Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
01/09/26 – Revising the rate cut plan?
While the first week of the new year was an eventful one given the controversial action in Venezuela and Minnesota, the capital markets were fairly quiet. Official government economic data is finally catching up, with a decidedly mixed tone. The Institute of Supply Management (ISM) manufacturing surveys continue to come in below the 50 while services are all above that level. In all, we interpret them as indication that the economy continues to grow, but at a subdued pace.
The employment report for December released this morning was no exception. Consensus was anticipating a gain of 70,000, above the 50,000 new jobs that were created. That was not enough of a miss to upset the market given that the overall number of employed people grew while the labor force contracted resulting in a decline of the unemployment rate to 4.4%. By the end of the day, economists were revising their rate cut plan from near term to June at the earliest.
In soft market news President Trump on Thursday directed Fannie and Freddie, the mortgage agencies, to buy $200 Billion in secondary mortgages in an effort to drive down mortgage rates. The market responded accordingly with the spread between Mortgage and Treasury rates narrowing by 10 basis points. We think that’s probably the extent of the move but wouldn’t be shocked if it were to drift 5 or 10 basis points tighter. Despite the tightening, we don’t expect that to have a meaningful impact on mortgage rates which remain at the high end of the recent range.
On balance the bond market seemed happy with the news this week with the 2-year/30-year yield curve narrowing eleven basis points and the S&P 500 touched a new all-time high.
Next week we will continue to get a mix of fresh and stale economic data. December CPI is expected to register 2.7%, unchanged from the previous month on Tuesday. The Producer Price Index and Retail Sales, both to be released on Wednesday, are November measures so the market is likely to look past those results.
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.
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Halyard’s Weekly Wrap – 8/2/24
/in Weekly Wrap/by halyardWe had two closely watched events this week, the FOMC rate decision and the monthly employment report, and neither disappointed in terms of market impact. As was widely expected, the FOMC left the overnight interest rate unchanged, with Chairman Powell strongly suggesting that a rate cut would be coming at the September meeting. Throughout his post-meeting press conference, he emphasized the Fed’s dual mandate of full employment and stable inflation. We interpret that as a concern that the employment backdrop has become a worry. The employment measures this week validated that concern.
Halyard’s Weekly Wrap – 7/26/24
/in Weekly Wrap/by halyardThe data this week was decidedly mixed – although the Bond market priced in further cuts. The Philadelphia non-manufacturing index plunged to -19.1 from the 2.9 recorded last month. Similarly, the Richmond Fed manufacturing index dropped to -17 from the -10 recorded last month. As expected, there was no joy to be found in the housing sector as existing and new home sales were both down for the month.
Halyard’s Weekly Wrap – 7/19/24
/in Weekly Wrap/by halyardThere was a host of Fed speakers this week including Chair Powell before the Economic Club of Washington DC. All of them reiterated the Chairman’s testimony before congress last week that they are pleased with the cooling inflation and somewhat concerned about the jobs market. Powell added that “he’s very happy doing the job” of Fed chair and that he’ll stay in office until his term ends in May 2026.
Halyard’s Weekly Wrap – 7/12/24
/in Weekly Wrap/by halyardThe highlight of the week was FOMC Chairman Powell’s dovish testimony on Capitol Hill. In describing the dual mandate of stable jobs and low inflation he said inflation has shown “modest further progress” and that labor markets had cooled “considerably.” We interpret that as meaning that a rate cut has once again been moved to the front burner of the FOMC’s agenda.
Halyard’s Weekly Wrap – 7/5/24
/in Weekly Wrap/by halyardToday caps off a holiday shortened week in the US that saw yields continue to fall across the curve. As we have been writing for quite some time, US economic data has been mixed and this week we saw a decided shift in surprises to the downside. Although, the headline Non-farm payroll number beat softened expectations – registering +206,000 for the month of June compared to the consensus of +190,000. The two-month downward revision subtracted 111,000 previously reported jobs, and private payrolls underwhelmed. The US unemployment rate now stands at 4.1% – up 0.6% from the January 2023 low of 3.4%.
Halyard’s Weekly Wrap – 6/28/24
/in Weekly Wrap/by halyardEarlier this week, the Federal Housing Finance Authority, the government regulator for Fannie Mae and Freddie Mac authorized Freddie to buy second mortgages. The intent of the agency is to make it cheaper for homeowners to tap home equity without refinancing their existing mortgage and thereby preserving the low-rate mortgages originated prior to the run up in rates. The program is an 18-month trial with Freddie authorized to buy up to $2.5 billion second mortgages. The purchases will be limited to second mortgages of $78,277 or less. Critics say that the program will be inflationary, which if it was done on a larger magnitude we would agree with, but with a $2.5 billion program cap, we doubt that will come to pass. On the other hand, it could be a slippery slope to a wider program and another government handout.