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 – 5/3/24
/in Weekly Wrap/by halyardInvestors began this week with much trepidation, given the mixed economic data and stubbornly high inflation that has characterized the first four months of this year. It was widely expected that Powell would offer a “mea culpa” for suggesting that rate cuts were imminent back in December. He didn’t go quite that far but did opine that the committee was “less confident” that inflation would fall to 2% in the near term. But he also cast doubt on the possibility that the next move in interest rates would be a hike.
Halyard’s Weekly Wrap – 4/26/24
/in Weekly Wrap/by halyardOn the back of strong retail sales in the last three months we were expecting that the first pass of Q1 GDP would come in above expectations. When the results were released yesterday, the tally fell well below the 2.5% consensus expectation, showing that annualized growth slowed to 1.6%. Digging through the details yielded a mixed conclusion. Personal spending, the main driver of growth, rose 2.5%, below the 3% consensus expectation, but still supportive of the view that consumers continue to spend.
Halyard’s Weekly Wrap – 4/19/24
/in Weekly Wrap/by halyardThe red-hot economic data continued this week with the release of March Retail Sales. The report showed that retail sales rose 1.1% over the previous month, more than double what was expected. February retail sales were revised to a 0.6% monthly gain from the 0.3% that was first reported. The gains were broad based and have some economists thinking that the Q1 GDP forecast may be too low. The estimate last Friday was for 2.1% growth, but the consensus thinking as of this morning is 2.5%.
Halyard’s Weekly Wrap – 4/12/24
/in Weekly Wrap/by halyardIf you’re thinking there has been a sea change in expectations this week, it’s because there has been. The March Consumer Price Index slammed the door on any hopes of a near-term rate cut with the year-over-year core CPI rising 3.8%. The CPI seems to have settled in at the 3.8% annual rate which is a level that is too high for the Fed to cut interest rates anytime soon. Reflecting that, many of the “Street” economists have withdrawn their forecast for a June rate hike and the possibility of two additional cuts this year and have now taken the safe forecast of one rate cut this year coming at the December meeting. Indeed, the Fed Fund futures have priced in a singular rate cut in the December contract.
Halyard’s Weekly Wrap – 4/5/24
/in Weekly Wrap/by halyardThe Bond market continued to reprice the yield curve this week. Driven by economic data that showed the US economy is still firm despite higher interest rates. Manufacturing and Service surveys indicated expansion – the first such reading for Manufacturing since September of 2022. On Friday, the Non-farm payroll release created a seismic move in rates as the report showed 303,000 new jobs for the month versus expectations of +214,000. The 3-month average of job gains is 276,000 – eclipsing last year’s average gain of 242,000. The unemployment rate stood firm at 3.8%.
Halyard’s Weekly Wrap – 3/29/24
/in Weekly Wrap/by halyardThough the minutes of the recent FOMC meeting reconfirmed the committee’s expectation that they’ll cut the overnight rate three times this year, market consensus is moving away from that expectation. Fed fund futures had priced in as many as five rates cut by December at the start of this year. Instead, the future now implies about 60 basis points of rate cuts by the end of this year.