  Stronger employment and lower inflation reports may give both the doves and hawks something to support their position on rate cuts/hikes but, combined are just the right amount of information for the data-dependent Fed to remaining on the sidelines of the rate debate. 

Notable economic releases next week include April CPI and PPI inflation reports and the JOLTS jobs report. 

 

Weekly Market Commentary

April 22nd - April 26th

The initial estimate of first quarter GDP exceeded consensus estimates with a real growth rate of 3.2%.  Although the headline number is impressive, the result was primarily based on the more transitory components of the measure of total goods and services produced in the U.S.  A big rise in net exports along with increased inventories were both key contributors.  The most critical components, Personal Consumption slowed from 2.5% to 1.2% and Business Fixed Investment pulled back from 5.4% to 2.7%.  Excluding the volatile inventory and trade components along with government spending, the final sales to private domestic purchasers cooled to a more modest 1.3%.  This is an initial estimate certainly with room for change as additional data is factored in. 

Existing Home Sales fell -4.9% to a 5.21 million annual rate in the month of March after a strong surge in February.  New Home Sales were far better at a 692k annual pace, well ahead of expectations.  The fall off in 30-Year fixed mortgage rates from an average of 4.65% at the start of the year to 4.27% at the end of March has been a positive catalyst to the housing sector.   

Durable Goods Orders grew by 2.7% in March.  Key contributing components were a 60% jump in commercial aircraft orders and a 2.1% increase in motor vehicles.  Excluding transportation, the reading was 0.4%. 

The S&P 500 closed in new record territory at 2,939, up 1.2% for the week.   The NASDAQ broke through a new record as well closing at 8,146, +1.8%.

The 10-Year U.S. Treasury yield ended the week lower by 4 basis points at 2.52%. The probability of a rate hike price in from the Fed Funds futures is a resounding 0% for the next seven FOMC meetings (despite the Fed’s message of an incremental hike expected in 2020).  The probability of a rate cut before year end remains over 50%.  The markets and Fed continue to have a meaningful difference of opinion on the path of short-term rates. 

Notable economic releases next week include Non-farm Payrolls, Personal Income and Outlays along with ISM Manufacturing Indices.  The FOMC holds a two-day meeting next week with no changes in interest rate policy expected. 

 

Weekly Market Commentary

April 15th - April 19th

Retail Sales rose ahead of consensus estimates in March following a very sluggish start in the first two months of the year.  Sales advanced 1.6% for the month, offsetting the sharp pullback in December.  Vehicle sales turned the corner, up 3.3% following declines in the prior two months. 

Housing Starts grew by an annual pace of 1.13mm and New Permits by 1.27mm.  Both were lower than the already weak February data and below consensus estimates.  Home buyers appear to be taking advantage of lower mortgage rates by focusing on existing homes rather than new construction thus far in the year. 

The first look at March manufacturing figures through regional Empire State data showed mixed results.  The index advanced to 10.1, well ahead of the prior 3.7 reading and consensus 6.8 estimate.  The six-month forward outlook however dipped to a three-year low.  The Philly Fed Business Outlook Survey pulled back as well to 8.5 from 13.7 in the prior month and a 10.2 consensus estimate. 

Industrial Production pulled back unexpectedly by -0.1%.  Manufacturing was flat coming off a decline in February.  A pullback in vehicle production was offset by modest increases in business equipment and hi-tech. 

In more positive news, the trade deficit moderated in February.  An easing of the pre-tariff buildup in inventories contributed to the moderation of the Trade Balance of Goods and Services report. 

The S&P 500 wrapped up the holiday-shortened trading week within a tenth of a percent from where it started at 2,905.  The NASDAQ advanced 0.2% to 7,998.  Traders may have spent the final session of the week on Thursday preoccupied by the press coverage of the release of the Mueller Report, or at least busy clearing an overload of related news flash push notifications from cell phones.  

The 10-Year U.S. Treasury yield also closed the week back where it started at 2.56%, after trading in a range of 2.54-2.61%.  Despite the modest yield curve inversion between 3-Month and 5-Year maturities that has been prevalent for some time, the curve maintained its return to a positive slope further out.  The spread between the 3-Month and 10-Year Treasuries ended the week at 14 basis points and 2-10 spread at 17 basis points.

Notable economic releases next week include a first estimate of Q1 2019 GDP, Durable Goods Orders, Existing Home Sales and New Home Sales.

 

Weekly Market Commentary

April 8th - April 12th

The Consumer Price Index (CPI) for March was higher than expected at 0.4%.  The increase was driven by higher energy costs as the Core reading excluding food and energy was below consensus at 0.1%, unchanged from the prior month.  On a year-on-year basis, headline CPI grew by 1.9%, close to the middle of the consensus range.  The Core reading declined modestly for the same period to 2.0%, a comfortable level for doves and hawks.

The Producer Price Index (PPI) was reported marginally higher as well at 0.6%, with the Core reading at 0.3%.  On a year-on-year basis PPI was 2.2% and Core 2.4%.  PPI readings higher than CPI continue to show that producers lack pricing power.

Growth in Factory Orders in the U.S. continues to moderate.  Capital Goods Orders declined as well.  Capital expenditures have likely been subdued due to companies utilizing free cash flow to focus on a record amount of share buybacks.

Minutes from the March FOMC meeting highlighted the patient, data dependent, path Committee members agreed to with respect to further interest rate changes.  The European Central Bank issued a dovish statement following their meeting this week as well, noting that further accommodation is necessary to address the slow growth environment. 

The 10-Year U.S. Treasury yield advanced marginally on the week closing at 2.56%.  The yield curve developed a bit more natural slope with the spread between the 2-Year and 10-Year now at 16 basis points, and 3-Month-10-Year at 12 basis points.

The S&P 500 broke a streak of eight consecutive days of gains (the longest in 18 months), then resumed its climb, driven higher in the Friday trading session by favorable earnings reports by major banks.  For the week, the broad measure of U.S. stocks closed modestly higher up 0.5% to 2,907.  The NASDAQ followed suit closing up 0.6% to 7,984.

Notable economic releases next week include March Retail Sales, Housing Starts and Industrial Production. 

 

Weekly Market Commentary

April 1st - April 5th

The number of new jobs created in the U.S. in March exceeded the consensus forecast coming in at 196k and the unemployment rate held steady at 3.8%.  The report eased slowdown concerns voiced following the meager new jobs number last month (20k revised to 33k).  Average Hourly Earnings grew by 3.2% on a year-on-year basis, a modest pullback from the previous report highlighting a benign and stable wage inflation environment.  Initial Jobless Claims in the U.S. hit a new 49-year low this week.  The number of Americans filing for new unemployment benefits dropped below expectations to a seasonally adjusted 202k.  Continuing Claims decreased by 38k to 1.72mm. 

Retail Sales fell -0.2% in February, while the January report was revised up from 0.3% to 0.7%.  The (lower in February, higher in January) trend was pervasive for the core and Control Group measures.  Given the significant revisions in the monthly data, the three-month average paints a clearer picture of retail spending which is decidedly weak for the time being, -0.33% through February.  The three-month core average, which excludes autos and gasoline, is marginally better at 0.19%.

Durable Goods Orders in February were also weak, reported at -1.6% and the January reading was revised down from 0.4% to 0.1%.  An expected pullback in commercial aircraft weighted on the result.  Excluding transportation New Orders were a marginal 0.1%. 

The ISM Manufacturing PMI Index for March came in at 52.4, just a tick off the consensus estimate and remaining in the expansionary range above 50.  ISM Non-Manufacturing Index moderated more than expected coming in below the consensus range at 56.1, following a strong February level of 59.7.  Manufacturing data prints out of China were strong, while European data remained subpar. 

The 10-Year U.S. Treasury yield advanced by 9 basis points to 2.49% reversing the ominous yield curve inversion between the 3-month and 10-Year Treasuries.  The week ended with a positive yield differential of 5 basis points between the two adding back a minor degree of slope to the curve.

Equities advanced on strong manufacturing data out of China bolstering the global growth outlook and optimism over trade talks advancing.  The S&P 500 advanced for a seventh straight trading session and closed the week higher by 1.7% to 2,892.  The NASDAQ advanced 2.7% to 7,938 as technology stocks continue to lead the climb back to record market highs.

Notable economic releases next week include March CPI and PPI inflation, February Factory Orders and JOLTS jobs report along with the release of minutes from the March FOMC meeting.

 

Weekly Market Commentary

March 25th - March 29th

Q4 GDP in the U.S. was revised downward from 2.6% to 2.2%, closing out a strong calendar year 2018 with average growth of 3.0%.  Revised consumer spending from 2.8% to 2.5%, particularly from durable goods (5.9% to 3.6%), was a key component of the negative adjustment. 

The Conference Board Consumer Confidence Index dropped more than expected in March, coming in below the lowest analyst estimate.  Personal Income and Personal Consumption Expenditures (PCE) were lower than forecasts as well with both declining -0.1% on the month.  On a year-on-year basis PCE dropped to 1.4% and Core PCE to 1.8%.  The pullback in the key inflation measure will add further pressure on the Fed to take rate cut expectations currently priced into the market more seriously.

New Home Sales were reported higher than expected at 667k versus an estimated 615k following a spike in Existing Home Sales last week.  The more forward-looking Housing Starts and New Permits were however, softer than expected in February.  Starts fell -8.7% to an annual rate of 1.16 million, at the low end of the consensus range, giving back some of the spike in January.  The crucial single-family starts were particularly weak, off by -17%.  Permits were -1.6% lower to 1.29 million.

The 10-Year U.S. Treasury yield continued to decline reaching a low of 2.34% before rising back to 2.40% to close the week.  Concerns relating to the yield curve inversion received ample airtime across financial press outlets.  The 10-Year ended the final trading session a fraction of a basis point higher than the 3-Month Treasury, marginally reversing the inversion created earlier in the week.  Yields across the globe followed a similar downward trajectory with the Japanese and German 10-Year falling deeper into negative territory.  The message from the ECB that rate increases may be delayed further led to increased demand for bonds, driving rates lower.

Equity markets struggled to find momentum during the week before advancing.  The S&P 500 closed the week higher by 1.2% to 2,834.  The NASDAQ advanced 1.1% to 7,729.

Notable economic releases next week include Nonfarm Payroll and Wage data, ISM and PMI Manufacturing Indices, Retail Sales and Durable Goods Orders.

 

Weekly Market Commentary

March 18th - March 22nd

The Federal Open Market Committee comments following their two-day meeting struck a dovish tone, noting that the “growth of economic activity has slowed from its solid rate in the fourth quarter” and “risks from abroad are dimming the outlook.”  The Fed Funds Rate was left unchanged and the revised dot plots projecting the future path of short-term rates now show most members expect no hikes in 2019, one in 2020 and none in 2021.  What a difference four months makes when three hikes in 2019 were being discussed as nearly certain.  One of the more surprising announcements was the quick action planned on slowing the run off from the Fed balance sheet in May and ending in October.  The level of U.S. Treasury roll off will be cut in half from $30 to $15 billion per month from May through September and then eliminated in October.  Beginning in October, the first $20 billion per month of maturing MBS holdings will be reinvested into Treasuries rather than rolling off completely.  The move is very Treasury-friendly and sent yields lower across the curve.

Factory Orders didn’t show any rebound in January, repeating the sluggish 0.1% advance achieved in the prior month.  Overall shipments declined 0.4% and inventories increased 0.5%.  Capital Goods Orders (nondefense ex-aircraft) were stronger however, at 0.8%, a positive forward-looking signal for business investment contribution to Q1 GDP. 

Existing Home Sales topped forecasts in February, climbing 11.8% on the month to a 5.51 million annual pace.  Single family resales were particularly strong up 13.3%.  Additional supply entered the market, but was quickly purchased leaving 3.5 months of available inventory relative to sales versus 3.9 in January.

10-Year U.S. Treasury yield pulled back dramatically following the Fed announcement.  For the week, the bellwether Treasury declined 14bps to 2.43%, a new low for the year.  The front end of the yield curve is now inverted as the 10-Year yield has dropped below the 3-month Treasury bill yield of 2.46%.

The U.S. and China have scheduled further trade negotiation talks in Beijing and Washington to take place in April which kept equities on an upward trajectory at the start of the week.  The Fed’s negative comments on expected global growth broadcast in the media blitz that followed the FOMC meeting dominated sentiment thereafter.  Investors were unsure whether to be concerned by the economic outlook or relieved by the Fed hitting the brakes on rates.  The S&P 500 ended the week down modestly by -0.8% to 2,800; the NASDAQ by a marginal -0.6% to 7,642.

Notable economic releases next week include an updated estimate of Q4 GDP, Housing Starts, New Home Sales and International Trade.

 

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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