Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
9/29/23 – Rising rates leaves fixed income market the most attractive since 2009
Bonds were under intense selling pressure for most of this week in what could only be described as a delayed reaction to the “higher for longer” message delivered by Chairman Powell last week. The old 2-year note (August 2025 maturity) traded as high as 5.19% before closing the week at 5.11%. The 2-year/30-year yield spread continues to dis-invert, closing the week at -35 basis points.
With the rise in rates, the average mortgage rate hit a 23-year high of 7.31%, up from last week’s high of 7.19%. The rise in the cost of financing a home will offer no solace to the beleaguered housing market.
Economic data for the week was mixed with the confidence surveys and housing data coming in below expectations, but the jobs market continued to show strength.
The various Fed members that spoke during the week echoed Chairman Powell’s comments from last week, saying that another rate hike may be possible while suggesting the possibility of a soft landing for the economy. Minneapolis Fed Governor Kashkari specifically said, “the resilience of the US economy has been surprising”, but he then said that he sees a 40% probability that the Fed will need to raise interest rates further.
Next week kicks off the final quarter of the year and next Friday the BLS will release the September employment report. The number of new jobs created, which has been below 200,000 for seven of the last eight months, is expected to again fall below 200,000. Despite the persistently low initial claims for unemployment insurance the consensus expectation is that only 168,000 new jobs will be added in the month.
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 – 9/15/23
/in Weekly Wrap/by halyardWe 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
Halyard’s Weekly Wrap – 9/8/23
/in Weekly Wrap/by halyardToday 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.
Halyard’s Weekly Wrap – 9/1/23
/in Weekly Wrap/by halyardDespite 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.
Halyard’s Weekly Wrap – 8/25/23
/in Weekly Wrap/by halyardFormer 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.
Halyard’s Weekly Wrap – 8/18/23
/in Weekly Wrap/by halyardRetail 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.
Halyard’s Weekly Wrap – 8/11/23
/in Weekly Wrap/by halyardAs 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.