Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
5/10/24 – Softer economic data not enough to offset higher for longer tone in bond market
After last week’s repricing of the yield curve to again reflect the possibility of one rate cut this year, the interest market barely moved this week. The dearth of economic data allowed the 2-year/30-year yield curve to remain at a 20-basis point inversion with the 2-year notes closing the week modestly higher at 4.86%. That was good news for the equity market as the S&P 500 continued to rally and now stands less than 1% away from its all-time high as earnings releases dwindle to a trickle.
While it barely caught the attention of investors, the University of Michigan survey was notable in its weakness. The sentiment index fell from 76.2 to 67.4 indicating the dour mood in which consumers are finding themselves. Digging further into the report, consumer expectation for inflation over the coming year has moved up to 3.5%. That’s the second consecutive uptick from the 2.9% touched in January. Clearly the average consumer is not buying the message that inflation is on its way to 2%.
Next week will offer clues to what the weather or not the Michigan surveys are reflective of hard data. Specifically, the consumer price index year-over-year is expected to cool to 3.6% from the 3.8% reported last month. Also, on Wednesday retail sales for April will be reported. The expectation is the month-over-month measure will cool to a still healthy gain of 0.4% from the torrid 0.7% registered in March.
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 – 09/02/22
/in Weekly Wrap/by halyardEconomic data this week offered a reprieve from the recent trend of weak indicators. This morning’s employment report for August was especially cheering. Economists had been looking for the economy to add 298,000 jobs in the month, following last month’s 528,000 add. We were skeptical that August would follow with an above trend outcome, but we were proved wrong by a print of 315,000 new jobs. Ironically, bond prices rallied across the curve on the news in a case of “sell the rumor, buy the fact.” Earlier this week whisperings of an outsized employment report began to circulate. Anticipating that possibility, the two-year note yield touched 3.50% with the thirty-year yield topping out at 3.36%.
Halyard’s Weekly Wrap – 08/26/22
/in Weekly Wrap/by halyardThe economic data this week continued to portray a deceleration in the economy, but the most anticipated highlight was Chairman Powel’s comments at the Jackson Hole Symposium. We’ve always had a distaste for the symposium. We view it as a Davos-like affair, attended by an elite group that considers themselves above their constituents. To us, that sends the wrong message about the mission of the Central Bank. Especially given the mess the Federal Reserve has created with excessively easy monetary policy.
We’d describe the speech as being saccharine-like in the in description of the current inflationary impulse. The speech didn’t follow the post-FOMC press conference structure in which a question & answer period followed. Because of that, there were whispers that Powell would offer a mea culpa to the mess that he oversaw, but that was not to be. Instead, he painted a “Pollyanna” picture of the current state of affairs. Of that, there were 3 “jaw dropping” quotes that we need to bring to your attention. They are, in chronological order of their mention in the speech, “The absence so far of broad-based inflation pressures,” “longer-term inflation expectations have moved much less than actual inflation…suggesting that households, businesses, and market participants also believe that current high inflation readings are likely to prove transitory,” and finally, “Today we see little evidence of wage increases that might threaten excessive inflation.”
Halyard’s Weekly Wrap – 08/19/22
/in Weekly Wrap/by halyardEconomic data released on Monday showed weakness in manufacturing in the New York region and continued slowdown in national housing activity as seen in the national association of home builders index, housing starts and building permit data. This led to short covering of trades betting on higher interest rates. The short covering was temporary as industrial production and core retail sales surprised slightly to the upside. Economists were looking for signs that the slowdown in housing and high and persistent inflation was weighing on spending. Stripping out auto sales and gasoline, retail sales posted a decent month. The headline, which includes autos and gas sales was flat month over month. CPI for July was also flat month over month, which indicates, that the consumer is buying less gasoline and motor vehicles while spending more on other goods and services. There was also a sharp uptick in non—store retail sales (online shopping). The take away is that high inflation has caused some demand destruction in certain categories but overall, the consume held up.
Halyard’s Weekly Wrap – 08/12/22
/in Weekly Wrap/by halyardThe doldrums are finally upon us! Last Friday’s strong employment report assured worried investors that two straight quarters of economic contraction wouldn’t result in a “hard landing” and this week’s CPI offered hope that the inflation impulse has passed. With that, investors can relaxed and enjoy the last few weeks of summer.
The 0.00% monthly change in inflation was a welcome reprieve from what we’ve witnessed for nearly two years now. But we’re hesitant to declare victory in the Fed’s war on inflation. There’s still an enormous amount of excess liquidity in the system and the Fed’s quantitative tightening has been slow to drain the excess. The Fed’s reverse repo operation, the de facto add-on to the Treasury Bill market, totaled $2.199 trillion at Thursday’s operation, just a few billion below the peak reached earlier this year. And the T-Bill market itself continues to flash warning signs, with yield levels well below the overnight rate and bid/ask spreads of as much as 11 basis points, in some cases. Raising interest rates will slow some interest sensitive sectors, such as home and automobile sales, but the Fed needs to drain liquidity and they’ve barely scratched the surface.
Halyard’s Weekly Wrap – 08/05/22
/in Weekly Wrap/by halyardWe didn’t see that coming! On the back of the mixed June employment report, the July tally blew past all expectations. Coming in at 528,000 new jobs added, the report more than doubled the consensus expectation of 250,000 and exceeded the highest expectation of 325,000. Moreover, the details were equally eye popping, with average hourly earnings up 5.2%, year-over-year, and the unemployment rate ticking down to 3.5%, equaling the low touched on September 2019. The bond market didn’t like any of it. The yield curve that placidly drifted below 3% last week, convulsed back above that measure today. For the week, the 2-year note is 30 basis points higher, and the 2-year/30-year interest rate spread went negative for the second time this year, closing the week out decidedly inverted at -17 basis points.
Halyard’s Weekly Wrap – 07/29/22
/in Weekly Wrap/by halyardAccording to Morgan Stanley “2Q data would mark a technical recession, not an economic one”. The Wall Street firm had forecast that Q2 GDP would come in at +1.0 annualized, so they needed an excuse for their wide miss. In fact, the print was -0.9%. Economic 101 teaches that two consecutive quarters of economic contraction are a recession. Despite that, the Biden administration is saying that it’s not a recession, and points to the jobs market as proof. We agree that the jobs market remains quite healthy, but there’s more to GDP than simply income.