The major US averages all rallied this week, with the S&P and the Nasdaq both up over 4%. This helped boost the monthly gain for the S&P to over 9% while the Nasdaq was up over 12%. The most since November 2020. Growth meaningfully outperformed value while other risk/ long duration plays tended to see good gains as well. Treasuries were stronger with 10-year yields down over 30 bp to 2.66%. The dollar index gained 1.2%. WTI crude slumped nearly 6.8% for the month of July.
Peak inflation, peak Fed hopes:
July was another month with a lot of moving pieces surrounding the high-profile themes. There were pockets of traction behind the peak inflation and peak Fed narratives. This was evidenced by the selloff in commodities, a decline in medium- and longer-term inflation expectations in the New York Fed and University of Michigan consumer sentiment surveys, and a pullback in the price measures of regional manufacturing surveys. There was also some focus on discounting in retail to address excess inventories. While the Fed delivered another 75 bp rate hike and Powell reiterated the central bank’s outsized commitment to bringing inflation back to target, market takeaways focused more on expectations for a transition away from front loading rate hikes. Growth fears also played into peak Fed with Eurodollar spreads pricing in a fairly aggressive pivot in 2023. This put some focus on the “bad news is good news” theme with the negative correlation between stocks and macro surprises over the latter part of the month. Upside seemed to be exacerbated by still very depressed positioning indicators and other technical dynamics. The start of Q2 earnings season offered a very mixed bag though there was a positive spin surrounding pricing power/ margin resilience, economic normalization, bank earnings read-throughs for the consumer, loan growth and credit, and the relative stability of 2022 consensus estimates. The dollar pullback over the last couple of weeks of July was highlighted as another pocket of relief given the extent to which FX has weighed on earnings/ guidance. There were relatively few external tailwinds in July though there was another batch of policy support headlines out of China, including reports of a nearly $150B fund for property developers that will help them to complete unfinished projects and prevent systemic pressure from a mortgage strike.
Inflation still hot, Fed still tightening:
The peak inflation narrative ran into some trouble with the hotter-that-expected June CPI, PPI, and PCE prints. There was also some skepticism surrounding the peak Fed narrative with the central bank expected to deliver another ~100 bp worth of rate hikes over the final three meetings of the year and Powell largely blessing the June dot plot when asked about market expectations for an aggressive pivot next year. Growth and recession fears picked up throughout the month as the economy contracted for a second straight quarter in Q2, the July flash services PMI fell into contraction and teh July flash manufacturing PMI slumped to the lowest level in two years. In addition, initial claims ended the month at an eight-month high and there was a flurry of high-profile hiring freeze and layoff announcements. Sell-side strategists repeatedly flagged concerns about sticky 2022 and 2023 earnings estimates given the growth slowdown and lingering inflation pressure, after multiple comprehension was responsible for all of the 1H drawdown. There were also some cautious takeaways from Q2 earnings, including retail guide downs on general merchandise, softness from inflation and economic normalization, mobile provider remarks about customers taking longer to pay their bills, software companies flagging longer deal cycles, tech (and retail) names pointing to a continued deterioration in digital advertising and consumer electronics, and homebuilder commentary on a slowdown in housing. While sentiment and positioning indicators continued to trigger contatian buy signals, there were also pockets of skepticism that the market has seen sufficient capitulation with US equity inflows at nearly $120B ytd. In terms of external headwinds, one of the more prominent developments seemed to be the heightened tail risks for European growth with Russia increasingly expected to weaponize gas supplies.
Europe travel looks really good these days as the USD/Eur is almost level.
Energy Complex
The Baker Hughes rig count increased by 9 this week. There are 767 oil and gas rigs operating in the US – Up 279 over last year.
Metals Complex
Employment Picture
Employment Cost Index – Released 7/29/2022 – Compensation costs for civilian workers increased 1.3% for the 3-month period ending in June 2022. The 12-month period ending in June 2022 saw compensation costs increase by 5.1%. The 12-month period ending JUne 2021 increased 2.9%. Wages and salaries increased 5.3% over the year and increased 3.2% for the 12-month period ending in June 2021. Benefit costs increased 4.8% over the year and increased 2.2% for the 12-month period ending in June 2021. This report is published quarterly.
Weekly Unemployment Claims– Released Thursday 7/28/2022 – The Week ending July 23rd observed a decreased of 5k initial claims increasing to 256k. The four-week moving average of initial jobless claims increased 6.25k to 249.25k.
June Jobs Report–BLS Summary– Released 7/8/2022 – The US Economy added 372k nonfarm jobs in June and the Unemployment rate stayed unchanged at 3.6%. Average hourly earnings increased 10 to $32.08. Hiring highlights include +67k Leisure and Hospitality, +96k Education and Health Services, and +74 Professional and Business Services.
Average hourly earnings increased 10 cents to $32.08.
U3 unemployment rate remained unchanged at 3.6%. U6 unemployment rate declined from 7.1% to 6.7%.
The labor force participation rate was little changed at 62.2%.
Average work week was unchanged at 34.5 hours.
Job Openings & Labor Turnover Survey JOLTS – Released 7/6/2022 – The US Bureau of Labor Statistics reported the number and rate of job openings decreased to 11.3 million on the last business day of May. Over the month, hires were little changed at 6.5 million and separations were little changed at 6 million. Within separations, quits were little changed at 4.3 million. The layoffs and discharges rates were little changed at 1.4 million.
This Week’s Economic Data
Links take you to the data source
Chicago PMI – Released 7/29/2022 – Chicago PMI decreased by 4.9 points in July to 51.1. All five of the main five indicators decreased. This reading marks the lowest reading since August 2020.
Personal Income – Released 7/29/2022 – Personal income increased $133.5 billion or 0.6% in June, according to estimates released by the Bureau of Economic Analysis. Disposable Personal Income (DPI) increased $120.4 billion or 0.7% and Personal Consumption Expenditures (PCE) increased $181.1 billion or 1.1%.
Advance Estimate of 2nd Quarter 2022 GDP – Released 7/28/2022 – Real Gross Domestic Process (GDP) decreased at an annual rate of 0.9% in the first quarter of 2022, according to the advance estimate released by the Bureau of Economic Analysis. GDP decreased 1.6% in the first quarter of 2022. Two quarters of negative GDP growth marks a technical recession. The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The decrease in real GDP reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by increases in exports and Personal Consumption Expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased.
Durable Goods– Released 7/27/2022 – New orders for manufactured durable goods in June increased $5 billion or 1.9% to $272.6 billion. Transportation equipment led the increase up $4.5 billion or 5.1% to $92.7 billion.
Consumer Confidence – Released 7/26/2022 – The Consumer Confidence Index decreased in July following a decline in June. The Index now stands at 95.7, down from 98.4 in June.
New Residential Sales– Released 7/26/2022 – Sales of new single-family homes decreased 8.1% to 590k, seasonally adjusted, in June. The median sales price of new homes sold in June was $402,400 with an average sales price of $456,800. At the end of June, the seasonally adjusted estimate of new homes for sale was 457k. This represents a supply of 9.3 months at the current sales rate.
Recent Economic Data
Links take you to the data source
Existing Home Sales – Released 7/20/2022 – Existing home sales decreased in June marking five consecutive months of declines. Sales declined 5.4% to a seasonally adjusted rate of 5.12 million in June. Sales decreased 14.2% year-over-year. Housing inventory sits at 1.26 million units, up 9.6% from May’s inventory, and up 2.4% over last year. Unsold inventory sits at a 3-month supply. The median existing home price for all housing types was $416,000, which is up 13.4% from June 2021. This marks the 124 consecutive month of year-over-year increases, the longest-running streak on record.
Housing Starts–Released 7/19/2022 – New home starts in June were at a seasonally adjusted annual rate of 1.559 million; down 2% below May and 6.3% below last June’s rate. Building permits were at a seasonally adjusted annual rate of 1.685 million, down 0.6% compared to May, but up 1.4% over last year.
Industrial Production and Capacity Utilization – Released 7/15/2022 – In June, Industrial production decreased 0.2%. Manufacturing decreased 0.5%. Utilities output decreased 1.4%. Mining output increased 1.7%. Total industrial production was 4.2% higher in June than a year ago. Total capacity utilization increased to 80% in June which is 0.4% below its long run average.
Retail Sales– Released 7/15/2022 – US retail sales for June increased 1.1% in June. PPI less food and energy increased 0.5%. The change in PPI for final demand has increased 11.3% year/y.
Producer Price Index–Released 7/14/2022 – The Producer Price Index for final demand increased 1.1% in June. PPI less food and energy increased 0.5%. The change in PPI for final demand has increased 11.3% year/y.
Consumer Price Index –Released 7/13/2022 – Consumer prices rose 1.3% m/m in June following a 1% increase in May. Consumer prices are up 9.1% for the 12-month period ending in June. Core consumer prices increased 0.7% m/m in June.
US Light Vehicle Sales – Released 7/8/2022 – US light vehicle sales were at a seasonally adjusted annual rate of 12.995 million units in June.
Consumer Credit –Released 7/8/2022 – Consumer credit increased at a seasonally adjusted annual rate of 5.9% in May. Revolving credit increased at an annual rate of 8.1%, while nonrevolving credit increased at an annual rate of 5.2%.
U.S. Trade Balance – Released 7/7/2022 – According to the US Census Bureau of Economic Analysis the goods and services deficit decreased in May by $1.1 billion to $85.5 billion. May exports were $255.9 billion, $3 billion more than April exports. May imports were $341.4 billion, $1.9 billion more than April imports. Year to date, the goods and services deficit increased $126.5 billion, or 38.4%, from the same period in 2021. Exports increased $197.1 billion or 19.4%. Imports increased $323.6 billion or 24%.
PMI Non-Manufacturing Index–Released 7/6/2022 – Economic activity in the non-manufacturing sector grew in June for the 25th consecutive month. ISM Non-Manufacturing registered 55.3%, which is 0.6 percentage points below the May reading of 55.9%.
PMI Manufacturing Index – Released 7/1/2022 – June PMI decreased 3.1% to 53% down from May’s reading of 56.1%. The New Orders Index was 49.2% down 5.9% from May’s reading of 55.1%. The Production Index registered 54.9%, up 0.7%.
U.S. Construction Spending–Released 7/1/2022 – Construction spending increased 0.1% in May measuring at a seasonally adjusted annual rate of $1,779.8 billion. The may figure is 9.7% above the May 2021 estimate. Private construction spending was unchanged from the revised April estimate at $1,436 billion. Public construction spending was 0.8% below the revised April estimate at $343.8 billion.
Next week we get data on US Construction Spending, Manufacturing PMI, Services PMI, US Trade Balance, Consumer Credit, JOLTS, and the July Jobs Report.
Good Life Advisors – Talking Points – Week 29
Big July bounce:
The major US averages all rallied this week, with the S&P and the Nasdaq both up over 4%. This helped boost the monthly gain for the S&P to over 9% while the Nasdaq was up over 12%. The most since November 2020. Growth meaningfully outperformed value while other risk/ long duration plays tended to see good gains as well. Treasuries were stronger with 10-year yields down over 30 bp to 2.66%. The dollar index gained 1.2%. WTI crude slumped nearly 6.8% for the month of July.
Peak inflation, peak Fed hopes:
July was another month with a lot of moving pieces surrounding the high-profile themes. There were pockets of traction behind the peak inflation and peak Fed narratives. This was evidenced by the selloff in commodities, a decline in medium- and longer-term inflation expectations in the New York Fed and University of Michigan consumer sentiment surveys, and a pullback in the price measures of regional manufacturing surveys. There was also some focus on discounting in retail to address excess inventories. While the Fed delivered another 75 bp rate hike and Powell reiterated the central bank’s outsized commitment to bringing inflation back to target, market takeaways focused more on expectations for a transition away from front loading rate hikes. Growth fears also played into peak Fed with Eurodollar spreads pricing in a fairly aggressive pivot in 2023. This put some focus on the “bad news is good news” theme with the negative correlation between stocks and macro surprises over the latter part of the month. Upside seemed to be exacerbated by still very depressed positioning indicators and other technical dynamics. The start of Q2 earnings season offered a very mixed bag though there was a positive spin surrounding pricing power/ margin resilience, economic normalization, bank earnings read-throughs for the consumer, loan growth and credit, and the relative stability of 2022 consensus estimates. The dollar pullback over the last couple of weeks of July was highlighted as another pocket of relief given the extent to which FX has weighed on earnings/ guidance. There were relatively few external tailwinds in July though there was another batch of policy support headlines out of China, including reports of a nearly $150B fund for property developers that will help them to complete unfinished projects and prevent systemic pressure from a mortgage strike.
Inflation still hot, Fed still tightening:
The peak inflation narrative ran into some trouble with the hotter-that-expected June CPI, PPI, and PCE prints. There was also some skepticism surrounding the peak Fed narrative with the central bank expected to deliver another ~100 bp worth of rate hikes over the final three meetings of the year and Powell largely blessing the June dot plot when asked about market expectations for an aggressive pivot next year. Growth and recession fears picked up throughout the month as the economy contracted for a second straight quarter in Q2, the July flash services PMI fell into contraction and teh July flash manufacturing PMI slumped to the lowest level in two years. In addition, initial claims ended the month at an eight-month high and there was a flurry of high-profile hiring freeze and layoff announcements. Sell-side strategists repeatedly flagged concerns about sticky 2022 and 2023 earnings estimates given the growth slowdown and lingering inflation pressure, after multiple comprehension was responsible for all of the 1H drawdown. There were also some cautious takeaways from Q2 earnings, including retail guide downs on general merchandise, softness from inflation and economic normalization, mobile provider remarks about customers taking longer to pay their bills, software companies flagging longer deal cycles, tech (and retail) names pointing to a continued deterioration in digital advertising and consumer electronics, and homebuilder commentary on a slowdown in housing. While sentiment and positioning indicators continued to trigger contatian buy signals, there were also pockets of skepticism that the market has seen sufficient capitulation with US equity inflows at nearly $120B ytd. In terms of external headwinds, one of the more prominent developments seemed to be the heightened tail risks for European growth with Russia increasingly expected to weaponize gas supplies.
Table of Contents
Fixed Income
Yield Curve
June FOMC Statement Balance Sheet Reduction Plan Credit, Liquidity and Balance Sheet Federal Reserve Dot Plots
US Corporate Debt Tops 7 Trillion. Treasury.gov yields FOMC Policy Normalization Statement Longer Run Goals August 2020
Foreign Exchange Market
Europe travel looks really good these days as the USD/Eur is almost level.
Energy Complex
The Baker Hughes rig count increased by 9 this week. There are 767 oil and gas rigs operating in the US – Up 279 over last year.
Metals Complex
Employment Picture
Employment Cost Index – Released 7/29/2022 – Compensation costs for civilian workers increased 1.3% for the 3-month period ending in June 2022. The 12-month period ending in June 2022 saw compensation costs increase by 5.1%. The 12-month period ending JUne 2021 increased 2.9%. Wages and salaries increased 5.3% over the year and increased 3.2% for the 12-month period ending in June 2021. Benefit costs increased 4.8% over the year and increased 2.2% for the 12-month period ending in June 2021. This report is published quarterly.
Weekly Unemployment Claims – Released Thursday 7/28/2022 – The Week ending July 23rd observed a decreased of 5k initial claims increasing to 256k. The four-week moving average of initial jobless claims increased 6.25k to 249.25k.
June Jobs Report – BLS Summary – Released 7/8/2022 – The US Economy added 372k nonfarm jobs in June and the Unemployment rate stayed unchanged at 3.6%. Average hourly earnings increased 10 to $32.08. Hiring highlights include +67k Leisure and Hospitality, +96k Education and Health Services, and +74 Professional and Business Services.
Job Openings & Labor Turnover Survey JOLTS – Released 7/6/2022 – The US Bureau of Labor Statistics reported the number and rate of job openings decreased to 11.3 million on the last business day of May. Over the month, hires were little changed at 6.5 million and separations were little changed at 6 million. Within separations, quits were little changed at 4.3 million. The layoffs and discharges rates were little changed at 1.4 million.
This Week’s Economic Data
Links take you to the data source
Chicago PMI – Released 7/29/2022 – Chicago PMI decreased by 4.9 points in July to 51.1. All five of the main five indicators decreased. This reading marks the lowest reading since August 2020.
Personal Income – Released 7/29/2022 – Personal income increased $133.5 billion or 0.6% in June, according to estimates released by the Bureau of Economic Analysis. Disposable Personal Income (DPI) increased $120.4 billion or 0.7% and Personal Consumption Expenditures (PCE) increased $181.1 billion or 1.1%.
Advance Estimate of 2nd Quarter 2022 GDP – Released 7/28/2022 – Real Gross Domestic Process (GDP) decreased at an annual rate of 0.9% in the first quarter of 2022, according to the advance estimate released by the Bureau of Economic Analysis. GDP decreased 1.6% in the first quarter of 2022. Two quarters of negative GDP growth marks a technical recession. The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The decrease in real GDP reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by increases in exports and Personal Consumption Expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased.
Durable Goods – Released 7/27/2022 – New orders for manufactured durable goods in June increased $5 billion or 1.9% to $272.6 billion. Transportation equipment led the increase up $4.5 billion or 5.1% to $92.7 billion.
Consumer Confidence – Released 7/26/2022 – The Consumer Confidence Index decreased in July following a decline in June. The Index now stands at 95.7, down from 98.4 in June.
New Residential Sales – Released 7/26/2022 – Sales of new single-family homes decreased 8.1% to 590k, seasonally adjusted, in June. The median sales price of new homes sold in June was $402,400 with an average sales price of $456,800. At the end of June, the seasonally adjusted estimate of new homes for sale was 457k. This represents a supply of 9.3 months at the current sales rate.
Recent Economic Data
Links take you to the data source
Existing Home Sales – Released 7/20/2022 – Existing home sales decreased in June marking five consecutive months of declines. Sales declined 5.4% to a seasonally adjusted rate of 5.12 million in June. Sales decreased 14.2% year-over-year. Housing inventory sits at 1.26 million units, up 9.6% from May’s inventory, and up 2.4% over last year. Unsold inventory sits at a 3-month supply. The median existing home price for all housing types was $416,000, which is up 13.4% from June 2021. This marks the 124 consecutive month of year-over-year increases, the longest-running streak on record.
Housing Starts – Released 7/19/2022 – New home starts in June were at a seasonally adjusted annual rate of 1.559 million; down 2% below May and 6.3% below last June’s rate. Building permits were at a seasonally adjusted annual rate of 1.685 million, down 0.6% compared to May, but up 1.4% over last year.
Industrial Production and Capacity Utilization – Released 7/15/2022 – In June, Industrial production decreased 0.2%. Manufacturing decreased 0.5%. Utilities output decreased 1.4%. Mining output increased 1.7%. Total industrial production was 4.2% higher in June than a year ago. Total capacity utilization increased to 80% in June which is 0.4% below its long run average.
Retail Sales – Released 7/15/2022 – US retail sales for June increased 1.1% in June. PPI less food and energy increased 0.5%. The change in PPI for final demand has increased 11.3% year/y.
Producer Price Index – Released 7/14/2022 – The Producer Price Index for final demand increased 1.1% in June. PPI less food and energy increased 0.5%. The change in PPI for final demand has increased 11.3% year/y.
Consumer Price Index – Released 7/13/2022 – Consumer prices rose 1.3% m/m in June following a 1% increase in May. Consumer prices are up 9.1% for the 12-month period ending in June. Core consumer prices increased 0.7% m/m in June.
US Light Vehicle Sales – Released 7/8/2022 – US light vehicle sales were at a seasonally adjusted annual rate of 12.995 million units in June.
Consumer Credit – Released 7/8/2022 – Consumer credit increased at a seasonally adjusted annual rate of 5.9% in May. Revolving credit increased at an annual rate of 8.1%, while nonrevolving credit increased at an annual rate of 5.2%.
U.S. Trade Balance – Released 7/7/2022 – According to the US Census Bureau of Economic Analysis the goods and services deficit decreased in May by $1.1 billion to $85.5 billion. May exports were $255.9 billion, $3 billion more than April exports. May imports were $341.4 billion, $1.9 billion more than April imports. Year to date, the goods and services deficit increased $126.5 billion, or 38.4%, from the same period in 2021. Exports increased $197.1 billion or 19.4%. Imports increased $323.6 billion or 24%.
PMI Non-Manufacturing Index – Released 7/6/2022 – Economic activity in the non-manufacturing sector grew in June for the 25th consecutive month. ISM Non-Manufacturing registered 55.3%, which is 0.6 percentage points below the May reading of 55.9%.
PMI Manufacturing Index – Released 7/1/2022 – June PMI decreased 3.1% to 53% down from May’s reading of 56.1%. The New Orders Index was 49.2% down 5.9% from May’s reading of 55.1%. The Production Index registered 54.9%, up 0.7%.
U.S. Construction Spending – Released 7/1/2022 – Construction spending increased 0.1% in May measuring at a seasonally adjusted annual rate of $1,779.8 billion. The may figure is 9.7% above the May 2021 estimate. Private construction spending was unchanged from the revised April estimate at $1,436 billion. Public construction spending was 0.8% below the revised April estimate at $343.8 billion.
Next week we get data on US Construction Spending, Manufacturing PMI, Services PMI, US Trade Balance, Consumer Credit, JOLTS, and the July 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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