We end the 1st half of the year with equities up double digits. Technology is up 26% with both Industrials and Consumer Discretionary up 21%. Healthcare is the relative laggard, trailing the market by 1000 bps. It should also be noted that equities had a great run in June. The S&P posted its best June since 1955 (6.9%) the R2K also gained 6.9%. The Dow and Nasdaq gained 7.2% & 7.4% in June respectively. For the week equities were mixed with the S&P 500 falling 0.3%, the Dow losing 0.5% but small caps rallying.

There was no shortage of headlines and speculation leading up to the G-20 summit, which at the time of this writing was still in progress. If the consensus view holds true, then more headlines and speculation should be expected. The market was expecting President Trump and President Xi to agree to continue talks and hold off on any additional tariffs, which would placate the market while it continues to assess monetary policy.

Treasuries continued to rally, sending yields lower across the curve. The 2-yr yield declined ten basis points to 1.74%, and the 10-yr yield declined eight basis points to 2.00%. The U.S. Dollar Index was unchanged at 96.18. WTI crude advanced 1.8% to $58.38/bbl amid bullish inventory data and lingering U.S.-Iran tensions.

Chicago PMI decreased 4.5 points in June falling to 49.7, down from 54.2 in May. This decline shows the index entering contraction territory and it marks the first time the index has dipped below 50 since January 2017. This decline brings with it reductions in business confidence, weak demand, and slowed production levels. Personal Income increased 0.5% in May after seeing a 0.5% increase in April according to the BEA. The majority of the increase in May was due to increases in personal interest income, wages and salaries, and government social benefits to persons. Real PCE (the Feds preferred inflation gauge) increased 0.2%. 

The third estimate of 1st q GDP showed an annual rate of 3.1% (same as the 2ndest). New orders for manufactured durable goods decreased $3.3 billion or 1.3% to $243.4 billion in May. The decrease in May follows a 2.8% decrease in April. Three of the last four months have seen declines. The Consumer confidence index declined in June following an increase in May. The Index now shows a reading of 121.5 down from 131.3 in May. Sales of new single-family homes declined 7.8% to 626k, seasonally adjusted, in May. 

The week ahead is sure to be dominated by US/China trade talks. Sentiment could change rapidly based on … tweets, maybe? There are a few other things happening; OPEC is meeting in Vienna to set production policies, the IEA has noted that supply curbs have been overshadowed by US production growth. The most important regular economic data, the jobs report, comes out Friday. The consensus estimate is 160k. We’ll also see manufacturing and services ISM and others.

Third quarter WAM cash management and rebalancing take place Monday and Tuesday.

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

The fed funds rate is 37bps higher than the yield on the 10 Year – historically not a positive indicator.

Daily US Treasury Yields 

Foreign Exchange Market

 

Energy Complex

The Baker Hughes rig count was flat this week. There are 967 oil and gas rigs operating in the US – down 80 over last year.

  • Brent Crude Oil lost 0.71% this week closing at $64.74/bbl
  • WTI Crude Oil gained 1.81% this week to close at $58.47/bbl
  • Heating Oil gained 0.90% this week closing at $1.94/gallon
  • Natural Gas gained 6.41% this week closing at $2.31 per million BTUs
  • Unleaded Gas gained 4.65% this week closing at $1.94/gallon

Metals Complex

  • Gold gained 0.97% this week closing at $1413.70/oz
  • Silver gained 0.33% on the week closing at $15.34/oz
  • Palladium gained 2.53% this week closing at $1537.60/oz
  • Platinum gained 3.02% this week closing at $835.50/oz
  • Copper gained 0.04% this week closing at $2.71/lb

 

Employment Picture

Weekly Unemployment Claims – Released Thursday 6/27  In the week ending June 22th, initial claims were 227,000, an increase of 10,000 from the previous week’s revised level. The 4-week moving average was 221,250, an increase of 2,250 from the previous week’s revised average.

Job Openings & Labor Turnover Survey JOLTS – Released Tuesday 6/10 – The U.S. Bureau of Labor Statistics reported the number of job openings was little changed at 7.4 million on the last business day of April. Over the month, hires edged up to 5.9million and separations were little changed at 5.6 million.  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 1.2%.

May Jobs Report –  BLS Summary – Released 6/7 – The US Economy added 75k nonfarm jobs in May (lower than expected) and the Unemployment rate remained unchanged at 3.6%. The April report was revised down 39k. Average hourly earnings increased by 6 cents.  Hiring highlights include Education and Health Services +27k, Professional and Business Services +33k, Leisure and Hospitality +26k, and Retail Trade -8k. 

  • Average hourly earnings increased by 6 cents/ 0.22% in May y/y hourly earnings are up 3.1%.
  • U3 unemployment remained unchanged at 3.6%. U6 unemployment rate declined 0.2% to 7.1%.
  • The labor force participation rate was unchanged in May at 62.8% (Unchanged year/y).
  • Average workweek was unchanged at 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 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

Chicago PMI Released 6/28  Chicago PMI decreased 4.5 points in June falling to 49.7, down from 54.2 in May. This decline shows the index entering contraction territory and it marks the first time the index has dipped below 50 since January 2017. This decline brings with it reductions in business confidence, weak demand, and slowed production levels. Also, order backlogs are now in contraction for two consecutive months. Factory gate prices have increased with the pressure of trade tariffs. 80% of firms state they feel a negative impact from the tariffs increasing prices and decreasing orders. At this point, it is speculative whether the diminished business confidence is temporary due to the tariffs or signs of more structural issues.

Personal Income – Released 6/28 – Personal Income increased 0.5% in May after seeing a 0.5% increase in April according to the BEA. The majority of the increase in May was due to increases in personal interest income, wages and salaries, and government social benefits to persons. Real PCE (the Feds preferred inflation gauge) increased 0.2% in May. Real disposable personal income increased 0.3% in May.  

Third Estimate of 1st Quarter GDP  – Released 6/27 – According to the third estimate released by the Bureau of Economic Analysis, Real Gross Domestic Product (Real GDP) increased at an annual rate of 3.1% in the first quarter of 2019. The third estimate is based on more complete source data than was available for the second estimate. The second estimate, estimated real GDP, increased at 3.1% in the 1st quarter. The first quarter increase in real GDP observed positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, 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 fixed investment. 

Durable Goods – Released 6/26 – New orders for manufactured durable goods decreased $3.3 billion or 1.3% to $243.4 billion in May. The decrease in May follows a 2.8% decrease in April. Three of the last four months have seen declines. Transportation equipment declined 4.6%, driving the decrease by $3.9 billion to $80.0 billion. 

Consumer Confidence Released 6/25  The Consumer confidence index declined in June following an increase in May. The Index now shows a reading of 121.5 down from 131.3 in May.  Consumer confidence has reached its lowest level since September 2017 with the decline in consumer confidence in June; following two consecutive months of improvement. The decline in consumer confidence levels suggests consumers were shaken by the escalation in trade and tariff tensions and that they have some uncertainty in the short-term. Further escalations may increase uncertainty among consumers and further increase volatility in the index.  

New Residential Sales – Released 6/25 – Sales of new single-family homes declined 7.8% to 626k, seasonally adjusted, in May. The median sales price of new homes sold in May was $308k with an average sales price of $377.2k. At the end of May, the seasonally adjusted estimate of new homes for sale was 333k. This represents a supply of 6.4 months at the current sales rate.

 

Recent Economic Data

Links take you to the data source

Existing Home Sales – Released 6/21 – Existing home sales rebounded in May after two months of decline. Sales increased 2.5% to a seasonally adjusted rate of 5.34 million. Sales are currently down 1.1% from one year ago. Housing inventory increased to 4.3 months of inventory and the total housing inventory increased to 1.92 million. The median sales price for all types of homes was $277,700, up 4.8% year/y.

Housing Starts – Released 6/18 – New home starts in May were at a seasonally adjusted rate of 1.213 million; down 9.5% below April and 2.8% below last May’s rate. Building Permits were at a seasonally adjusted rate of 1.294 million, up 0.3% compared to April but down 0.5% over last year.

Industrial Production and Capacity Utilization – Released 6/14 – Industrial production increased 0.4% in May following an upwardly revised 0.4% decrease (from -0.5%) in April. Total capacity utilization increased to 78.1% from an unrevised 77.9% in April.

Retail Sales – Released 6/14 – U.S. retail sales for May 2019, were $519 billion, an increase of 0.5% from the previous month.  Retail sales are up 3.6% year to year.

Consumer Price Index – Released 6/12 – The Consumer Price Index increased 0.1% in May. Core CPI, which excludes food and energy increased 0.1%. The monthly changes left total CPI up 1.8% year-over-year and core CPI up 2.0%.

Producer Price Index – Released 6/11 – The Producer Price Index for final demand increased 0.1% in May. Core PPI was up 0.2%. Year over year the index for final demand rose 2.3%.

US Light Vehicle Sales – Released 6/7 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 17.9 million units in May versus a SAAR of 16.9 million units in April.

Consumer Credit  Released 6/7 – Consumer credit increased at a seasonally adjusted annual rate of 5.25% in April. Revolving and nonrevolving credit increased 8.0% and 4.25% respectively. Total Outstanding consumer credit is currently at $4.070 trillion.

U.S. Trade Balance  Released 6/6 – The U.S. Trade deficit was $50.8 billion in April, down $1.1 billion from $51.9 billion in March. April exports were $206.8 billion, $4.6 billion less than March exports. April imports were $257.6 billion, $5.7 billion less than March imports. The goods and services deficit has increased $4.1 billion or 2.0% year to date. Year to date exports and imports increased $8.3 billion or 1.0% and $12.4 billion or 1.2% respectively.

PMI Non-Manufacturing Index (ISM Services) – Released 6/5 – Economic activity in the non-manufacturing sector grew in May for the 112th consecutive month. ISM Non-Manufacturing registered 56.9 percent, which is 1.4 percentage points higher than the April reading of 55.5 percent. This represents continued growth in the non-manufacturing sector, at a slightly faster rate.

PMI Manufacturing ISM Index  Released 6/3 – May PMI decreased 0.7% to 52.1% from April’s reading of 52.8%. The New Orders Index was up 1.0% from April’s reading of 51.7% to 52.7% for May. The Production Index registered 51.3% down 1.0%.

U.S. Construction Spending – Released 6/3 – Construction spending was roughly unchanged in April measuring at a seasonally adjusted annual rate of $1,298.5 billion. The April figure is 1.2% below the April 2018 estimate. Private construction spending was 1.7% below the revised March estimate at $954.0 billion. Public construction spending was 4.8% above the revised March estimate at $344.6 billion.

Next week we get data on U.S. Construction Spending, PMI Manufacturing ISM Index, ISM Services, the U.S. Trade Balance, and the June Jobs Report.

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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