US equities were sharply lower this week, with the S&P 500 and Nasdaq posting the worst week since June 17th, and the biggest decline on Friday after Fed Chair Powell’s Jackson Hole speech. Growth underperformed value for a third-straight week. Tech and communication services were the worst performers, weighed down by semis and mega cap tech. Retail also saw a batch of poorly received earnings. Energy was the only sector higher. WTI (October) was up 2.5%. Treasuries were mostly weaker with a. bug curve flattening move; the 2Y/10Y spread is around -37 bp after falling to around -25 bp late last week. The dollar was firmer on the major crosses. Gold finished the week down 0.7%. Bitcoin futures were down by over 4%.
In his speech at the Jackson Hole symposium, Fed Chair Jerome Powell said the Fed will likely require restrictive policy for some time, and that the Fed will “keep at it until the job is done,” sayling history cautions against prematurely loosening policy. Powell said the size of the September rate hike hinges on the totality of data, though another 75 bp rate hike could be appropriate. Powell also signaled that the Fed is willing to risk recession to lower inflation, saying that the Fed’s fight against inflation is likely to require a sustained period of below-trend growth, and there will very likely be some softening of labor market conditions. The speech was in line with expectations for a more hawkish tone and came after weeks of Fedspeak that continued to highlight an unrelenting pushback against the pivot narrative. The market is now pricing in a ~60% chance of 75 bp hike in September, little change from before Powell’s appearance. Goldman Sachs economists said they still expect a 50 bp rate hike in September, followed by 25 bp hikes in both November and December bringing the terminal rate to 3.25-3.5%, below the market pricing of 3.75-4%.
Until Friday’s big leg lower, there were some mixed signals around market positioning and sentiment this week. Investors tooks some risk off the board in the wait for more clarity from the Fed, with Bof A’s flow show showing the first outflow from US equities in three weeks, the biggest outflow from tech since November, and the biggest outflow from HY bonds in over two months. JPMorgan analysts said this week there were some small short additions last week after 15 straight days of short covering. Reuters also noted hedge funds have built up their largest-ever bearish bet on US rates at a “startling” pace. JPMorgan noted that its latest investor survey showed just 38% plan to increase equity exposure, a record low. However, some of the risk-off shifts were padded by buybacks, which accelerated to highest levels since early January, according to BofA.
Some of the latest strategist updates also brought a bit of pessimism to the outlook. Goldman Sachs strategist David Kostin wrote this week that he sees limited upside for the rest of the year after the strong simmer performance, saying renewed fears about the prospect of a recession would almost surely unwind the recent rally. Bank of America’s Savita Subramanian also told Bloomberg this week that she still sees bullish narratives as thin, and that she sees further downside risk to earnings given waning pricing power, weakening demand, and sticky and high wages.
This week also saw some more support for peak-inflation narrative. This week’s August flash PMI reports showed composite input prices rising at slowest pace in the past year and a half. Friday’s July PCE price index print showed headline PCE down 0.1% m/m vs consensus for a 0.1% rise and June”s 1% increase. Core PCE, the Fed’s preferred inflation metric, rose only 0.1% m/m against consensus for a 0.3% rise, a notable slowdown from prior month’s 0.6%. Final Michigan consumer sentiment also marked down one-year inflation expectations by 0.2pp to 4.8%.
Europe travel looks really good these days as the USD/Eur is almost level.
Energy Complex
The Baker Hughes rig count increased by 3 this week. There are 765 oil and gas rigs operating in the US – Up 257 over last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims– Released Thursday 8/25/2022 – The week ending August 20th observed a decrease of 2k initial claims decreasing to 243k. The four-week moving average of initial jobless claims increased 1.5k to 247k.
July Jobs Report– BLS Summary – Released 8/5/2022 –The US Economy added 528k nonfarm jobs in July and the Unemployment rate stayed declined to 3.5%. Average hourly earnings increased 15 cents to $32.27. Hiring highlights include +96k Leisure and Hospitality, +122k Education and Health Services, and +89 Professional and Business Services.
Average hourly earnings increased 15 cents to $32.27.
U3 unemployment rate remained declined 0.1% to 3.5%. U6 unemployment rate was unchanged at 6.7%.
The labor force participation rate was little changed at 62.1%.
Average work week was little changed at 34.6 hours.
Job Openings & Labor Turnover Survey– JOLTS – Released 8/2/2022 – The US Bureau of Labor Statistics reported the number and rate of job openings decreased to 10.7 million on the last business day of June. Over the month, hires were little changed at 6.4 million and separations were little changed at 5.9 million. Within separations, quits were little changed at 4.2 million. The layoffs and discharges rates was little changed at 1.3 million.
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.
This Week’s Economic Data
Links take you to the data source
Personal Income – Released 8/26/2022 – Personal income increased $47 billion or 0.2% in July according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $37.6 billion or 0.2% and personal consumption expenditures (PCE) increased $23.7 billion or 0.1%.
Second Estimate of 2nd Quarter 2022 GDP – Released 8/25/2022 – Real gross domestic product (GDP) decreased at an annual rate of 0.6% in the second quarter of 2022, according to the second 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 more complete than that of the advance estimate which saw real GDP decline 0.9% in the second quarter of 2022. 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 increased in exports and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased. The update primarily reflects upward revisions to consumer spending and private inventory investment that were partly offset by a downward revision to residential fixed investment.
Durable Goods–Released 8/24/2022 – New orders for manufactured durable goods in July decreased less than $0.1 billion to $273.5 billion. Transportation equipment led the decrease down $0.6 billion or 0.7% to $93 billion.
New Residential Sales– Released 8/23/2022 – Sales of new single-family homes decreased 12.6% to 511k, seasonally adjusted, in July. The median sales price of new homes sold in July was $439,400 with an average sales price of $546,800. At the end of July, the seasonally adjusted estimate of new homes for sale was 464k. This represents a supply of 10.9 months at the current sales rate.
Recent Economic Data
Links take you to the data source
Existing Home Sales– Released 8/18/2022 – Existing home sales decreased in July marking six consecutive months of declines. Sales declined 5.9% to a seasonally adjusted rate of 4.81 million in July. Sales decreased 20.2% year-over-year. Housing inventory sits at 1.31 million units. Up 4.8% from June’s inventory. Up 2.4% over last year. Unsold inventory sits at a 3.3-month supply. The median existing home price for all housing types was $403,800 which is up 10.8% from July 2021. This marks 125 consecutive months of year-over-year increased, the longest running streak on record.
Retail Sales – Released 8/17/2022 –US retail sales for July were essentially unchanged at $682.8 billion and retail sales are 10.3% above July 2021. US retail sales for the May 2022 through July 2022 period were up 9.2% from the same period a year ago.
Housing Starts– Released 8/16/2022 –New home starts in July were at a seasonally adjusted annual rate of 1.446 million; down 9.6% below June, and 8.1% below last July’s rate. Building Permits were at a seasonally adjusted annual rate of 1.674 million, down 1.3% compared to June, but up 1.1% over last year.
Industrial Production and Capacity Utilization– Released 8/16/2022 – In June, Industrial production increased 0.6%. Manufacturing increased 0.7%. Utilities output decreased 0.8%. Mining output increased 0.7%. Total industrial production was 3.9% higher in July than a year ago. Total capacity utilization increased to 80.3% in July which is 0.7% above its long run average.
Producer Price Index– Released 8/11/2022 – The producer price index for final demand decreased 0.5% in July. PPI less food and energy increased 0.2%. The change in PPI for final demand has increased 9.8% year/y.
Consumer Price Index– Released 8/10/2022 – Consumer prices were unchanged m/m in July following a 1.3% increase in June. Consumer prices are up 8.5% for the 12-month period ending in July. Core consumer prices increased 0.3% m/m in July.
Consumer Credit– Released 8/5/2022 – Consumer credit increased at a seasonally adjusted annual rate of 8.7% in the second quarter of 2022. Revolving credit increased at an annual rate of 14.6%, while nonrevolving credit increased at an annual rate of 6.9%.
US Light Vehicle Sales– Released 8/5/2022 – US light vehicle sales were at a seasonally adjusted annual rate of 13.345 million units in July.
U.S. Trade Balance– Released 8/4/2022 – According to the US Census Bureau of Economic Analysis, the goods and services deficit decreased in June by $5.3 billion to $79.6 billion. June exports were $260.8 billion, $4.3 billion more than May exports. June imports were $340.4 billion, $1 billion lass than May imports. Year to date, the goods and services deficit increased $134.1 billion, or 33.4%, from the same period in 2021. Exports increased $246.2 billion or 20%. Imports increased $380.3 billion or 23.3%.
PMI Non-Manufacturing Index – Released 8/3/2022 – Economic activity in the non-manufacturing sector grew in July for the 26th consecutive month. ISM Non-Manufacturing registered 56.7%, which is 1.4 percentage points above the June reading of 55.3%.
PMI Manufacturing Index – Released 8/1/2022 – July PMI decreased 0.2% to 52.8% down from June’s reading of 53%. The New Orders Index was 48% down 1.2% from June’s reading of 49.2%. The Production Index registered 52.5%, down 1.4%.
U.S. Construction Spending – Released 8/1/2022 –Construction spending decreased 1.1% in June measuring at a seasonally adjusted annual rate of $1,762.3 billion. The June figure is 8.3% above the June 2021 estimate. Private construction spending declined 1.3% from the revised May estimate at $1,416.4 billion. Public construction spending was 0.5% below the revised May estimate at $345.9 billion.
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.
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.
Next week we get data on Consumer Confidence, Chicago PMI, US Construction Spending, Manufacturing PMI, JOLTS, and the August Jobs Report.
Table of Contents
Good Life Advisors – Talking Points – Week 33
US equities were sharply lower this week, with the S&P 500 and Nasdaq posting the worst week since June 17th, and the biggest decline on Friday after Fed Chair Powell’s Jackson Hole speech. Growth underperformed value for a third-straight week. Tech and communication services were the worst performers, weighed down by semis and mega cap tech. Retail also saw a batch of poorly received earnings. Energy was the only sector higher. WTI (October) was up 2.5%. Treasuries were mostly weaker with a. bug curve flattening move; the 2Y/10Y spread is around -37 bp after falling to around -25 bp late last week. The dollar was firmer on the major crosses. Gold finished the week down 0.7%. Bitcoin futures were down by over 4%.
In his speech at the Jackson Hole symposium, Fed Chair Jerome Powell said the Fed will likely require restrictive policy for some time, and that the Fed will “keep at it until the job is done,” sayling history cautions against prematurely loosening policy. Powell said the size of the September rate hike hinges on the totality of data, though another 75 bp rate hike could be appropriate. Powell also signaled that the Fed is willing to risk recession to lower inflation, saying that the Fed’s fight against inflation is likely to require a sustained period of below-trend growth, and there will very likely be some softening of labor market conditions. The speech was in line with expectations for a more hawkish tone and came after weeks of Fedspeak that continued to highlight an unrelenting pushback against the pivot narrative. The market is now pricing in a ~60% chance of 75 bp hike in September, little change from before Powell’s appearance. Goldman Sachs economists said they still expect a 50 bp rate hike in September, followed by 25 bp hikes in both November and December bringing the terminal rate to 3.25-3.5%, below the market pricing of 3.75-4%.
Until Friday’s big leg lower, there were some mixed signals around market positioning and sentiment this week. Investors tooks some risk off the board in the wait for more clarity from the Fed, with Bof A’s flow show showing the first outflow from US equities in three weeks, the biggest outflow from tech since November, and the biggest outflow from HY bonds in over two months. JPMorgan analysts said this week there were some small short additions last week after 15 straight days of short covering. Reuters also noted hedge funds have built up their largest-ever bearish bet on US rates at a “startling” pace. JPMorgan noted that its latest investor survey showed just 38% plan to increase equity exposure, a record low. However, some of the risk-off shifts were padded by buybacks, which accelerated to highest levels since early January, according to BofA.
Some of the latest strategist updates also brought a bit of pessimism to the outlook. Goldman Sachs strategist David Kostin wrote this week that he sees limited upside for the rest of the year after the strong simmer performance, saying renewed fears about the prospect of a recession would almost surely unwind the recent rally. Bank of America’s Savita Subramanian also told Bloomberg this week that she still sees bullish narratives as thin, and that she sees further downside risk to earnings given waning pricing power, weakening demand, and sticky and high wages.
This week also saw some more support for peak-inflation narrative. This week’s August flash PMI reports showed composite input prices rising at slowest pace in the past year and a half. Friday’s July PCE price index print showed headline PCE down 0.1% m/m vs consensus for a 0.1% rise and June”s 1% increase. Core PCE, the Fed’s preferred inflation metric, rose only 0.1% m/m against consensus for a 0.3% rise, a notable slowdown from prior month’s 0.6%. Final Michigan consumer sentiment also marked down one-year inflation expectations by 0.2pp to 4.8%.
Fixed Income
Yield Curve
July Fed Minutes 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 Jan 2022
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 3 this week. There are 765 oil and gas rigs operating in the US – Up 257 over last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims – Released Thursday 8/25/2022 – The week ending August 20th observed a decrease of 2k initial claims decreasing to 243k. The four-week moving average of initial jobless claims increased 1.5k to 247k.
July Jobs Report – BLS Summary – Released 8/5/2022 – The US Economy added 528k nonfarm jobs in July and the Unemployment rate stayed declined to 3.5%. Average hourly earnings increased 15 cents to $32.27. Hiring highlights include +96k Leisure and Hospitality, +122k Education and Health Services, and +89 Professional and Business Services.
Job Openings & Labor Turnover Survey – JOLTS – Released 8/2/2022 – The US Bureau of Labor Statistics reported the number and rate of job openings decreased to 10.7 million on the last business day of June. Over the month, hires were little changed at 6.4 million and separations were little changed at 5.9 million. Within separations, quits were little changed at 4.2 million. The layoffs and discharges rates was little changed at 1.3 million.
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.
This Week’s Economic Data
Links take you to the data source
Personal Income – Released 8/26/2022 – Personal income increased $47 billion or 0.2% in July according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $37.6 billion or 0.2% and personal consumption expenditures (PCE) increased $23.7 billion or 0.1%.
Second Estimate of 2nd Quarter 2022 GDP – Released 8/25/2022 – Real gross domestic product (GDP) decreased at an annual rate of 0.6% in the second quarter of 2022, according to the second 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 more complete than that of the advance estimate which saw real GDP decline 0.9% in the second quarter of 2022. 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 increased in exports and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased. The update primarily reflects upward revisions to consumer spending and private inventory investment that were partly offset by a downward revision to residential fixed investment.
Durable Goods – Released 8/24/2022 – New orders for manufactured durable goods in July decreased less than $0.1 billion to $273.5 billion. Transportation equipment led the decrease down $0.6 billion or 0.7% to $93 billion.
New Residential Sales – Released 8/23/2022 – Sales of new single-family homes decreased 12.6% to 511k, seasonally adjusted, in July. The median sales price of new homes sold in July was $439,400 with an average sales price of $546,800. At the end of July, the seasonally adjusted estimate of new homes for sale was 464k. This represents a supply of 10.9 months at the current sales rate.
Recent Economic Data
Links take you to the data source
Existing Home Sales – Released 8/18/2022 – Existing home sales decreased in July marking six consecutive months of declines. Sales declined 5.9% to a seasonally adjusted rate of 4.81 million in July. Sales decreased 20.2% year-over-year. Housing inventory sits at 1.31 million units. Up 4.8% from June’s inventory. Up 2.4% over last year. Unsold inventory sits at a 3.3-month supply. The median existing home price for all housing types was $403,800 which is up 10.8% from July 2021. This marks 125 consecutive months of year-over-year increased, the longest running streak on record.
Retail Sales – Released 8/17/2022 –US retail sales for July were essentially unchanged at $682.8 billion and retail sales are 10.3% above July 2021. US retail sales for the May 2022 through July 2022 period were up 9.2% from the same period a year ago.
Housing Starts – Released 8/16/2022 – New home starts in July were at a seasonally adjusted annual rate of 1.446 million; down 9.6% below June, and 8.1% below last July’s rate. Building Permits were at a seasonally adjusted annual rate of 1.674 million, down 1.3% compared to June, but up 1.1% over last year.
Industrial Production and Capacity Utilization – Released 8/16/2022 – In June, Industrial production increased 0.6%. Manufacturing increased 0.7%. Utilities output decreased 0.8%. Mining output increased 0.7%. Total industrial production was 3.9% higher in July than a year ago. Total capacity utilization increased to 80.3% in July which is 0.7% above its long run average.
Producer Price Index – Released 8/11/2022 – The producer price index for final demand decreased 0.5% in July. PPI less food and energy increased 0.2%. The change in PPI for final demand has increased 9.8% year/y.
Consumer Price Index – Released 8/10/2022 – Consumer prices were unchanged m/m in July following a 1.3% increase in June. Consumer prices are up 8.5% for the 12-month period ending in July. Core consumer prices increased 0.3% m/m in July.
Consumer Credit – Released 8/5/2022 – Consumer credit increased at a seasonally adjusted annual rate of 8.7% in the second quarter of 2022. Revolving credit increased at an annual rate of 14.6%, while nonrevolving credit increased at an annual rate of 6.9%.
US Light Vehicle Sales – Released 8/5/2022 – US light vehicle sales were at a seasonally adjusted annual rate of 13.345 million units in July.
U.S. Trade Balance – Released 8/4/2022 – According to the US Census Bureau of Economic Analysis, the goods and services deficit decreased in June by $5.3 billion to $79.6 billion. June exports were $260.8 billion, $4.3 billion more than May exports. June imports were $340.4 billion, $1 billion lass than May imports. Year to date, the goods and services deficit increased $134.1 billion, or 33.4%, from the same period in 2021. Exports increased $246.2 billion or 20%. Imports increased $380.3 billion or 23.3%.
PMI Non-Manufacturing Index – Released 8/3/2022 – Economic activity in the non-manufacturing sector grew in July for the 26th consecutive month. ISM Non-Manufacturing registered 56.7%, which is 1.4 percentage points above the June reading of 55.3%.
PMI Manufacturing Index – Released 8/1/2022 – July PMI decreased 0.2% to 52.8% down from June’s reading of 53%. The New Orders Index was 48% down 1.2% from June’s reading of 49.2%. The Production Index registered 52.5%, down 1.4%.
U.S. Construction Spending – Released 8/1/2022 – Construction spending decreased 1.1% in June measuring at a seasonally adjusted annual rate of $1,762.3 billion. The June figure is 8.3% above the June 2021 estimate. Private construction spending declined 1.3% from the revised May estimate at $1,416.4 billion. Public construction spending was 0.5% below the revised May estimate at $345.9 billion.
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.
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.
Next week we get data on Consumer Confidence, Chicago PMI, US Construction Spending, Manufacturing PMI, JOLTS, and the August 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
Categories:
Tags: