Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
09/04/26 – The yield to maturity on 2-year US Treasury Notes is 100bps higher since February 28th, – the day the US and Israel escalated the Iran conflict.
The non-farm payroll total for August was a bit of a shocker, with the economy adding 162,000 new jobs versus the expectation for 55,000. That result exceeded even the most optimistic forecast of 125,000 put forth by a private economic forecasting firm.
In addition, the 23,000 lost jobs that were originally reported last month was revised to a gain of 21,000. The unemployment rate remained unchanged at 4.1%, the lowest it’s been in nearly a year.
Economists caution that the August employment report can be tricky due to impact of local educational employment returning and the staggering of the first day of school for regions across the country. Nevertheless, it’s an undeniable bright spot in an economy that has been grinding along despite the negative headlines of the prolonged war with Iran and persistent inflation.
Other economic data released this week showed the economy continues to grow at a moderate pace with the Job Openings report stable, durable goods sales continuing to grow and the initial claims for unemployment insurance holding steady at the low end of the range.
Given Chairman Warsh’s hawkish comments at last week’s Jackson Hole symposium, this morning’s release makes a September rate hike all but a certainty. The consumer price index, to be released next Friday, could offer some relief as the core year-over-year inflation is expected to fall to 2.4% from the 2.5% recorded in the previous month. But we don’t think that outcome is compelling enough to keep the committee from raising the overnight rate.
In anticipation of the hike, the two-year note is closing just below the 4.40% high set on September 1st. On the other hand, the equity market seems to be sanguine to the idea of a 25-basis point rate hike. For the week, the S&P 500 is nearly unchanged and less than 1.5% below the all-time high set last month.
The pre-FOMC communications blackout period starts tomorrow so any discussion of what the committee may do will be unofficial.
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 – 6/2/23
/in Weekly Wrap/by halyardThe best news of the week is that the debt ceiling issue has been resolved, at least until January 2025. The news eased investors fear that a default by the U.S. government would collapse the entire financial system. We won’t have to worry about that again for another 18 months. As expected, the default premium investors built into the front end of the bill curve has entirely vanished and nearby bills are trading near 5% – off the high of 7% touched just two weeks ago.
Halyard’s Weekly Wrap – 5/26/23
/in Weekly Wrap/by halyardOur expectation that traders would overlook fundamental data this week and instead focus on the debt ceiling stalemate proved prescient. The one release that took the market by surprise were the minutes of the May FOMC meeting. Thinking back to the Q&A session that followed that meeting, we interpreted Powell’s comments as closing the door on a June rate hike, but the minutes told a different tale. The Bloomberg story following the release read “Officials were divided over path of rates with more favoring a pause.” “More” is clearly not a consensus and traders immediately took notice and hit the bid in the futures market.
Halyard’s Weekly Wrap – 5/19/23
/in Weekly Wrap/by halyardThe headline economic report this week was Retail Sales and, for the most part, it told the story of a resilient consumer. The headline result rose 0.4% over the March reading, which you may recall was an abysmal -1.0%, month-over-month. March’s outcome was revised to a simply dreadful -0.7%. On balance, the market ignored the data, choosing instead to obsess about the debt limit impasse. Treasury Secretary Yellen reiterated her concern that the U.S. would default as soon as June 1st if an agreement to raise the ceiling isn’t reached before then. The Treasury Bill market has priced in a default, with early June Bill maturities offering a yield-to-maturity of as much as 5.5%, more than 0.50% higher than Bills maturing a month later. Ironically, the rest of the yield curve, as well as the stock market are trading as though an agreement of the ceiling will be reached. We agree that a deal is most likely to be reached and the market will again return to trading on fundamentals, but as we get closer to the drop dead date, we expect that volatility will rise.
Halyard’s Weekly Wrap – 5/12/23
/in Weekly Wrap/by halyardAll eyes were on the release of the most recent inflation data this week. Both the CPI and PPI came in better than expected as inflation continues to cool. Consumer prices rose 4.9% year-over-year, the smallest rise in two years, but still well above the Fed’s target of 2%. The Producer Price index was much better than expected with year-over-year final demand inflation registering 2.3%. Be forewarned though; producer prices have a low predictability of the direction of consumer prices.
Halyard’s Weekly Wrap – 5/5/23
/in Weekly Wrap/by halyardTed Lasso encourages his players to “Be a Goldfish” because the animal only has a 10 second memory. We think the Federal Reserve is taking this advice literally.
The most consequential story of the week came out on Tuesday, the day before the FOMC announcement. The Treasury Buyers Advisory Committee (TBAC) released the minutes of their quarterly meeting with the Treasury Department. The TBAC is a high-level group of money center banks and Treasury bond buyers that meets with Treasury officials quarterly to discuss operations of the Treasury bond market. The Treasury asked the TBAC what the tolerance would be for Treasury buying back bonds in the open market. We were floored! The current environment in which we find ourselves can be laid entirely at the foot of the Federal Reserve and the irresponsible monetary policy it has pursued. That they are even considering resuming market manipulation is unspeakable.
Halyard’s Weekly Wrap – 04/28/23
/in Weekly Wrap/by halyardThe first look at Q1 GDP offered something for everyone. The headline number presented quarter-over-quarter growth of 1.1%, below the expected 1.9%. The obvious takeaway is that economic activity is weakening as the U.S. slowly slips toward recessionary territory. But we would argue that, while that may be true, activity in Q1 was not as bad as that first look. The BLS measures GDP on a quarter-over-quarter basis, which makes no sense, as the final quarter of the year is always the most robust. To adjust for that, the BLS seasonally adjusts the number to achieve a smoothing effect. We prefer, instead, to compare the economic activity on a year-over-year basis. From that perspective, Q1 GDP registered 1.6% over the GDP reported for Q1 2022 – Better than the reported Q/Q 1.1% headline. However, Q1 2022 grew 3.7% over Q1 2021.