Volatility spiked as U.S. – China trade talks ended without a deal in sight. The S&P closed down 2.1% this week but had been down as much as 3.75% Friday morning. After positive sounding remarks from Treasury Secretary Mnuchin equity markets staged a mid-day comeback to close positive on Friday but still ended the week lower. The VIX index spiked to a five-month high as equities fell 2-3% across the board. Here’s where we are on trade as of Sunday night:
The Whitehouse has raised tariffs and is threatening to add them to all Chinese imports, a Friday afternoon statement from the USTR:
“Earlier today, at the direction of the President, the United States increased the level of tariffs from 10 percent to 25 percent on approximately $200 billion worth of Chinese imports. The President also ordered us to begin the process of raising tariffs on essentially all remaining imports from China, which are valued at approximately $300 billion.”
Bloomberg reported that President Trump issued a one-month deadline for China to make a deal. President Trump tweeted “We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate.” Chinese Vice Premier Liu He is cautiously optimistic regarding trade talks, but he repeated that certain issues are non-negotiable. China has set out three conditions including the removal of tariffs and is resisting changing its laws.
White House National Economic Council Director Larry Kudlow Fox News Sunday interview: Trade talks with China will continue, but there is nothing on the schedule yet; There is a good chance that President Trump and Chinese President Xi will meet at the next G-20 meeting in late June; China agreements need to be codified by law changes, otherwise tariffs will remain in place; Issues of intellectual property theft and forced technology transfer must be resolved. There also must be enforcement mechanisms. Mr. Kudlow also stated that he expects China to retaliate and that both sides will pay tariffs.
In non-trade related news… Uber came to market Friday issuing 180 million shares priced at $45. This generated 8.1 billion in capital for the company and gave it 75 billion valuation. Shares closed the day down 7% from the IPO price.
The Baker Hughes rig count lost 2 this week. There are 988 oil and gas rigs operating in the US – down 57 over last year.
Brent Crude Oil lost 0.32% this week closing at $70.62/bbl
WTI Crude Oil lost 0.45% this week to close at $61.66/bbl
Heating Oil lost 0.96% this week closing at $2.05/gallon
Natural Gas gained 2.03% this week closing at $2.62 per million BTUs
Unleaded Gas lost 1.85% this week closing at $1.99/gallon
Metals Complex
Gold gained 0.48% this week closing at $1287.40/oz
Silver lost 1.26% on the week closing at $14.79/oz
Palladium lost 0.54% this week closing at $1350.70/oz
Platinum lost 1.05% this week closing at $865.60/oz
Copper lost 1.58% this week closing at $2.77/lb
Employment Picture
Weekly Unemployment Claims–Released Thursday 5/9– In the week ending May 4th, initial claims were 228,000 declining 2,000 from the previous week’s unrevised level. The 4-week moving average was 220,250, an increase of 7,750 from the previous week’s unrevised average.
Job Openings & Labor Turnover Survey JOLTS – Released Tuesday 5/7 – The U.S. Bureau of Labor Statistics reported the number of job openings rose to 7.5 million on the last business day of March. Over the month, hires and separations were little changed at 5.7 million and 5.4 million, respectively. Within separations, the quits rate remained unchanged at 2.3% at a level of 3.4 million. The layoffs and discharges rates were little changed at 1.1%.
April Jobs Report – BLS Summary –Released 5/3 – The US Economyadded 263k nonfarm jobs in April and the Unemployment rate declined by 0.2% to 3.6%. Unemployment has reached its lowest level since December 1969. April’s 263k increase and March’s 189k increase in nonfarm jobs has stifled concerns over a recession and provided relief from concerns that had developed after February’s small 20k increase. The March report was revised down 7k. Average hourly earnings increased by 4 cents. Hiring highlights include Education and Health Services +62k, Professional and Business Services +76k, Leisure and Hospitality +34k, Construction +33k, and Retail Trade -12k.
Average hourly earnings increased by 6 cents/ 0.22% in April y/y hourly earnings are up 3.2%.
U3 unemployment declined by 0.2% to 3.6%. U6 unemployment rate also held steady at 7.3%.
The labor force participation rate declined slightly by 0.2% to 62.8% (Unchanged year to year).
Average workweek decreased slightly by 0.1 hours to 34.4 hours.
Employment Cost Index – Released 4/30/19 – Compensation costs for civilian workers increased 0.7% for the 3-month period ending in March 2019. The 12 month period ending in March 2019 saw compensation costs increase by 2.8% versus 2.7% in March 2018. Wages and salaries were up 2.9% for the 12-month period ending March 2019, versus 2.7% for the 12-month period ending March 2018. Benefit costs increased 2.6% for the 12-month period ending March 2019. For private industry workers, compensation costs increased 2.8% year-over-year, versus 2.8% for the 12 months ending March 2018. Wages and salaries increased 3.0% year-over-year, versus 2.9% for the 12 months ending March 2018. Benefit costs increased by 2.4%, versus 2.5% for the 12 months ending March 2018. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
Consumer Price Index –Released 5/10 – The Consumer Price Index increased by 0.3% in April. Core CPI, which excludes food and energy increased 0.1%. The monthly changes left total CPI up 2.0% year-over-year and core CPI up 2.1%.
U.S. Trade Balance – Released 4/17 –The U.S. Trade deficit was $50.0 billion in March, up $0.7 billion from $49.3 billion in February. March exports were $212.0 billion, $2.1 billion more than February exports. March imports were $262.0 billion, $2.8 billion more than February imports. The goods and services deficit decreased $5.8 billion year to date. Year to date exports and imports increased $14.0 billion or 2.3% and $8.2 billion or 1.1% respectively.
Producer Price Index– Released 5/9 – The Producer Price Index for final demand increased 0.2% in April. Core PPI was unchanged. Year over year the index for final demand rose 2.2%.
Consumer Credit –Released 5/7 – Consumer credit increased at a seasonally adjusted annual rate of 4.25% in the first quarter of 2019. Revolving and nonrevolving credit increased by 1.50% and 5.25% respectively. Consumer credit increased at a seasonally adjusted annual rate of 3.0%in March. Total Outstanding consumer credit is currently at $4.052 trillion.
Recent Economic Data
Links take you to the data source
PMI Non-Manufacturing Index (ISM Services) –Released 5/3 – Economic activity in the non-manufacturing sector grew in April for the 11th consecutive month. ISM Non-Manufacturing registered 55.5 percent, which is 0.6 percentage points lower than the March reading of 56.1 percent. This represents continued growth in the non-manufacturing sector, at a slightly slower rate.
PMI Manufacturing ISM Index – Released 5/1 – April PMI decreased 2.5% to 52.8% from March’s reading of 55.3%. The New Orders Index was down 5.7% from March’s reading of 57.4% to 51.7% for April. The Production Index registered 52.3% down 3.5%.
U.S. Construction Spending– Released 5/1 – Construction spending declined by 0.9% in March measuring at a seasonally adjusted annual rate of $1,282.2 billion. The March figure is 0.8% below the March 2018 estimate. Private construction spending was 0.7% below the revised February estimate at $961.5 billion. Public construction spending was 1.3% below the revised February estimate at $324.7 billion.
Chicago PMI– Released 4/30–Chicago PMI declined by 6.1 points in April falling to 52.6, down from 58.7 in March. This marks the lowest level since January 2017. Factory gate prices declined dramatically reaching the lowest level since March 2016 and experiencing the largest decline for the indicator since December 2008. Most Barometer components have dived below their respective 12-month averages, pointing towards greater business uncertainty among firms. Four of five barometer components declined with only order backlogs increasing on the previous month’s reading. A unsatisfying start to the second quarter with more firms cutting back on both production and employment.
Consumer Confidence– Released 4/30 – The Consumer confidence index increased in April after declining in March. The Index now shows a reading of 129.2 up from 124.2 in March. In recent months worries of a global economic slowdown have moderated consumer confidence, but confidence levels rebounded in April. Consumer confidence levels suggest consumers expect the economy to continue to expand at a solid pace into the summer months supporting consumer spending in the near term. Consumers continue to view both business and labor market conditions favorably.
Personal Income– Released 4/29 – Personal Income increased 0.1% in March after seeing a 0.2% increase in February according to the BEA. The majority of the increase in March was due to increases in compensation of employees and government social benefits. The increase was partially offset by decreases in personal interest income and farm proprietor’s income. Real PCE (the Feds preferred inflation gauge) increased 0.7% in March. Real disposable personal income decreased 0.2% in March.
Advance Estimate of 1st Quarter GDP – Released 4/26 – According to the advance estimate released by the Bureau of Economic Analysis, Real Gross Domestic Product (Real GDP) increased at an annual rate of 3.2% in the first quarter of 2019. The advance estimate is based on source data that is either incomplete or subject to further review. The first quarter increase in real GDP observed positive contributions from personal consumption expenditures (PCE), private industry investment, exports, accelerations in state and local gov’t spending, and nonresidential fixed income. Also imports decreased in the first quarter further increasing gains to real GDP. Positive contributions were partly offset by a decrease in residential investment. A second estimate for first quarter GDP growth will be released on May 30, 2019.
Durable Goods– Released 4/25 – New orders for manufactured durable goods increased $6.8 billion or 2.7% to $258.5 billion in March.The increase in March follows a 1.1% decline in February, but four of the last five months have seen new orders increases. Transportation equipment, up 7.0%, drove the increase by $6.1 billion to $93.8 billion.
New Residential Sales– Released 4/23 – Sales of new single-family homes increased 4.5% to 692k, seasonally adjusted, in March. The median sales price of new homes sold in March was $302.7k with an average sales price of $376k. At the end of March the seasonally adjusted estimate of new homes for sale was 344k. This represents a supply of 6.0 months at the current sales rate.
Existing Home Sales– Released 4/22 – Existing home sales declined by 4.9% in March. Sales declined to a seasonally adjusted rate of 5.21 million. Sales are currently down 5.4% from one year ago. Housing inventory increased to 3.9 months of inventory and the existing homes for sale increased to 1.68 million. The median sales price for all types of homes was $259,400, up 3.8% year/y.
Housing Starts– Released 4/19 – New home starts in March were at a seasonally adjusted rate of 1.139 million; down 0.3% below February and 14.2% below last March’s rate. Building Permits were at a seasonally adjusted rate of 1.269 million, down 1.7% compared to February and down 7.8% over last year.
Retail Sales – Released 4/18 – U.S. retail sales for March 2019, were $514.1 billion, an increase of 1.6% from the previous month. Retail sales are up 3.6% year to year.
Industrial Production and Capacity Utilization – Released 4/16 – Industrial production declined slightly down 0.1% in March following a 0.1% increase in February. Manufacturing output was unchanged for March following two months of decline. Capacity utilization declined 0.2% to 78.8%. Utilization is 1.0% below its long run (1972-2018) average.
US Light Vehicle Sales – Released 4/3 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 18.01 million units in March versus a SAAR of 17.04 million units in February. The March run rate was up 1.7% from the SAAR of 17.71 million units for March 2018.
Next week we get data on Industrial Production and Capacity Utilization, Retail Sales, and Housing Starts.
Volatility spiked as U.S. – China trade talks ended without a deal in sight. The S&P closed down 2.1% this week but had been down as much as 3.75% Friday morning. After positive sounding remarks from Treasury Secretary Mnuchin equity markets staged a mid-day comeback to close positive on Friday but still ended the week lower. The VIX index spiked to a five-month high as equities fell 2-3% across the board. Here’s where we are on trade as of Sunday night:
The Whitehouse has raised tariffs and is threatening to add them to all Chinese imports, a Friday afternoon statement from the USTR:
“Earlier today, at the direction of the President, the United States increased the level of tariffs from 10 percent to 25 percent on approximately $200 billion worth of Chinese imports. The President also ordered us to begin the process of raising tariffs on essentially all remaining imports from China, which are valued at approximately $300 billion.”
Bloomberg reported that President Trump issued a one-month deadline for China to make a deal. President Trump tweeted “We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate.” Chinese Vice Premier Liu He is cautiously optimistic regarding trade talks, but he repeated that certain issues are non-negotiable. China has set out three conditions including the removal of tariffs and is resisting changing its laws.
White House National Economic Council Director Larry Kudlow Fox News Sunday interview: Trade talks with China will continue, but there is nothing on the schedule yet; There is a good chance that President Trump and Chinese President Xi will meet at the next G-20 meeting in late June; China agreements need to be codified by law changes, otherwise tariffs will remain in place; Issues of intellectual property theft and forced technology transfer must be resolved. There also must be enforcement mechanisms. Mr. Kudlow also stated that he expects China to retaliate and that both sides will pay tariffs.
In non-trade related news… Uber came to market Friday issuing 180 million shares priced at $45. This generated 8.1 billion in capital for the company and gave it 75 billion valuation. Shares closed the day down 7% from the IPO price.
Table of Contents
Fixed Income
FOMC March Statement Federal Reserve Dot Plots Dec 18 US Debt Measurement March Meeting Minutes US Corporate Debt Tops $6 Trillion Treasury.gov yields
FOMC Policy Normalization Statement
Global Bond Yields
Foreign Exchange Market
Energy Complex
The Baker Hughes rig count lost 2 this week. There are 988 oil and gas rigs operating in the US – down 57 over last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims – Released Thursday 5/9– In the week ending May 4th, initial claims were 228,000 declining 2,000 from the previous week’s unrevised level. The 4-week moving average was 220,250, an increase of 7,750 from the previous week’s unrevised average.
Job Openings & Labor Turnover Survey JOLTS – Released Tuesday 5/7 – The U.S. Bureau of Labor Statistics reported the number of job openings rose to 7.5 million on the last business day of March. Over the month, hires and separations were little changed at 5.7 million and 5.4 million, respectively. Within separations, the quits rate remained unchanged at 2.3% at a level of 3.4 million. The layoffs and discharges rates were little changed at 1.1%.
April Jobs Report – BLS Summary – Released 5/3 – The US Economy added 263k nonfarm jobs in April and the Unemployment rate declined by 0.2% to 3.6%. Unemployment has reached its lowest level since December 1969. April’s 263k increase and March’s 189k increase in nonfarm jobs has stifled concerns over a recession and provided relief from concerns that had developed after February’s small 20k increase. The March report was revised down 7k. Average hourly earnings increased by 4 cents. Hiring highlights include Education and Health Services +62k, Professional and Business Services +76k, Leisure and Hospitality +34k, Construction +33k, and Retail Trade -12k.
Employment Cost Index – Released 4/30/19 – Compensation costs for civilian workers increased 0.7% for the 3-month period ending in March 2019. The 12 month period ending in March 2019 saw compensation costs increase by 2.8% versus 2.7% in March 2018. Wages and salaries were up 2.9% for the 12-month period ending March 2019, versus 2.7% for the 12-month period ending March 2018. Benefit costs increased 2.6% for the 12-month period ending March 2019. For private industry workers, compensation costs increased 2.8% year-over-year, versus 2.8% for the 12 months ending March 2018. Wages and salaries increased 3.0% year-over-year, versus 2.9% for the 12 months ending March 2018. Benefit costs increased by 2.4%, versus 2.5% for the 12 months ending March 2018. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
Consumer Price Index – Released 5/10 – The Consumer Price Index increased by 0.3% in April. Core CPI, which excludes food and energy increased 0.1%. The monthly changes left total CPI up 2.0% year-over-year and core CPI up 2.1%.
U.S. Trade Balance – Released 4/17 – The U.S. Trade deficit was $50.0 billion in March, up $0.7 billion from $49.3 billion in February. March exports were $212.0 billion, $2.1 billion more than February exports. March imports were $262.0 billion, $2.8 billion more than February imports. The goods and services deficit decreased $5.8 billion year to date. Year to date exports and imports increased $14.0 billion or 2.3% and $8.2 billion or 1.1% respectively.
Producer Price Index – Released 5/9 – The Producer Price Index for final demand increased 0.2% in April. Core PPI was unchanged. Year over year the index for final demand rose 2.2%.
Consumer Credit – Released 5/7 – Consumer credit increased at a seasonally adjusted annual rate of 4.25% in the first quarter of 2019. Revolving and nonrevolving credit increased by 1.50% and 5.25% respectively. Consumer credit increased at a seasonally adjusted annual rate of 3.0%in March. Total Outstanding consumer credit is currently at $4.052 trillion.
Recent Economic Data
Links take you to the data source
PMI Non-Manufacturing Index (ISM Services) – Released 5/3 – Economic activity in the non-manufacturing sector grew in April for the 11th consecutive month. ISM Non-Manufacturing registered 55.5 percent, which is 0.6 percentage points lower than the March reading of 56.1 percent. This represents continued growth in the non-manufacturing sector, at a slightly slower rate.
PMI Manufacturing ISM Index – Released 5/1 – April PMI decreased 2.5% to 52.8% from March’s reading of 55.3%. The New Orders Index was down 5.7% from March’s reading of 57.4% to 51.7% for April. The Production Index registered 52.3% down 3.5%.
U.S. Construction Spending – Released 5/1 – Construction spending declined by 0.9% in March measuring at a seasonally adjusted annual rate of $1,282.2 billion. The March figure is 0.8% below the March 2018 estimate. Private construction spending was 0.7% below the revised February estimate at $961.5 billion. Public construction spending was 1.3% below the revised February estimate at $324.7 billion.
Chicago PMI – Released 4/30 – Chicago PMI declined by 6.1 points in April falling to 52.6, down from 58.7 in March. This marks the lowest level since January 2017. Factory gate prices declined dramatically reaching the lowest level since March 2016 and experiencing the largest decline for the indicator since December 2008. Most Barometer components have dived below their respective 12-month averages, pointing towards greater business uncertainty among firms. Four of five barometer components declined with only order backlogs increasing on the previous month’s reading. A unsatisfying start to the second quarter with more firms cutting back on both production and employment.
Consumer Confidence – Released 4/30 – The Consumer confidence index increased in April after declining in March. The Index now shows a reading of 129.2 up from 124.2 in March. In recent months worries of a global economic slowdown have moderated consumer confidence, but confidence levels rebounded in April. Consumer confidence levels suggest consumers expect the economy to continue to expand at a solid pace into the summer months supporting consumer spending in the near term. Consumers continue to view both business and labor market conditions favorably.
Personal Income – Released 4/29 – Personal Income increased 0.1% in March after seeing a 0.2% increase in February according to the BEA. The majority of the increase in March was due to increases in compensation of employees and government social benefits. The increase was partially offset by decreases in personal interest income and farm proprietor’s income. Real PCE (the Feds preferred inflation gauge) increased 0.7% in March. Real disposable personal income decreased 0.2% in March.
Advance Estimate of 1st Quarter GDP – Released 4/26 – According to the advance estimate released by the Bureau of Economic Analysis, Real Gross Domestic Product (Real GDP) increased at an annual rate of 3.2% in the first quarter of 2019. The advance estimate is based on source data that is either incomplete or subject to further review. The first quarter increase in real GDP observed positive contributions from personal consumption expenditures (PCE), private industry investment, exports, accelerations in state and local gov’t spending, and nonresidential fixed income. Also imports decreased in the first quarter further increasing gains to real GDP. Positive contributions were partly offset by a decrease in residential investment. A second estimate for first quarter GDP growth will be released on May 30, 2019.
Durable Goods – Released 4/25 – New orders for manufactured durable goods increased $6.8 billion or 2.7% to $258.5 billion in March. The increase in March follows a 1.1% decline in February, but four of the last five months have seen new orders increases. Transportation equipment, up 7.0%, drove the increase by $6.1 billion to $93.8 billion.
New Residential Sales – Released 4/23 – Sales of new single-family homes increased 4.5% to 692k, seasonally adjusted, in March. The median sales price of new homes sold in March was $302.7k with an average sales price of $376k. At the end of March the seasonally adjusted estimate of new homes for sale was 344k. This represents a supply of 6.0 months at the current sales rate.
Existing Home Sales – Released 4/22 – Existing home sales declined by 4.9% in March. Sales declined to a seasonally adjusted rate of 5.21 million. Sales are currently down 5.4% from one year ago. Housing inventory increased to 3.9 months of inventory and the existing homes for sale increased to 1.68 million. The median sales price for all types of homes was $259,400, up 3.8% year/y.
Housing Starts – Released 4/19 – New home starts in March were at a seasonally adjusted rate of 1.139 million; down 0.3% below February and 14.2% below last March’s rate. Building Permits were at a seasonally adjusted rate of 1.269 million, down 1.7% compared to February and down 7.8% over last year.
Retail Sales – Released 4/18 – U.S. retail sales for March 2019, were $514.1 billion, an increase of 1.6% from the previous month. Retail sales are up 3.6% year to year.
Industrial Production and Capacity Utilization – Released 4/16 – Industrial production declined slightly down 0.1% in March following a 0.1% increase in February. Manufacturing output was unchanged for March following two months of decline. Capacity utilization declined 0.2% to 78.8%. Utilization is 1.0% below its long run (1972-2018) average.
US Light Vehicle Sales – Released 4/3 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 18.01 million units in March versus a SAAR of 17.04 million units in February. The March run rate was up 1.7% from the SAAR of 17.71 million units for March 2018.
Next week we get data on Industrial Production and Capacity Utilization, Retail Sales, and Housing Starts.
Data Sources:
Bureau of Economic Analysis (BEA)
Congressional Budget Office (CBO)
U.S. Bureau of Labor Statistics (BLS)
Federal Reserve Economic Data (FRED Charts)
CME Fed Watch
U.S. Treasury – Yields
U.S. Census Bureau
Institute for Supply Management (ISM)
Weekly DOL Employment Data
BLS Monthly Jobs Report
JOLTS
US Energy Admin (EIA)
BLS Consumer Price Index CPI
BLS Producer Price Index PPI
Atlanta Fed GDPNOW
NY Fed Nowcast GDP
US Census Bureau Housing Starts
Consumer Credit
USCB Retail Sales
Construction Spending
Federal Reserve Dot Plots
NY Empire Index
Philadelphia Federal Reserve
P/E Ratio Data -Yardeni Research
Technical Analysis Info:
StockCharts.com – Financial Charts
Exponential vs Simple moving average
Other Links:
1973 Arab Oil Embargo
Hunt Brothers Silver
Long-Term Capital bailout
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