We start this week with Fixed income Yields. In four ½ months the two-year yield jumped 100 bps, from 0.31 on October 1st to 1.31% on Friday. Meanwhile, the 10-year yield hit a post covid high of 1.93%m again on Friday. With all the volatility in the equity markets it seems that investors are confident in only one thing: The Fed will be raising in March. The “only” question is 25 or 50 bps. The odds of a 50 bps hike in March now stands at 33.7% up from just 4.6% one month ago – CME Fed Rate Watch.
With the realization that higher rates are coming, there has been (at least for now) a real rotation out of growth into value. On a relative basis, year to date, value is beating growth by 7.7%.
US equities were mostly higher for a second straight week after finishing lower over the first three weeks of 2022. There was no specific driver behind the upside though the focus early in the week remained on conditions, contrarian buy signals from depressed positioning, month-end rebalancing flows and aggressive buy-the-dip calls from some strategists.
Some of the other bullish talking points continued to revolve around still easy financial conditions, still deeply depressed real yields, still tight credit spreads, unrelenting equity inflows, robust corporate (buybacks, M&A) and consumer ($2.5T+ in excess savings) balance sheets, capex ramp plans, the solid demand backdrop highlighted on Q4 conference calls, labor market strength, and declining Omicron cases.
Certainly not everything this week was bullish, persistent inflation pressures continued to dominate the broader earnings narrative, driving more scrutiny around peak margins, dampened earnings revision momentum and negative guidance trends. Despite the pushback against a 50 bp liftoff, Fed tightening expectations continued to ratchet higher this week, particularly after the upside surprises from January payrolls and average hourly earnings on Friday. While payrolls came in much stronger than expected, there continued to be concerns about some softening elsewhere. The ISM manufacturing index remained elevated, but eased for a third straight month, while the ISM services index fell to an 11-month low.
According to FactSet’s latest Earnings Insight report, with 56% of S&P 500 companies having now reported Q4 results, the blended growth rate stands at 29.2%, up from 21.7% at the start of earnings season. Just over 76% of reporters have surpassed consensus EPS expectations, well below the 84% four-quarter average, and slightly below the five-year average. In aggregate, companies have reported earnings 8.2% above expectations, also well below the four-quarter average surprise rate of 15.7. The softer beat rates, while not unexpected, have played into concerns about peak margins. While companies have continued to highlight a favorable demand backdrop, supply chain and input price pressures are expected to persist over at least the next few quarters. Weaker guidance trends have also started to receive more attention.
Fixed Income
Foreign Exchange Market
Energy Complex
The Baker Hughes rig count increased by 3 this week. There are 613 oil and gas rigs operating in the US – Up 221 over last year.
Metals Complex
Employment Picture
January Jobs Report–BLS SummaryReleased 2/4/2022 – The US Economyadded 467k nonfarm jobs in January and the Unemployment rate was little changed at 4.0%. Average hourly earnings increased by 23 cents to $31.63. Hiring highlights include +151k Leisure and Hospitality, +86k Professional and Business Services, and +61k Retail Trade.
Average hourly earnings increased by 23 cents to $31.63.
U3 unemployment rate was little changed at 4.0%. U6 unemployment rate declined to 7.1%.
The labor force participation rate was unchanged at 62.2%.
Average work week fell by 0.2 hours to 34.5 hours.
Weekly Unemployment Claims– Released Thursday 2/3/2022 – The week ending January 29thobserved a decrease of 23k in initial claims currently at 238k. The four-week moving average of initial jobless claims increased 7.75k to 255k.
Job Openings & Labor Turnover Survey JOLTS – Released 2/1/2022 – The U.S. Bureau of Labor Statistics reported the number and rate of job openings was little changed at 10.9 million on the last business day of December. Over the month, hires decreased to 6.3 million and separations decreased to 5.9 million. Within separations, the quits rate was little changed at 2.9%. The layoffs and discharges rates were also little changed at 0.8%.
Employment Cost Index – Released 1/28/2022 – Compensation costs for civilian workers increased 1.0% for the 3-month period ending in December 2021. The 12-month period ending in December 2021 saw compensation costs increase by 4.0%. The 12-month period ending December 2020 increased 2.5%. Wages and salaries increased 4.5 percent over the year and increased 2.6 percent for the 12-month period ending in December 2020. Benefit costs increased 2.8 percent over the year and increased 2.3 percent for the 12-month period ending in December 2020. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
PMI Non-Manufacturing Index–Released 2/3/2022 – Economic activity in the non-manufacturing sector grew in December for the 20th consecutive month. ISM Non-Manufacturing registered 59.9 percent, which is 2.4 percentage points below the adjusted December reading of 62.3 percent.
PMI Manufacturing Index – Released 2/1/2022 – January PMI decreased 1.2% to 57.6% down from December’s reading of 58.8%. The New Orders Index was 57.9% down 3.1% from December’s reading of 61.0%. The Production Index registered 57.8%, down 1.6%.
U.S. Construction Spending– Released 2/1/2022 – Construction spending increased 0.2% in December measuring at a seasonally adjusted annual rate of $1,639.9 billion. The December figure is 9.0% above the December 2020 estimate. Private construction spending was 0.7% above the revised November estimate at $1,283.8 billion. Public construction spending was 1.6% below the revised November estimate at $352.7 billion.
Chicago PMI–Released 1/31/2021 – Chicago PMI increased to 65.2 points in January. Among the main five indicators, order backlogs, employment and supplier deliveries all increased, while production and orders fell across the month.
Recent Economic Data
Links take you to the data source
Personal Income – Released 1/28/2022 – Personal income increased $70.7 billion or 0.3 percent in December according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $39.9 billion or 0.2 percent and personal consumption expenditures (PCE) decreased $95.2 billion or 0.6 percent.
US Light Vehicle Sales – Released 1/28/2022 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 12.435 million units in December.
Advance Estimate of 4th Quarter 2021 GDP – Released 1/27/2022 – Real gross domestic product (GDP) increased at an annual rate of 6.9 percent in the fourth quarter of 2021, according to the advance estimate released by the Bureau of Economic Analysis. GDP increased 2.3 percent in the third quarter of 2021. The advance estimate is based on source data that are incomplete and subject to additional revision. The increase in real GDP primarily reflected increases in private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment that were partly offset by decreases in both federal and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased
Durable Goods–Released 1/27/2022 – New orders for manufactured durable goods in December decreased $2.4 billion or 0.9% to $267.6 billion. Transportation equipment led the decrease declining $3.3 billion or 3.9% to $80.1 billion.
New Residential Sales– Released 1/26/2022 – Sales of new single-family homes increased 11.9% to 811k, seasonally adjusted, in December. The median sales price of new homes sold in December was $377,700 with an average sales price of $457,300. At the end of December, the seasonally adjusted estimate of new homes for sale was 403k. This represents a supply of 6.0 months at the current sales rate.
Consumer Confidence–Released 1/25/2022 – The Consumer confidence index decreased in January following an increase in December. The Index now stands at 113.8, down from 115.2 in December.
Existing Home Sales– Released 1/20/2022 – Existing home sales decreased in December ending three months of increased sales. Sales declined 4.6% to a seasonally adjusted rate of 6.18 million in December. Sales increased 8.5% in 2021. Housing inventory sits at 910k units. Down 18% from November’s inventory. Down 14.2% over last year. Unsold inventory sits at a 1.8-month supply. The median existing home price for all housing types was $358,000 which is up 15.8% from December 2020.
Housing Starts– Released 1/19/2022 – New home starts in December were at a seasonally adjusted annual rate of 1.702 million; up 1.4% above November, and 2.5% above last December’s rate. Building Permits were at a seasonally adjusted annual rate of 1.873 million, up 9.1% compared to November, and up 6.5% over last year.
Industrial Production and Capacity Utilization – Released 1/14/2022 – In December Industrial production decreased 0.1%. Manufacturing decreased 0.3%. Utilities output decreased 1.5%. Mining output increased 2.0%. Total industrial production was 3.7% higher in December than a year ago. Total capacity utilization decreased 0.1% to 76.5% in December which is 3.1% below its long run average.
Retail Sales – Released 1/14/2022 – U.S. retail sales for December decreased 1.9% to $626.8 billion but retail sales are 16.9% above December 2020. U.S. retail sales for the October 2021 through December 2021 period were up 17.1% from the same period a year ago.
Producer Price Index–Released 1/13/2022 – The Producer Price Index for final demand increased 0.2% in December. PPI less food and energy increased 0.5%. The change in PPI for final demand has increased 9.7% year/y.
Consumer Price Index –Released 1/12/2022 – Consumer prices rose 0.5% m/m in December following a 0.8% gain in November. Consumer prices are up 7.0% for the 12-month period ending in December. Core consumer prices increased 0.6% m/m in December following a 0.5% gain in November.
Consumer Credit–Released 1/7/2022 – Consumer credit increased at a seasonally adjusted annual rate of 11.0 percent in November. Revolving credit increased at an annual rate of 23.4 percent, while nonrevolving credit increased at an annual rate of 7.2 percent.
U.S. Trade Balance–Released 1/6/2022 – According to the U.S. Census Bureau of Economic Analysis the goods and services deficit increased in November by $13 billion to $80.2 billion. November exports were $224.2 billion, $0.4 billion more than October exports. November imports were $304.4 billion, $13.4 billion more than October imports. Year to date the goods and services deficit increased $174.6 billion or 28.6%, from the same period in 2020. Year to date exports and imports increased $354.4 billion or 18.2% and increased $529.0 billion or 20.7% respectively.
Next week we get data on the U.S. Trade Balance, Consumer Credit, and CPI.
Two Percent Here We Come –
We start this week with Fixed income Yields. In four ½ months the two-year yield jumped 100 bps, from 0.31 on October 1st to 1.31% on Friday. Meanwhile, the 10-year yield hit a post covid high of 1.93%m again on Friday. With all the volatility in the equity markets it seems that investors are confident in only one thing: The Fed will be raising in March. The “only” question is 25 or 50 bps. The odds of a 50 bps hike in March now stands at 33.7% up from just 4.6% one month ago – CME Fed Rate Watch.
With the realization that higher rates are coming, there has been (at least for now) a real rotation out of growth into value. On a relative basis, year to date, value is beating growth by 7.7%.
January FOMC Statement Credit, Liquidity and Balance Sheet Federal Reserve Dot Plots Dec 21′
US Corporate Debt Tops 7 Trillion. Treasury.gov yields FOMC Policy Normalization Statement Longer Run Goals August 2020
Table of Contents
Global Bond Yields
US equities were mostly higher for a second straight week after finishing lower over the first three weeks of 2022. There was no specific driver behind the upside though the focus early in the week remained on conditions, contrarian buy signals from depressed positioning, month-end rebalancing flows and aggressive buy-the-dip calls from some strategists.
Some of the other bullish talking points continued to revolve around still easy financial conditions, still deeply depressed real yields, still tight credit spreads, unrelenting equity inflows, robust corporate (buybacks, M&A) and consumer ($2.5T+ in excess savings) balance sheets, capex ramp plans, the solid demand backdrop highlighted on Q4 conference calls, labor market strength, and declining Omicron cases.
Certainly not everything this week was bullish, persistent inflation pressures continued to dominate the broader earnings narrative, driving more scrutiny around peak margins, dampened earnings revision momentum and negative guidance trends. Despite the pushback against a 50 bp liftoff, Fed tightening expectations continued to ratchet higher this week, particularly after the upside surprises from January payrolls and average hourly earnings on Friday. While payrolls came in much stronger than expected, there continued to be concerns about some softening elsewhere. The ISM manufacturing index remained elevated, but eased for a third straight month, while the ISM services index fell to an 11-month low.
According to FactSet’s latest Earnings Insight report, with 56% of S&P 500 companies having now reported Q4 results, the blended growth rate stands at 29.2%, up from 21.7% at the start of earnings season. Just over 76% of reporters have surpassed consensus EPS expectations, well below the 84% four-quarter average, and slightly below the five-year average. In aggregate, companies have reported earnings 8.2% above expectations, also well below the four-quarter average surprise rate of 15.7. The softer beat rates, while not unexpected, have played into concerns about peak margins. While companies have continued to highlight a favorable demand backdrop, supply chain and input price pressures are expected to persist over at least the next few quarters. Weaker guidance trends have also started to receive more attention.
Fixed Income
Foreign Exchange Market
Energy Complex
The Baker Hughes rig count increased by 3 this week. There are 613 oil and gas rigs operating in the US – Up 221 over last year.
Metals Complex
Employment Picture
January Jobs Report – BLS Summary Released 2/4/2022 – The US Economy added 467k nonfarm jobs in January and the Unemployment rate was little changed at 4.0%. Average hourly earnings increased by 23 cents to $31.63. Hiring highlights include +151k Leisure and Hospitality, +86k Professional and Business Services, and +61k Retail Trade.
Weekly Unemployment Claims – Released Thursday 2/3/2022 – The week ending January 29thobserved a decrease of 23k in initial claims currently at 238k. The four-week moving average of initial jobless claims increased 7.75k to 255k.
Job Openings & Labor Turnover Survey JOLTS – Released 2/1/2022 – The U.S. Bureau of Labor Statistics reported the number and rate of job openings was little changed at 10.9 million on the last business day of December. Over the month, hires decreased to 6.3 million and separations decreased to 5.9 million. Within separations, the quits rate was little changed at 2.9%. The layoffs and discharges rates were also little changed at 0.8%.
Employment Cost Index – Released 1/28/2022 – Compensation costs for civilian workers increased 1.0% for the 3-month period ending in December 2021. The 12-month period ending in December 2021 saw compensation costs increase by 4.0%. The 12-month period ending December 2020 increased 2.5%. Wages and salaries increased 4.5 percent over the year and increased 2.6 percent for the 12-month period ending in December 2020. Benefit costs increased 2.8 percent over the year and increased 2.3 percent for the 12-month period ending in December 2020. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
PMI Non-Manufacturing Index – Released 2/3/2022 – Economic activity in the non-manufacturing sector grew in December for the 20th consecutive month. ISM Non-Manufacturing registered 59.9 percent, which is 2.4 percentage points below the adjusted December reading of 62.3 percent.
PMI Manufacturing Index – Released 2/1/2022 – January PMI decreased 1.2% to 57.6% down from December’s reading of 58.8%. The New Orders Index was 57.9% down 3.1% from December’s reading of 61.0%. The Production Index registered 57.8%, down 1.6%.
U.S. Construction Spending – Released 2/1/2022 – Construction spending increased 0.2% in December measuring at a seasonally adjusted annual rate of $1,639.9 billion. The December figure is 9.0% above the December 2020 estimate. Private construction spending was 0.7% above the revised November estimate at $1,283.8 billion. Public construction spending was 1.6% below the revised November estimate at $352.7 billion.
Chicago PMI – Released 1/31/2021 – Chicago PMI increased to 65.2 points in January. Among the main five indicators, order backlogs, employment and supplier deliveries all increased, while production and orders fell across the month.
Recent Economic Data
Links take you to the data source
Personal Income – Released 1/28/2022 – Personal income increased $70.7 billion or 0.3 percent in December according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $39.9 billion or 0.2 percent and personal consumption expenditures (PCE) decreased $95.2 billion or 0.6 percent.
US Light Vehicle Sales – Released 1/28/2022 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 12.435 million units in December.
Advance Estimate of 4th Quarter 2021 GDP – Released 1/27/2022 – Real gross domestic product (GDP) increased at an annual rate of 6.9 percent in the fourth quarter of 2021, according to the advance estimate released by the Bureau of Economic Analysis. GDP increased 2.3 percent in the third quarter of 2021. The advance estimate is based on source data that are incomplete and subject to additional revision. The increase in real GDP primarily reflected increases in private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment that were partly offset by decreases in both federal and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased
Durable Goods – Released 1/27/2022 – New orders for manufactured durable goods in December decreased $2.4 billion or 0.9% to $267.6 billion. Transportation equipment led the decrease declining $3.3 billion or 3.9% to $80.1 billion.
New Residential Sales – Released 1/26/2022 – Sales of new single-family homes increased 11.9% to 811k, seasonally adjusted, in December. The median sales price of new homes sold in December was $377,700 with an average sales price of $457,300. At the end of December, the seasonally adjusted estimate of new homes for sale was 403k. This represents a supply of 6.0 months at the current sales rate.
Consumer Confidence – Released 1/25/2022 – The Consumer confidence index decreased in January following an increase in December. The Index now stands at 113.8, down from 115.2 in December.
Existing Home Sales – Released 1/20/2022 – Existing home sales decreased in December ending three months of increased sales. Sales declined 4.6% to a seasonally adjusted rate of 6.18 million in December. Sales increased 8.5% in 2021. Housing inventory sits at 910k units. Down 18% from November’s inventory. Down 14.2% over last year. Unsold inventory sits at a 1.8-month supply. The median existing home price for all housing types was $358,000 which is up 15.8% from December 2020.
Housing Starts – Released 1/19/2022 – New home starts in December were at a seasonally adjusted annual rate of 1.702 million; up 1.4% above November, and 2.5% above last December’s rate. Building Permits were at a seasonally adjusted annual rate of 1.873 million, up 9.1% compared to November, and up 6.5% over last year.
Industrial Production and Capacity Utilization – Released 1/14/2022 – In December Industrial production decreased 0.1%. Manufacturing decreased 0.3%. Utilities output decreased 1.5%. Mining output increased 2.0%. Total industrial production was 3.7% higher in December than a year ago. Total capacity utilization decreased 0.1% to 76.5% in December which is 3.1% below its long run average.
Retail Sales – Released 1/14/2022 – U.S. retail sales for December decreased 1.9% to $626.8 billion but retail sales are 16.9% above December 2020. U.S. retail sales for the October 2021 through December 2021 period were up 17.1% from the same period a year ago.
Producer Price Index – Released 1/13/2022 – The Producer Price Index for final demand increased 0.2% in December. PPI less food and energy increased 0.5%. The change in PPI for final demand has increased 9.7% year/y.
Consumer Price Index – Released 1/12/2022 – Consumer prices rose 0.5% m/m in December following a 0.8% gain in November. Consumer prices are up 7.0% for the 12-month period ending in December. Core consumer prices increased 0.6% m/m in December following a 0.5% gain in November.
Consumer Credit – Released 1/7/2022 – Consumer credit increased at a seasonally adjusted annual rate of 11.0 percent in November. Revolving credit increased at an annual rate of 23.4 percent, while nonrevolving credit increased at an annual rate of 7.2 percent.
U.S. Trade Balance – Released 1/6/2022 – According to the U.S. Census Bureau of Economic Analysis the goods and services deficit increased in November by $13 billion to $80.2 billion. November exports were $224.2 billion, $0.4 billion more than October exports. November imports were $304.4 billion, $13.4 billion more than October imports. Year to date the goods and services deficit increased $174.6 billion or 28.6%, from the same period in 2020. Year to date exports and imports increased $354.4 billion or 18.2% and increased $529.0 billion or 20.7% respectively.
Next week we get data on the U.S. Trade Balance, Consumer Credit, and CPI.
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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