Entries by halyard

Halyard’s Weekly Wrap – 02/03/23

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We thought the lead story for this week was going to be the less hawkish, post-FOMC press conference, but in fact it’s the January employment report. Economists had been forecasting that the economy would add 188,000 jobs in January and the unemployment rate would tick up to 3.6%. Given the increasing number of layoff announcements since December, we thought the actual release would have been about half of the expectation. Instead, the economy generated a staggering 517,000 new jobs during the month and the unemployment rate ticked down to 3.4%. There was no weakness in any of the subcomponents and, to be honest, the report was bewildering.

Halyard’s Weekly Wrap – 01/27/23

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Fourth quarter GDP registered 2.9% annualized growth, beating the 2.6% expectation, but as is often the case with economic data, the devil is in the details. The growth was driven by rising inventories, government spending, and softening imports. The weakness in imports is mostly due to the Chinese covid quarantine and the resultant slowdown in production. With the Chinese factories humming again, we expect that net imports will revert to being a drain on GDP in the first quarter. Similarly, inventories added nicely to the headline number but that is also likely to flatten this winter. The biggest disappointment in the release was private final domestic demand. The measure of how much Americans wanted to consume fell from 1.1% in Q3 to 0.3% in Q4. That’s a significant slippage in demand, which jibes with the disappointing retail sales registered in the last two months of 2022.

Halyard’s Weekly Wrap – 01/20/23

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Though it was a holiday shortened week in the U.S., there was plenty of action in the markets. The most significant market-moving news was the Retail Sales report for December. Recall that November retail sales were disappointing, worrying analysts that the holiday selling season was going to be a bust. That worry proved prescient! Retail sales for November were revised down from -0.6% to -1.0% from the October level. On Wednesday the government reported that December retail sales fell -1.1% from the revised November figure. Parsing through the details, the weakness was broad-based, with sales at department stores falling a shocking 6.6% from November’s level.

Halyard’s Weekly Wrap – 01/13/23

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The December CPI report released on Thursday was a pleasant surprise for investors. The headline CPI fell -0.1% month-over-month, and the year-over-year measure fell to 6.5% from 7.1% the previous month. Core CPI, the measure that excludes food and energy, rose 0.3% over the previous month, a slight uptick from the 0.2% previously reported. Core CPI has fallen to 5.7% year-over-year from the peak of 6.6% reported last September. The market breathed a sigh of relief as witnessed by the massive rally in the long bond on the day of the release, closing nearly two points above the previous day’s close. We suspect that much of the rally was driven by short covering, driving the yield-to-maturity down below 3.6%. At that yield level it’s hard to justify buying from a fundamental perspective.

Halyard’s Weekly Wrap – 01/06/23

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Today’s bond market action is not what one would expect given the release of the December jobs report. The report showed the economy created 223,000 new jobs, again exceeding the 203,000 that was expected. Parsing further through the report, the unemployment rate fell to 3.5%, a record low, and the participation rate increased, meaning that more people joined the workforce and even more of them found work. At first glance, this is not the outcome that the Fed was hoping for. They are trying to cool the economy and the employment situation is actually further heating it up. But bond traders chose instead to focus on the Institute for Supply Management (ISM) Services survey.

December 2022 – Monthly Commentary

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We’re delighted to communicate that the Halyard Reserve Cash Management (RCM) composite generated a positive net return of 0.72% for 2022. During a year in which nearly every risk asset fell in value, we are delighted with that outcome. That’s not to say that the composite didn’t suffer some interim mark-to-market losses as the Federal Reserve defied expectations and raised the overnight lending rate by 400 basis points. The composite endured an unprecedented six mark-to-market losing months last year despite the Halyard team’s highly conservative duration management.

Halyard’s Weekly Wrap – 12/23/22

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We had a feeling the government economists wouldn’t let 2022 get away without a little post-FOMC volatility. A summation of the economic releases this week is that the housing market stinks, inflation continues to be a problem, and consumer confidence ticked up last month. We’re skeptical of that last point. Both the Conference Board and the University of Michigan showed an uptick in confidence despite the continued array of layoff announcements. Our conclusion is that the uptick is directly correlated to the drop in gas prices and nothing more.

Halyard’s Weekly Wrap – 12/16/22

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As expected, the Federal Reserve and the European Central Bank both raised overnight interest rates this week, and both delivered a hawkish prepared statement but softened the language in the post-conference press conference. At the press conference Powell said that rate-hike speed is no longer the most important question, now that the top of the Fed Funds target range is 4.5%. We interpret that as meaning that the days of 75-basis point hikes are behind us and that the possibility of a pause at the February meeting is now possible. Christine Lagarde also communicated that another 75-basis point hike is unlikely, but with the ECB overnight rate sitting at 2.5%, she is not likely to garner the same inflation-fighting stature as Powell.

Halyard’s Weekly Wrap – 12/09/22

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December is a tricky time for the capital markets as banks, brokers, and investors all endeavor to close the year with their respective portfolios 100% invested. Carrying cash over “the turn”, as year-end is colloquially referred to, is not acceptable in the capital markets. As a result, markets can become volatile to the point of seeming irrational. This year that irrationality is most evident in the Treasury Bill market. We refer to the soon to mature December 15th Treasury Bill, although the entire nearby Bill market has also been volatile. The Dec 15 Bill yielded 3.15% at the close of November but ended the day yesterday yielding 2.39%. Logically, that makes no sense. The overnight Fed Funds rate corridor is 3.75% to 4.00%, and the Fed Reserve Repo program offers a set 3.80% rate for the institutions that qualify for the program, and yet the near-term Bill curve continues to be in disarray as we approach the end of the year. One needs to look no farther than the “Calculated New Cash/Pay Down” section of the Treasury Direct website to understand why. Between December 6th and December 13th the Treasury paid down $76 billion in Bills; that’s to say that they sold $76 billion Fewer Bills than the amount maturing. In effect, the Treasury tipped the supply/demand of Treasury Bills out of balance which has resulted in wild gyrations in the Bill market. The Treasury will refill their coffers somewhat next week with net new cash of $64 billion when they sell the new 3-year, 20-year and 30-year securities, but that should not solve the Treasury Bill imbalance. As a result, we expect Treasury Bills to continue to trade rich to the Fed Funds target and the Reverse Repo program into year end.

November 2022 – Monthly Commentary

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Judging by the November Consumer Price Index, the Fed’s harsh medicine of higher interest rates is starting to work. While year-over-year CPI still rose 7.1% last month, that’s down from 7.7% in October, and the 0.1% month-over-month increase is exactly what the Fed has been expecting. While the November Producer Price index came in higher than expected, that measure of inflation takes a back seat to CPI in that some of those price pressures can be absorbed by margin compression at the corporate level. The CPI, on the other hand, directly impacts consumers and risks the spiral effect in which consumers expect prices to continue to rise into the foreseeable future.