Halyard’s Weekly Wrap – 9/15/23

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We wrote last week that the release of the consumer and producer price indices, retail sales and the Michigan surveys would be a litmus test for the Fed’s rate decision later this month. Unfortunately, the releases had a little something for everyone and didn’t offer definitive visibility on the outcome of next week’s FOMC meeting.

As expected, consumer prices rose in August, rising more than consensus expectation. The year-over-year measure of CPI registered 3.7%, up from 3.2% last month, but the core CPI for the same period fell from 4.7% to 4.3%. That’s far from the Fed’s 2% target but the anecdotal slowing in the economy is likely enough to keep the Fed on the sidelines at the September 20th FOMC meeting, but not enough call the current monetary policy the peak

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Halyard’s Weekly Wrap – 9/8/23

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Today we’ll look to the coming week, instead at the conclusion of the weekly wrap. The release of the consumer and producer price indices, retail sales and the Michigan surveys will be a litmus test for the Fed’s rate decision later this month. Comments from committee members seem to indicate that they will hold rates steady, but CPI and retail sales could prove problematic to that view. Recall that last month retail sales spiked, and many attributed the uptick to the Amazon prime-day sales. As such economists are looking for a month-over-month change of 0.1%. Anecdotally though, contemporaneous measures indicated that retailing continued to hum which could result in an above expectation result. More of a concern though is CPI. In June, the year-over-year measure plunged from 4.0% to 3.0%, giving the Fed some comfort that policy was moving in the right direction. Then the measure ticked up to 3.2% in July. Not a happy outcome but tolerable given that core inflation remained subdued. A similar outcome is expected next week, only economists are forecasting the YOY measure to tick up to an indefensible 3.6%. Rising energy costs will be the culprit but that’s not going to matter to consumers. The fact remains, the cost of filling the gas tank continues to hit our wallets.

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Halyard’s Weekly Wrap – 9/1/23

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Despite the muted volatility of the last unofficial week of summer, economic data released this week will likely keep the Fed on the sidelines later this month. The data was heavily focused on the labor market and the releases show a slowing in hiring. The Job openings measure (JOLTS) has plunged in the last wo months, falling from 9.6 million available and unfilled jobs to 8.8 million and well below the 12 million unfilled jobs touched last spring. Simultaneous with the JOLTS release, the conference board consumer confidence index fell from 114.0 to 106.1 as the uptick in confidence witnessed last month vanished.

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Halyard’s Weekly Wrap – 8/25/23

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Former St. Louis Bank fed president James Bullard attempted to steal the thunder from the Fed’s feel good summer meeting in Jackson Hole with his Thursday missive of accelerating growth and the need for the Fed to continue with rate increases. We asked Mr. Bullard to point to the 5 most recent economic indicators that are accelerating – He didn’t respond to Halyard’s questions.

Following last week’s retail sales beat, the only indicators to surprise to the upside were new home sales and jobless claims. Halyard would describe the economic data as “fair to middling”.

Existing home sales, which are 5x more than new home sales, fell again and are 7.2% lower year to date. Durable goods and PMI surveys both underwhelmed.

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Halyard’s Weekly Wrap – 8/18/23

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Retail Sales for July rose 1.0% over the previous month, much higher than the 0.4% that was expected, although pundits attributed the upside surprise to the Amazon Prime day which was hosted mid-month. The worry is that those sales pulled forward future sales and there will be a giveback in August and September. Looking back on the Prime Day effect on monthly retail sales shows no pattern of an uptick in the month of the sale and no pattern of a drop off in sales in the following month so we caution against assuming retail sales will drop in September and/or August.

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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.

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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.

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Halyard’s Weekly Wrap – 7/28/23

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Economic Acceleration? – Halyard’s Weekly Wrap – 7/28/23

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.

Released simultaneously with GDP were the durable goods and the weekly unemployment reports.  Durable goods came in much higher than expected, gaining 4.7% for the month, skewed by a big jump in aircraft deliveries.  However, excluding aircraft, durable goods sales grew by a respectable 0.6%.  Initial claims and continuing claims for unemployment insurance both fell by more than expected, with the former totaling the lowest level since February of this year.

The data release was not all good, though.  Pending home sales were down 14.8% year-over-year, but with mortgage rates at unaffordable levels, that outcome was not a surprise.

The results of the FOMC meeting were as expected.  The committee raised the overnight interest rate corridor 25 basis points to 5.25% to 5.50%.  In the Chairman’s post-meeting press conference Powell refused to clarify whether he expected to raise the rate again in September, despite being asked the question repeatedly, and from many different angles.  From our perspective, if the surprisingly strong data released on Thursday continues through the summer, a September rate hike is a lock.

The unexpectedly favorable news had an outsized effect on the markets.  The 30-year bond traded 2-points lower on Thursday and is closing out the week at 4.03%, about one basis point below the high yield for 2023.  Similarly, the S&P 500 set a new 2023 high on Thursday and is closing the week slightly below that high.

Looking forward to next week, we’ll be watching to see if the drop in unemployment claims is foretelling an acceleration in the jobs gained in July.  On Tuesday, the oft ignored Job Opening and Layoff Turnover (JOLTS) report will give us a look at the number of unfilled jobs in the economy.  On Friday we’ll be watching the employment report to determine if the slowing last month continued into July or if the unemployment insurance dip is confirmed by accelerated hiring.



This commentary is being provided by Halyard Asset Management, L.L.C. and its affiliates (collectively “Halyard” or “we”) for informational and discussion purposes only and does not constitute, and should not be construed as, investment advice, or a recommendation with respect to the securities used, or an offer or solicitation, and is not the basis for any contract to purchase or sell any security, or other instrument, or for Halyard to enter into or arrange any type of transaction as a consequence of any information contained herein.  Although the information herein has been obtained from public and private sources and data that we believe to be reliable, we make no representation as its accuracy or completeness.  The views expressed herein represent the opinions of Halyard Asset Management, LLC, or any of its affiliates, and are not intended as a forecast or guarantee of future results. Past performance is not indicative of future results.

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.

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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.

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