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 – 8/25/23
/in Weekly Wrap/by halyardFormer St. Louis Bank fed president James Bullard attempted to steal the thunder from the Fed’s feel good summer meeting in Jackson Hole with his Thursday missive of accelerating growth and the need for the Fed to continue with rate increases. We asked Mr. Bullard to point to the 5 most recent economic indicators that are accelerating – He didn’t respond to Halyard’s questions.
Following last week’s retail sales beat, the only indicators to surprise to the upside were new home sales and jobless claims. Halyard would describe the economic data as “fair to middling”.
Existing home sales, which are 5x more than new home sales, fell again and are 7.2% lower year to date. Durable goods and PMI surveys both underwhelmed.
Halyard’s Weekly Wrap – 8/18/23
/in Weekly Wrap/by halyardRetail Sales for July rose 1.0% over the previous month, much higher than the 0.4% that was expected, although pundits attributed the upside surprise to the Amazon Prime day which was hosted mid-month. The worry is that those sales pulled forward future sales and there will be a giveback in August and September. Looking back on the Prime Day effect on monthly retail sales shows no pattern of an uptick in the month of the sale and no pattern of a drop off in sales in the following month so we caution against assuming retail sales will drop in September and/or August.
Halyard’s Weekly Wrap – 8/11/23
/in Weekly Wrap/by halyardAs we close out the second week of August, the summer doldrums have set-in on the capital markets. This week was mostly devoid of breaking economic data, save for the inflation indices released yesterday and this morning. CPI was mixed, with the year-over-year measure ticking up to 3.2% from the 3.0% logged last month, but on the month-over-month core inflation registered 0.2% for the second consecutive month, the smallest back-to-back gain in more than two years. The Producer Price Index showed similarly subdued results, drawing a collective “Ho Hum” from traders happy to let August drift by with limited volatility.
Halyard’s Weekly Wrap – 8/4/23
/in Weekly Wrap/by halyardThe July employment report showed that the economy generated 187,000 jobs in the period versus consensus expectation of 200,000 while recording a downward revision to the two prior months totaling 49,000. Wage growth as shown by average hourly earnings remained solid for the month – indicating that the slowdown in hiring is a reflection of a tight labor supply. Two Fed officials spoke post the non-farm payroll report and both indicated that the path of employment and inflation were heading in the right direction and that dialogue may shift from whether to raise rates to how long do rates need to remain at the current level. Bond prices rose in a relief rally, removing the past week’s rise in the yields in 2yr and 5 yr Notes.
Halyard’s Weekly Wrap – 7/28/23
/in Weekly Wrap/by halyardThe highlight of the trading week was not Wednesday’s FOMC rate decision, but the slew of economic data released on Thursday. The data was unambiguously strong, and more in line with an accelerating economy than one that is slowing. Gross domestic product (GDP) was expected to slow to 1.8% annualized from the 2.0% recorded in the first quarter. Instead, it grew 2.4%, driven higher by continued resilient consumer spending and strong business spending. The price index component of the report grew at an annualized rate of 2.2%, down from 4.1% recorded in the prior quarter.
Halyard’s Weekly Wrap – 7/21/23
/in Weekly Wrap/by halyardThe economic data this week was decidedly mixed, casting some doubt on the Fed’s likelihood to raise the overnight rate at the upcoming FOMC meeting. The June Retail Sales report came in at 0.2% month-over-month, well below the 0.5% expectation. But that number was pulled lower by a dip in gasoline prices and building materials. Looking past the headline to what the BLS calls the control group, the section more attuned to the consumers propensity to spend, the report told an entirely different story. For the month the control group spending increased 0.6%, led by online shopping. Moreover, the May retail sales results were revised higher from 0.3% to 0.5%, fortifying Chairman Powell’s message that monetary policy is not tight enough.