Geopolitical Tensions Rise after Russia sends Ukraine Calendar Invite for Invasion.
The developing situation on the Ukrainian border was initially ignored by the markets, but no longer. Investors have sat up and taken notice. Ukrainian officials say Moscow is stepping up a destabilizing campaign involving cyberattacks, economic disruption and hundreds of bomb threats. U.S. officials have warned that Russia is armed and ready to invade at any point. Russia’s Crimea annexation in 2014 didn’t really matter to the markets. It feels like the perspective has changed and that an invasion would likely have major impact on commodity markets, extending the cost-push inflation that has taken hold (inflation is just one of the negative consequences, obviously). It’s also worth noting that S&P500 valuations are significantly higher vs 2014 and the Fed is about to start hiking rates.
Ryan Detrick and LPL Research have pointed out that the market usually can withstand these types of geopolitical events.
The major averages were lower for the week after posting back-to-back weekly gains following the big January selloff. The Nasdaq slightly underperformed the S&P 500 with growth a big underperformer to value. Small caps outperformed large caps for second week in a row as the Russell 2000, S&P 600 and the S&P 400 ended the week higher. Some of the groups that fared worst included software, megacap tech, payments, semis, life sciences and biotech, autos, athletic apparel, housing retail, discount retailers, HPC, waste, parcels and logistics, asset managers, and exchanges. Better performers included banks, investment banks, credit cards, airlines, travel and leisure, restaurants oil services, industrial metals, precious metals miners, diversified and ag chemicals, machinery, construction and engineering, A&D, apparel retail, grocers, food, and protein. Treasuries were weaker with a big curve flattening move. The dollar was stronger on the major crosses. Gold finished up 1.9%. WTI crude ended the week up 0.9% after a big geopolitical-driven Friday rally. Crude was higher for an eighth-straight week and at the highest level since Sep-14.
The big story this week was the January CPI inflation surprise and hawkish Fed commentary. Treasuries sold off sharply following the report, pushing 2Y yields back to pre-pandemic levels, the 10Y above 2%, and the 2Y/10Y spread to the narrowest since Aug-20. Stocks had weathered the inflation report and tighter policy outlook fairly well, with the major averages heading into Friday trading higher for the week. However, stocks sold off Friday on reports of an imminent Russian invasion of Ukraine, pushing the major averages lower for the week, while oil and Treasuries rallied. US Secretary of State Blinken said that a Russian invasion of Ukraine could begin at any time, while National Security Advisor Jake Sullivan said today that an invasion could begin next week, and added that there is no prospect of a US military evacuation in the event of a Russian invasion.
January CPI came in hotter than expected, with annualized headline inflation the highest since Feb-1982 and core highest since Aug-1982. Much of the upside was driven by surprise increases in some of the most virus-exposed areas including travel and transportation. However, some components trended better, including as new autos, which were unchanged m/m, and used autos, which were still elevated at 1.5% m/m but saw the slowest growth since September. There were also some positive signs this week around peak inflation/supply chain challenges, including a shrinking backlog at California ports and commentary from automakers that chip shortages could are likely to ease this year. However, a number of automakers paused production this week following Canadian protests, which could prolong supply chain issues in the industry.
Market odds of a 50bp rate hike in March spiked after St. Louis Fed President Bullard (voter) told Bloomberg after Thursday’s CPI report that given his concern over inflation, he prefers a 50 bp hike in March, though he will defer to Chair Powell. Bullard also said he favors 100 bp of increases by July. However, after Bullard’s comments, some other Fed officials played down a potential 50 bp hike. Richmond’s Barkin (non-voter) said that while he’s open to a 50 bp rate hike conceptually, he doesn’t necessarily think now is the time for that, while San Francisco’s Daly (non-voter) told MNI that she would not prefer sending a strong signal with a 50 bp increase.
The Baker Hughes rig count increased by 22 this week. There are 635 oil and gas rigs operating in the US – Up 238 over last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims– Released Thursday 2/10/2022 – The week ending February 5thobserved a decrease of 16k in initial claims currently at 223k. The four-week moving average of initial jobless claims decreased 2k to 253.25k.
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.
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
Consumer Price Index –Released 2/10/2022 – Consumer prices rose 0.6% m/m in January following a 0.6% gain in December. Consumer prices are up 7.5% for the 12-month period ending in January. Core consumer prices increased 0.6% m/m in January following a 0.6% gain in December.
U.S. Trade Balance– Released 2/8/2022 –According to the U.S. Census Bureau of Economic Analysis the goods and services deficit increased in December by $1.4 billion to $80.7 billion. December exports were $228.1 billion, $3.4 billion more than November exports. December imports were $308.9 billion, $4.8 billion more than November imports. In 2021 the goods and services deficit increased $182.4 billion or 27.0%, from the same period in 2020. 2021 exports and imports increased $394.1 billion or 18.5% and increased $576.5 billion or 20.5% respectively.
Consumer Credit–Released 2/7/2022 – Consumer credit increased at a seasonally adjusted annual rate of 5.9 percent in December. Revolving credit increased at an annual rate of 6.6 percent, while nonrevolving credit increased at an annual rate of 5.7 percent.
Recent 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.
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.
Next week we get data on the PPI, Retail Sales, Industrial Production and Capacity Utilization, Housing Starts, and Existing Home Sales.
Good Life Advisors – Talking Points – Week 6
Geopolitical Tensions Rise after Russia sends Ukraine Calendar Invite for Invasion.
The developing situation on the Ukrainian border was initially ignored by the markets, but no longer. Investors have sat up and taken notice. Ukrainian officials say Moscow is stepping up a destabilizing campaign involving cyberattacks, economic disruption and hundreds of bomb threats. U.S. officials have warned that Russia is armed and ready to invade at any point. Russia’s Crimea annexation in 2014 didn’t really matter to the markets. It feels like the perspective has changed and that an invasion would likely have major impact on commodity markets, extending the cost-push inflation that has taken hold (inflation is just one of the negative consequences, obviously). It’s also worth noting that S&P500 valuations are significantly higher vs 2014 and the Fed is about to start hiking rates.
Ryan Detrick and LPL Research have pointed out that the market usually can withstand these types of geopolitical events.
The major averages were lower for the week after posting back-to-back weekly gains following the big January selloff. The Nasdaq slightly underperformed the S&P 500 with growth a big underperformer to value. Small caps outperformed large caps for second week in a row as the Russell 2000, S&P 600 and the S&P 400 ended the week higher. Some of the groups that fared worst included software, megacap tech, payments, semis, life sciences and biotech, autos, athletic apparel, housing retail, discount retailers, HPC, waste, parcels and logistics, asset managers, and exchanges. Better performers included banks, investment banks, credit cards, airlines, travel and leisure, restaurants oil services, industrial metals, precious metals miners, diversified and ag chemicals, machinery, construction and engineering, A&D, apparel retail, grocers, food, and protein. Treasuries were weaker with a big curve flattening move. The dollar was stronger on the major crosses. Gold finished up 1.9%. WTI crude ended the week up 0.9% after a big geopolitical-driven Friday rally. Crude was higher for an eighth-straight week and at the highest level since Sep-14.
The big story this week was the January CPI inflation surprise and hawkish Fed commentary. Treasuries sold off sharply following the report, pushing 2Y yields back to pre-pandemic levels, the 10Y above 2%, and the 2Y/10Y spread to the narrowest since Aug-20. Stocks had weathered the inflation report and tighter policy outlook fairly well, with the major averages heading into Friday trading higher for the week. However, stocks sold off Friday on reports of an imminent Russian invasion of Ukraine, pushing the major averages lower for the week, while oil and Treasuries rallied. US Secretary of State Blinken said that a Russian invasion of Ukraine could begin at any time, while National Security Advisor Jake Sullivan said today that an invasion could begin next week, and added that there is no prospect of a US military evacuation in the event of a Russian invasion.
January CPI came in hotter than expected, with annualized headline inflation the highest since Feb-1982 and core highest since Aug-1982. Much of the upside was driven by surprise increases in some of the most virus-exposed areas including travel and transportation. However, some components trended better, including as new autos, which were unchanged m/m, and used autos, which were still elevated at 1.5% m/m but saw the slowest growth since September. There were also some positive signs this week around peak inflation/supply chain challenges, including a shrinking backlog at California ports and commentary from automakers that chip shortages could are likely to ease this year. However, a number of automakers paused production this week following Canadian protests, which could prolong supply chain issues in the industry.
Market odds of a 50bp rate hike in March spiked after St. Louis Fed President Bullard (voter) told Bloomberg after Thursday’s CPI report that given his concern over inflation, he prefers a 50 bp hike in March, though he will defer to Chair Powell. Bullard also said he favors 100 bp of increases by July. However, after Bullard’s comments, some other Fed officials played down a potential 50 bp hike. Richmond’s Barkin (non-voter) said that while he’s open to a 50 bp rate hike conceptually, he doesn’t necessarily think now is the time for that, while San Francisco’s Daly (non-voter) told MNI that she would not prefer sending a strong signal with a 50 bp increase.
Table of Contents
Fixed Income
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
Global Bond Yields
Foreign Exchange Market
Energy Complex
The Baker Hughes rig count increased by 22 this week. There are 635 oil and gas rigs operating in the US – Up 238 over last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims – Released Thursday 2/10/2022 – The week ending February 5thobserved a decrease of 16k in initial claims currently at 223k. The four-week moving average of initial jobless claims decreased 2k to 253.25k.
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.
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
Consumer Price Index – Released 2/10/2022 – Consumer prices rose 0.6% m/m in January following a 0.6% gain in December. Consumer prices are up 7.5% for the 12-month period ending in January. Core consumer prices increased 0.6% m/m in January following a 0.6% gain in December.
U.S. Trade Balance – Released 2/8/2022 – According to the U.S. Census Bureau of Economic Analysis the goods and services deficit increased in December by $1.4 billion to $80.7 billion. December exports were $228.1 billion, $3.4 billion more than November exports. December imports were $308.9 billion, $4.8 billion more than November imports. In 2021 the goods and services deficit increased $182.4 billion or 27.0%, from the same period in 2020. 2021 exports and imports increased $394.1 billion or 18.5% and increased $576.5 billion or 20.5% respectively.
Consumer Credit – Released 2/7/2022 – Consumer credit increased at a seasonally adjusted annual rate of 5.9 percent in December. Revolving credit increased at an annual rate of 6.6 percent, while nonrevolving credit increased at an annual rate of 5.7 percent.
Recent 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.
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.
Next week we get data on the PPI, Retail Sales, Industrial Production and Capacity Utilization, Housing Starts, and Existing Home Sales.
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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