Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
03/13/26 – Bond yields materially higher as market fixates on energy’s inflationary impact. This higher for longer scenario will depend on the length of the US / Iranian conflict.
The war with Iran is concluding its second week and hopes for a speedy conclusion have diminished and with it a return to normalcy for the markets. Interest rates have skyrocketed, with the two-year note closing the week 35 basis points higher from the first of the month. For the first time in nearly four years the spread between the 3-month Treasury Bill and the 2-year Treasury note is positive. That’s a telling signal that traders think that the Fed is done cutting rates. The reasoning is that with crude oil trading at an elevated level, gas prices are going to filter into inflation and that the Fed is not going to cut rates with inflation rising. That’s especially true if energy begins to filter through into the broader economy. The flaw in that thinking is that if the energy becomes sustainably expensive, the already faltering economy will likely tip into recession and the Fed will be forced to cut rates.
Economic data this week continues to send a mixed signal on growth and inflation. Month-over-month CPI ticked up to 0.3% from 0.2% in January, while the year-over-year measure was unchanged at 2.5%. Unfortunately, the Fed’s preferred inflation gauge, the core PCE price index rose 0.4% from the previous month and registered 3.1% year-over-year. That’s doesn’t give the Open Market committee justification to cut rates further.
Housing starts unexpectedly rose, but that outcome was tempered by a -5.4% drop in building permits, meaning the spike is going to be exactly that and not a sustained rise in home building. Also of note, the recent rise in Treasury rates has pushed the 30-year mortgage rate above the 6% level – quashing the recent refinance activity.
Also released this morning was the second look at Q4 GDP for 2025, which showed that growth was half of what was first reported, coming in at annualized rate of 0.7%. Personal consumption was also lower, from 2.5% to 2.0%. It appears that the Government shutdown did more economic harm than first estimated.
Next Wednesday is the conclusion of the March Open Market Committee meeting. The broad consensus is that they will leave the overnight rate unchanged. We expect that Chairman Powell will be peppered with questions about the price of oil, and we expect him to be even more evasive than usual. In passing, this will be Powell’s penultimate meeting as Chairman. He deserves credit for riding out the wrath of Trump and maintaining the Committee’s independence.
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 – 12/03/21
/in Weekly Wrap/by halyardTrading this week was dominated by Chairman Powell’s sudden hawkishness and the November jobs report. The headline nonfarm payrolls came in well below expectation, registering 210,000 new jobs versus consensus expectation of 531,000. That statistic is based on a survey of businesses. The Bureau of Labor also releases an employment measure based on a survey of households and that measure showed a gain of 1.1 million new jobs in the month, significantly above expectations and the polar opposite of the nonfarm farm result. Moreover, the household report showed that 594,000 persons reentered the workforce and, as a result, the unemployment rate fell to 4.2%, down from 6.3% in January of this year and well below the 14.8% rate registered in April 2020.
Halyard’s Weekly Wrap – 11/19/21
/in Weekly Wrap/by halyardAt the press conference following the last FOMC meeting, chairman Powell described the employment recovery as incomplete, leaving market participants to conclude that the then just decided directive to taper open market purchases would be the modus operandi, at least for the foreseeable future. We call that interpretation into question with today’s comments by Vice Chairman Richard Clarida and Fed Governor Chris Waller. In separate speeches they both communicated that the Fed may need to discuss speeding up to pace of taper at the meeting in December.
Halyard’s Weekly Wrap – 11/12/21
/in Weekly Wrap/by halyardWednesday November 10th provided a proverbial “gut punch” to the capital markets. The day started with the inflation report for October that was way above expectations and was capped with a 30-year bond auction that was an absolute disaster. Year over year CPI came in at 6.2% versus the 5.4% registered last month. Fed Chairman Powell continues to believe that the uptick in inflation is going to pass but it’s not happening, and people are not happy about it. In the latest release, energy had an outsized effect on the result, climbing 4.8% month-over-month, but that represents a little over 7% of the total.
Halyard’s Weekly Wrap – 11/05/21
/in Weekly Wrap/by halyardThis was supposed to be the week that the Fed, the Bank of England and, to a lesser extent, the ECB eased off the accelerator of monetary policy. As communicated for several months now, Chairman Powell announced that the Fed would begin to taper open market purchases in the amount of $15 billion per month. At the post-meeting press conference, which is typically a non-controversial “softball” affair, the tone of the Q&A got a bit confrontational. Powell reiterated repeatedly that the Fed was in no way prepared to raise the Fed Funds rate. After driving home that point, the line of questioning turned to the trading scandal that cost Fed Presidents Kaplan and Rosengren their jobs. We had thought the matter had been put to bed but apparently the media didn’t get the memo. Powell was put through the rhetorical wringer with questions like how he’d restore the confidence of the American people and if he felt the new policy went far enough. He got through those questions with an even tone, but when asked if the trading scandal would hurt his chances for Biden to renominate him and for Congress to approve his approve his nomination, there was decidedly a bit of annoyance in his “I’m not going to answer that question” response. Otherwise, investors were delighted that a rate hike is not contemplated anytime soon, as witnessed by the simultaneous rally in stocks and bonds to close out the week.
Halyard’s Weekly Wrap – 10/29/21
/in Weekly Wrap/by halyardThe dour mood bond buyers have been in since early August reversed itself in a bout of short covering this week, with an especially sharp move on Wednesday. On that day alone, the 10-year Treasury note plunged 9 basis points. The fall in yield occurred despite mostly better than expected economic data, and was highlighted by an outstanding 5-year note auction. Bucking the trend of weaker, tailing auctions, the $61 billion 5-year note cleared 2.5 basis points below the at-auction yield. Moreover, Primary Dealers bought 17.9% of the auctioned amount, the third lowest result since 2004. The momentum was enough to carry the 30-year note below 2.00% for the first time since early September. That’s not to imply that we’ve turned bullish on the bond market. To the contrary, we think the price action this week was simply supply and demand coming back into balance after several bearish months.
Halyard’s Weekly Wrap – 10/22/21
/in Weekly Wrap/by halyardFed Chairman Powell ended the week by delivering a “wishy washy” overview of the economy and monetary policy at a virtual panel discussion. In fairness, he avoided using the word “transitory” to describe the rising prices that have consumers loudly complaining. Instead, he characterized inflation as being elevated and will likely stay that way for a bit longer. He did acknowledge what we learned from the minutes of the last FOMCC meeting that taper will begin soon and conclude next summer.