Entries by halyard

July 2023 – Monthly Commentary

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There’s a lively debate between those that believe that economic growth is slowing and those that believe it’s reaccelerating. The actual outcome will have a marked impact on the progress made to date on inflation. Clearly, employment growth has slowed from the torrid pace witnessed earlier this year. The July nonfarm payroll report registered the first back-to-back sub-200,000 growth since December 2020. Similarly, the jobs availability measure (JOLTS) has contracted to less than 10 million from the 12 million touched earlier this year. But with 9.5 million unfilled jobs still available it seems unlikely that the economy is on the verge of a significant stumble. On the other hand, retail sales for July paint a picture of a confident consumer seemingly unworried about income and willing to spend. That creates a conundrum for economists. Clearly certain industries, namely housing and autos, have slowed down or are in outright recession, but that has failed to impact consumption.

Halyard’s Weekly Wrap – 8/11/23

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As we close out the second week of August, the summer doldrums have set-in on the capital markets. This week was mostly devoid of breaking economic data, save for the inflation indices released yesterday and this morning. CPI was mixed, with the year-over-year measure ticking up to 3.2% from the 3.0% logged last month, but on the month-over-month core inflation registered 0.2% for the second consecutive month, the smallest back-to-back gain in more than two years. The Producer Price Index showed similarly subdued results, drawing a collective “Ho Hum” from traders happy to let August drift by with limited volatility.

Halyard’s Weekly Wrap – 8/4/23

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The July employment report showed that the economy generated 187,000 jobs in the period versus consensus expectation of 200,000 while recording a downward revision to the two prior months totaling 49,000. Wage growth as shown by average hourly earnings remained solid for the month – indicating that the slowdown in hiring is a reflection of a tight labor supply. Two Fed officials spoke post the non-farm payroll report and both indicated that the path of employment and inflation were heading in the right direction and that dialogue may shift from whether to raise rates to how long do rates need to remain at the current level. Bond prices rose in a relief rally, removing the past week’s rise in the yields in 2yr and 5 yr Notes.

Halyard’s Weekly Wrap – 7/28/23

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The highlight of the trading week was not Wednesday’s FOMC rate decision, but the slew of economic data released on Thursday. The data was unambiguously strong, and more in line with an accelerating economy than one that is slowing. Gross domestic product (GDP) was expected to slow to 1.8% annualized from the 2.0% recorded in the first quarter. Instead, it grew 2.4%, driven higher by continued resilient consumer spending and strong business spending. The price index component of the report grew at an annualized rate of 2.2%, down from 4.1% recorded in the prior quarter.

Halyard’s Weekly Wrap – 7/21/23

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The economic data this week was decidedly mixed, casting some doubt on the Fed’s likelihood to raise the overnight rate at the upcoming FOMC meeting. The June Retail Sales report came in at 0.2% month-over-month, well below the 0.5% expectation. But that number was pulled lower by a dip in gasoline prices and building materials. Looking past the headline to what the BLS calls the control group, the section more attuned to the consumers propensity to spend, the report told an entirely different story. For the month the control group spending increased 0.6%, led by online shopping. Moreover, the May retail sales results were revised higher from 0.3% to 0.5%, fortifying Chairman Powell’s message that monetary policy is not tight enough.

June 2023 – Monthly Commentary

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The June payroll gain was the slowest in 30 months, coming in at 209,000 new jobs versus the 230,000 consensus expectation. That disappointment was offset by a greater than expected jump in average hourly wages. The wage measure came in at a 4.4% annualized rate versus the 4.2% expectation. The unemployment rate ticked down to 3.6%. A loosely interpreted rule of thumb is that the economy will continue to grow when more than 200,000 jobs are added per month. The BLS report was especially disappointing when compared to the private ADP jobs measure released on Thursday that showed a whopping gain of 497,000 new jobs. As we have cautioned in the past, seasonal adjustments applied to the BLS measure cause the two reports to deviate from time to time. Also of note, the revision to the previous two months was 110,000 jobs lower.

Halyard’s Weekly Wrap – 7/14/23

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Bond and stock prices rallied sharply this week, but the biggest news came on Wednesday when the Securities and Exchange Commission amended the rules by which money market funds operate. It was the third time in 15 years that the SEC changed money fund rules. The moves are designed to prevent panicky investors from pulling money during times of market stress such as those witnessed in 2008 and 2020. Our take is that they make money market funds even less attractive to investors. The specific changes are that funds would impose a fee of up to 2% when net daily redemption exceed 5%; the funds are now required to hold 25% of the assets under management in overnight holdings, up from the previous mandate of 10%; and the funds will be required to hold 50% of assets in holdings that mature in one week, up from 30%. Funds have 18 months to become compliant with the rules.

Halyard’s Weekly Wrap – 7/7/23

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We guessed correctly last week that Chairman Powell’s comment in Portugal would supersede the June FOMC minutes, depriving the market of any unforeseen volatility. With that, the highlight of this week’s data releases was the monthly employment report.

It was a mixed bag as the economy gained 209,000 new jobs versus the 230,000 consensus expectation. That disappointment was offset by a greater than expected jump in average hourly wages. The wage measure came in at a 4.4% annualized rate versus the 4.2% expectation. The unemployment rate ticked down to 3.6%. A loosely interpreted rule of thumb is that the economy will continue to grow when more than 200,000 jobs are added per month. The BLS report was especially disappointing when compared to the private ADP jobs measure released on Thursday that showed a whopping gain of 497,000 new jobs. As we have cautioned in the past, seasonal adjustments applied to the BLS measure cause the two reports to deviate from time to time. Also of note, the revision to the previous two months was 110,000 jobs lower.

Halyard’s Weekly Wrap – 6/30/23

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The hawkishness espoused by Chairman Powel last week was repeated on Wednesday and Thursday of this week as Central Bankers from the U.S., Europe, U.K., and Japan gathered in Sintra, Portugal to compare notes on inflation. The remarks offered much more substance than the post-FOMC press conference and Powell’s testimony before Congress.

Halyard’s Weekly Wrap – 6/23/23

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Hawkishness dominated the conversation this week as Chairman Powell presented the annual state of the economy to Congress. His comments were broadly in line with his post-FOMC comments from last week, with emphasis that the June pause was just that and that the overnight rate is likely to rise further later this year, perhaps even twice. The market took notice, pushing the 5-year Treasury note above 4.0% for the first time since February. Similarly, the April 2024 Fed Fund future traded above 5.00% this week as traders speculated that the overnight rate will remain high into next year.