Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
07/31/26 –
At the post-FOMC press conference Kevin Warsh surprised investors with his lack of commitment, either hawkish or dovish, in his comments to reporters. Since assuming the role as chairman two months ago, his comments have been decidedly hawkish. In an unofficial survey prior to the meeting about 20% of those surveyed were expecting a surprise rate hike. Warsh has mentioned on numerous occasions that inflation was running too hot for his liking. Despite those public comments there were only 3 members of the committee that voted for a rate hike.
In his press conference he made several contradicting statements that left everyone a bit confused. Specifically, when asked if the recent rise interest rates was an indicator that the Fed should raise the overnight rate, he “waffled” and suggested that it was in response to better than expected economic news of late. When asked about the next move in rates he completely demurred, which left the questioners, and us, a bit baffled. He has explicitly said that he intends to use the overnight rate as the primary policy tool, but if he’s of the opinion that inflation is too high, then the overnight rate is too low.
Bond investors initially cheered with the 2-year note rallying to close the day at 4.27% after touching 4.32% earlier in the morning. The market is giving some of that back, with the 2-year/30-year yield curve closing the week at 99 basis points, 10 bps wider than where it was earlier in the week.
With so much focus on the Fed, the headline advance GDP report was largely ignored. The Bureau of Economic Analysis estimates that Q2 GDP grew at a l.5% annualized rate, materially below the 2.0% expectation. However a closer look at the underlying details softens the headline number. Private domestic final purchases (PDFP), the cleanest look at how much Americans are buying, rose to 3.9% over the first quarter. The difference between the total GDP and the PDFP was mainly attributable to the widening trade deficit and inventory destocking detracting from growth.
Released along with GDP was the inflation component of the report. That showed that core PCE price index rose 3.4% annualized, down from 4.4% recorded in Q1, but still above the 2% target quoted by the FOMC.
Next week brings the employment report for July. The consensus is expecting the BLS to show that 86,000 new jobs were added in the month, better than the 57,000 added in June but slightly below the 3-month average of 98,600.
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 – 3/22/24
/in Weekly Wrap/by halyardAs expected, the FOMC left the Fed Funds corridor unchanged on Wednesday. Mildly surprising to us though, their economic forecast continues to indicate that they expect to cut the overnight rate three times this year. As we’ve written on numerous occasions, the job market remains robust, and the consumer price index has stabilized at the mid-3% level, well above the Fed’s stated target. The question being asked, is there an imminent threat to economic growth that the Fed is aware of, but the rest of the investing community is not? Especially since a popular financial conditions indicator, which aggregates broad financial conditions such as interest rates, equity prices, and credit spread is showing that financial conditions have eased since last fall. Why then is the Fed threatening to ease policy?
Halyard’s Weekly Wrap – 3/15/24
/in Weekly Wrap/by halyardThe bullish tone on which the bond market closed last week has completely reversed and is closing this week with a decidedly bearish resolve. The hope had been that the inflation measures this week would show further progress toward the Fed’s 2% target. That didn’t happen. Instead, the Consumer and Producer price indices both moved higher on a month-over-month basis in February. The core CPI index was 0.4% higher than the January measure, rounding to roughly 5.0%, a far cry from the Fed’s target.
Halyard’s Weekly Wrap – 3/8/24
/in Weekly Wrap/by halyardAt first glance the employment report for February was surprisingly strong. The expectation was that the economy would add 200,000 new jobs, up from an expected 188,00 last week. The actual change in payroll was 275,000. The year-over-year change in average hourly earnings was 4.3%, 0.1% lower than it registered last month but still an impressive uptick.
Halyard’s Weekly Wrap – 3/1/24
/in Weekly Wrap/by halyardThis week proved disappointing in that each day was jammed with economic data and a parade of Fed speakers and the market barely budged. After last week’s range-bound trading we felt certain that interest rates would break out of their recent band. The best that traders could manage was a rally in the 2-year note taking the yield-to-maturity of that issue down to 4.53%, the lowest yield in nearly three weeks.
Halyard’s Weekly Wrap – 2/23/24
/in Weekly Wrap/by halyardThis was a quiet week for the fixed income market, with the entire yield curve closing within a few basis points of last Friday’s close. The only real action came between late Wednesday afternoon into today’s close, as investors digested the minutes of the January FOMC meeting. As expected, the minutes echoed Chairman Powell’s post-meeting press conference comments that communicated that a rate cut was not imminent. That was enough to push the long bond up to 4.48%, the highest yield so far this year. Contributing to the rise was initial claims for unemployment insurance which totaled 201,000 for the week. That was the second lowest tally of 2024 and further evidence that the economy is not poised to enter a recession. But that wasn’t enough to offset dip-buying on Friday. On the week, the 30-year bond closed six basis-points lower, finishing at 4.37%.
Halyard’s Weekly Wrap – 2/16/24
/in Weekly Wrap/by halyardIn last week’s wrap we cautioned that despite the core PCE deflator touching the Fed’s target, there was a risk that the CPI wouldn’t show the same improvement. Economists had forecasted that the consumer inflation measure would rise to 3.9% year-over-year. That’s exactly where it was reported, and the month-over-month core registered 0.4%. Despite matching the forecast, traders seemingly weren’t prepared for that result because yields across the curve skyrocketed. Obviously, the report took the possibility of an early Fed rate cut off the table. Fed fund futures are now indicating that the first cut has been pushed off to this summer. The 2-year note, which had traded as low as 4.14% last month, shot up to 4.65% on the news, before closing the week half of a basis point higher at 4.655%. The inflation news also took the “wind out of the sails” of the equity market, with the S&P 500 plunging 68 points by the close of business on Tuesday. That entire move has been erased though, with the index closing roughly unchanged for the week.