The biggest economic event of the week was the May CPI report released on Friday morning, which saw a headline increase of 1% m/m against consensus for 0.7%. The y/y figure came in at 8.58%, fractionally higher than the 8.54% seen in March and a fresh post-1981 high. Core prices rose 0.6% m/m, level with April and confounding forecasts for a slight deceleration. Gasoline- and food-price gains were major contributors to the headline performance, while core prices rose on the back of continued inflation in shelter, airfares, and new vehicles (used cars were more expensive after three months of decline). There was some analyst note of the continued breadth of inflation pressures, and no sign (yet) that pressures may ease in June, with inflation being driven by the tight labor market and consequent wage inflation. US equities were sharply lower this week, with a hotter-than-expected May CPI report knocking the legs out from under the recent rally and raising fears of a more-hawkish Fed and a possible recession ahead. The S&P is now down for nine of the past 10 weeks, logging its worst weekly performance since January and seeing an evaporation of much of its rally off the 20-May YTD low. Treasuries were weaker with the curve bear flattening (2Y yields were up 24bp on Friday alone). Yields on all durations from the 2Y upward are now above 3%. The dollar continued its rise, with the DXY up +2%, its best weekly performance since March. Yen weakness was the big story, with the currency hitting a 20-year low and sparking the BoJ and Japan’s finance ministry to issue a joint statement of concern. (there was also note of possible negative signaling for US assets). Gold was somewhat higher, finishing up 1.3% for the week. Oil was higher as well, with WTI settling up 1.4% amid ongoing fears of further European disruption, strong Asian demand, and lagging OPEC+ production.
All sectors were lower. Financials trailed with banks notching their worst weekly performance since late January; BKX (7.9%). Credit cards, IBs, asset managers, and insurers were all hit hard. Semis were a notable weak spot in tech, and the mega caps AAPL (5.7%) and MSFT (6.3%) were no help. AMZN (10.4%) was a big weight on consumer discretionary, with homebuilders down alongside higher rates and travel/tourism (particularly cruise lines) slumping. Steel, aluminium, fertilizers, and commodity chemicals were down in materials, with precious-metals miners showing a bit of resilience. Defense names were relative outperformers in industrials, but transports were weak. Communication services found a bit of cushion from telecom. Managed care and hospitals held up best in healthcare. There were scattered gainers in consumer staples in the food and beverage spaces, with some boost following Friday’s CPI report. Energy held up best, retaining its uncontested YTD leadership against the backdrop of strong energy prices. A major element of the bull thesis has been the thought we are past peak inflation and peak Fed, though this theory has taken hits beyond this week’s CPI report. There have been some signs of softening (Bloomberg this week pointed to easing prices for chips, shipping containers, and fertilizer), while retail inventory overhangs may suggest a more promotional environment ahead and announcements of slower hiring/ layoffs could be a sign of an easing labor market. But at the same time, oil prices have been unrelenting and there are signs that lower-income consumers may already be downshifting their discretionary spending as gasoline gains more wallet share. And note that this week’s other major economic release, preliminary June UMich consumer sentiment, hit a record low amid a four-decade high in respondents concerned about inflation.
The Baker Hughes rig count was flat this week. There are 733 oil and gas rigs operating in the US – Up 272 over last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims– Released Thursday 6/9/2022 – The week ending June 4th observed an increase of 27k in initial claims increasing to 229k. The four-week moving average of initial jobless claims increased 8k to 215k.
May Jobs Report – BLS SummaryReleased 6/3/2022 –The US Economy added 390k nonfarm jobs in May and the Unemployment rate stayed unchanged at 3.6%. Average hourly earnings increased 10 to $31.95. Hiring highlights include +84k Leisure and Hospitality, +74k Education and Health Services, and +75 Professional and Business Services.
Average hourly earnings increased 10 cents to $31.95.
U3 unemployment rate remained unchanged at 3.6%. U6 unemployment rate slightly increased from 7% to 7.1%.
The labor force participation rate was little changed at 62.3%.
Average work week was unchanged at 34.6 hours.
Job Openings & Labor Turnover Survey– JOLTS – Released 6/1/2022 – The US Bureau of Labor Statistics reported the number and rate of job openings decreased to 11.4 million on the last business day of April. Over the month, hires were little changed at 6.6 million and separations were little changed at 6 million. Within separations, quits were little changed at 4.4 million. The layoffs and discharges rates declined to 1.2 million.
Employment Cost Index– Released 4/29/2022 –Compensations costs for civilian workers increased 1.4% for the 3-month period ending in March 2022. The 12-month period ending in March 2022 saw compensation costs increased by 4.5%. The 12-month period ending March 2021 increased 2.6%. Wages and salaries increased 4.7% over the year and increased 2.7% for the 12-month period ending in March 2021. Benefit costs increased 4.1% over the year and increased 2.5% for the 12-month period ending in March 2021. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
Consumer Price Index– Released 6/10/2022 – Consumer prices rose 1% m/m in Mat following a 0.3% increase in April. Consumer prices are up 8.6% for the 12-month period ending in May. Core consumer prices increased 0.6% m/m in May, the same as in April.
Consumer Credit– Released 6/7/2022 – Consumer credit increased at a seasonally adjusted annual rate of 10.1% in April. Revolving credit increased at an annual rate of 19.6%, while nonrevolving credit increased at an annual rate of 7.1%.
U.S. Trade Balance– Released 6/7/2022 –According to the US Census Bureau of Economic Analysis the goods and services deficit decreased in April by $20.6 billion to $87.1 billion. April exports were $252.6 billion, $8.5 billion more than March exports. April imports were $339.7 billion, $12.1 billion less than March imports. Year to date, the goods and services deficit increased $107.9 billion, or 41.1%, from the same period in 2021. Exports increased $151.3 billion or 18.8%. Imports increased $259.2 billion or 24.3%.
Recent Economic Data
Links take you to the data source
PMI Non-Manufacturing Index– Released 6/3/2022 – Economic activity in the non-manufacturing sector grew in May for the 24th consecutive month. ISM Non-Manufacturing registered 55.9%, which is 1.2 percentage points below the April reading of 57.1%.
PMI Manufacturing Index – Released 6/1/2022 – May PMI increased 0.7% to 56.1% up from April’s reading of 55.4%. The New Orders Index was 55.1% up 1.6% from April’s reading of 53.5%. The Production Index registered 54.2%, up 0.6%.
U.S. Construction Spending – Released 6/1/2022 –Construction spending increased 0.2% in April measuring at a seasonally adjusted annual rate of $1,744.8 billion. The April figure is 12.3% above the April 2021 estimate. Private construction spending was 0.5% above the revised March estimate at $1,394.7 billion. Public construction spending was 0.7% below the revised March estimate at $350.1 billion.
Chicago PMI– Released 5/31/2022 – Chicago PMI increased by 3.9 points in May to 60.3. All five of the main five indicators increased except for supplier deliveries, which hit its lowest level since November 2020.
Consumer Confidence– Released 5/31/2022 – The Consumer Confidence Index saw a slight decreased in May following a slight increase in April. The Index now stands at 106.4, down from 108.6 in April.
US Light Vehicle Sales– Released 5/27/2022 – US light vehicle sales were at a Seasonally Adjusted Annual Rate (SAAR) of 14.277 million units in April.
Personal Income – Released 5/27/2022 – Personal income increased $89.3 billion or 0.4% in April according to estimates released today by the Bureau of Economic Analysis. Disposable Personal Income (DPI) increased $48.3 billion or 0.3% and Personal Consumption Expenditures (PCE) increased $152.3 billion or 0.9%.
Second Estimate of 1st Quarter 2022 GDP– Released 5/26/2022 – Real Gross Domestic Product (GDP) decreased at an annual rate of 1.5% in the first quarter of 2022, according to the second estimate released by the Bureau of Economic Analysis. GDP increased 6.9% in the fourth quarter of 2021. the GDP second estimate is based on data that re more complete than the advance estimate which estimated that GDP declined 1.4% in the first quarter. The second estimate primarily reflects downward revisions to private inventory investment and residential investment that were partly offset by an upward revision to consumer spending. The decrease in real GDP reflected decreased in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Personal Consumption Expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased.
Durable Goods – Released 5/25/2022 – New orders for manufactured durable goods in April increased $1.2 billion or 0.4% to $265.3 billion. Transportation equipment led the increase up $0.6 billion or 0.6% to $86.7 billion.
New Residential Sales – Released 5/24/2022 –Sales of new single-family homes decreased 16.6% to 591k, seasonally adjusted, in April. The median sales price of new homes sold in April was $450,600 with an average sales price of $570,300. At the end of April, the seasonally adjusted estimate of new homes for sale was 444k. This represents a supply of 9 months at the current sales rate.
Existing Home Sales– Released 5/19/2022 – Existing home sales decreased in April marking three consecutive months of declines. Sales declined 2.4% to a seasonally adjusted rate of 5.61 million in April. Sales decreased 5.9% year-over-year. Housing inventory sits at 1.03 million units. Up 10.8% from March’s inventory, down 10.4% over last year. Unsold inventory sits at a 2.2-month supply. The median existing home price for all housing types was $391,200 which is up 14.8% from April 2021. This marks 122 consecutive months of year-over-year increased, the longest-running streak on record.
Housing Starts– Released 5/18/2022 –New home starts in April were at a Seasonally Adjusted Annual Rate of 1.724 million; down 0.2% below March, but 14.6% above last April’s rate. Building Permits were at a Seasonally Adjusted Annual Rate of 1.819 million, down 3.2% compared to March, but up 3.1% over last year.
Industrial Production and Capacity Utilization– Released 5/17/2022 – In April, Industrial Production increased 1.1%. Manufacturing increased 0.8%. Utilities output increased 2.4%. Mining output increased 1.6%. Total industrial production was 6.4% higher in April than a year ago. Total capacity utilization increased 0.7% to 79% in April which is 0.5% below its long run average.
Retail Sales – Released 5/17/2022 –US retail sales for April increased 0.9% to $677.7 billion and retail sales are 8.2% above April 2021. US retail sales for the February 2022 through April 2022 period were up 10.8% from the same period a year ago.
Producer Price Index– Released 5/12/2022 – The Producer Price Index for final demand increased 0.5% in April. PPI less food and energy increased 1%. The change in PPI for final demand has increased 11% year/y.
Next week we get data on the PPI, Retail Sales, Industrial Production and Capacity Utilization, and Housing Starts.
Good Life Advisors – Talking Points – Week 22
Stagflation Fears as Inflation Continued Unabated
The biggest economic event of the week was the May CPI report released on Friday morning, which saw a headline increase of 1% m/m against consensus for 0.7%. The y/y figure came in at 8.58%, fractionally higher than the 8.54% seen in March and a fresh post-1981 high. Core prices rose 0.6% m/m, level with April and confounding forecasts for a slight deceleration. Gasoline- and food-price gains were major contributors to the headline performance, while core prices rose on the back of continued inflation in shelter, airfares, and new vehicles (used cars were more expensive after three months of decline). There was some analyst note of the continued breadth of inflation pressures, and no sign (yet) that pressures may ease in June, with inflation being driven by the tight labor market and consequent wage inflation. US equities were sharply lower this week, with a hotter-than-expected May CPI report knocking the legs out from under the recent rally and raising fears of a more-hawkish Fed and a possible recession ahead. The S&P is now down for nine of the past 10 weeks, logging its worst weekly performance since January and seeing an evaporation of much of its rally off the 20-May YTD low. Treasuries were weaker with the curve bear flattening (2Y yields were up 24bp on Friday alone). Yields on all durations from the 2Y upward are now above 3%. The dollar continued its rise, with the DXY up +2%, its best weekly performance since March. Yen weakness was the big story, with the currency hitting a 20-year low and sparking the BoJ and Japan’s finance ministry to issue a joint statement of concern. (there was also note of possible negative signaling for US assets). Gold was somewhat higher, finishing up 1.3% for the week. Oil was higher as well, with WTI settling up 1.4% amid ongoing fears of further European disruption, strong Asian demand, and lagging OPEC+ production.
All sectors were lower. Financials trailed with banks notching their worst weekly performance since late January; BKX (7.9%). Credit cards, IBs, asset managers, and insurers were all hit hard. Semis were a notable weak spot in tech, and the mega caps AAPL (5.7%) and MSFT (6.3%) were no help. AMZN (10.4%) was a big weight on consumer discretionary, with homebuilders down alongside higher rates and travel/tourism (particularly cruise lines) slumping. Steel, aluminium, fertilizers, and commodity chemicals were down in materials, with precious-metals miners showing a bit of resilience. Defense names were relative outperformers in industrials, but transports were weak. Communication services found a bit of cushion from telecom. Managed care and hospitals held up best in healthcare. There were scattered gainers in consumer staples in the food and beverage spaces, with some boost following Friday’s CPI report. Energy held up best, retaining its uncontested YTD leadership against the backdrop of strong energy prices. A major element of the bull thesis has been the thought we are past peak inflation and peak Fed, though this theory has taken hits beyond this week’s CPI report. There have been some signs of softening (Bloomberg this week pointed to easing prices for chips, shipping containers, and fertilizer), while retail inventory overhangs may suggest a more promotional environment ahead and announcements of slower hiring/ layoffs could be a sign of an easing labor market. But at the same time, oil prices have been unrelenting and there are signs that lower-income consumers may already be downshifting their discretionary spending as gasoline gains more wallet share. And note that this week’s other major economic release, preliminary June UMich consumer sentiment, hit a record low amid a four-decade high in respondents concerned about inflation.
Table of Contents
Fixed Income
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
Energy Complex
The Baker Hughes rig count was flat this week. There are 733 oil and gas rigs operating in the US – Up 272 over last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims – Released Thursday 6/9/2022 – The week ending June 4th observed an increase of 27k in initial claims increasing to 229k. The four-week moving average of initial jobless claims increased 8k to 215k.
May Jobs Report – BLS Summary Released 6/3/2022 – The US Economy added 390k nonfarm jobs in May and the Unemployment rate stayed unchanged at 3.6%. Average hourly earnings increased 10 to $31.95. Hiring highlights include +84k Leisure and Hospitality, +74k Education and Health Services, and +75 Professional and Business Services.
Job Openings & Labor Turnover Survey – JOLTS – Released 6/1/2022 – The US Bureau of Labor Statistics reported the number and rate of job openings decreased to 11.4 million on the last business day of April. Over the month, hires were little changed at 6.6 million and separations were little changed at 6 million. Within separations, quits were little changed at 4.4 million. The layoffs and discharges rates declined to 1.2 million.
Employment Cost Index – Released 4/29/2022 – Compensations costs for civilian workers increased 1.4% for the 3-month period ending in March 2022. The 12-month period ending in March 2022 saw compensation costs increased by 4.5%. The 12-month period ending March 2021 increased 2.6%. Wages and salaries increased 4.7% over the year and increased 2.7% for the 12-month period ending in March 2021. Benefit costs increased 4.1% over the year and increased 2.5% for the 12-month period ending in March 2021. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
Consumer Price Index – Released 6/10/2022 – Consumer prices rose 1% m/m in Mat following a 0.3% increase in April. Consumer prices are up 8.6% for the 12-month period ending in May. Core consumer prices increased 0.6% m/m in May, the same as in April.
Consumer Credit – Released 6/7/2022 – Consumer credit increased at a seasonally adjusted annual rate of 10.1% in April. Revolving credit increased at an annual rate of 19.6%, while nonrevolving credit increased at an annual rate of 7.1%.
U.S. Trade Balance – Released 6/7/2022 – According to the US Census Bureau of Economic Analysis the goods and services deficit decreased in April by $20.6 billion to $87.1 billion. April exports were $252.6 billion, $8.5 billion more than March exports. April imports were $339.7 billion, $12.1 billion less than March imports. Year to date, the goods and services deficit increased $107.9 billion, or 41.1%, from the same period in 2021. Exports increased $151.3 billion or 18.8%. Imports increased $259.2 billion or 24.3%.
Recent Economic Data
Links take you to the data source
PMI Non-Manufacturing Index – Released 6/3/2022 – Economic activity in the non-manufacturing sector grew in May for the 24th consecutive month. ISM Non-Manufacturing registered 55.9%, which is 1.2 percentage points below the April reading of 57.1%.
PMI Manufacturing Index – Released 6/1/2022 – May PMI increased 0.7% to 56.1% up from April’s reading of 55.4%. The New Orders Index was 55.1% up 1.6% from April’s reading of 53.5%. The Production Index registered 54.2%, up 0.6%.
U.S. Construction Spending – Released 6/1/2022 – Construction spending increased 0.2% in April measuring at a seasonally adjusted annual rate of $1,744.8 billion. The April figure is 12.3% above the April 2021 estimate. Private construction spending was 0.5% above the revised March estimate at $1,394.7 billion. Public construction spending was 0.7% below the revised March estimate at $350.1 billion.
Chicago PMI – Released 5/31/2022 – Chicago PMI increased by 3.9 points in May to 60.3. All five of the main five indicators increased except for supplier deliveries, which hit its lowest level since November 2020.
Consumer Confidence – Released 5/31/2022 – The Consumer Confidence Index saw a slight decreased in May following a slight increase in April. The Index now stands at 106.4, down from 108.6 in April.
US Light Vehicle Sales – Released 5/27/2022 – US light vehicle sales were at a Seasonally Adjusted Annual Rate (SAAR) of 14.277 million units in April.
Personal Income – Released 5/27/2022 – Personal income increased $89.3 billion or 0.4% in April according to estimates released today by the Bureau of Economic Analysis. Disposable Personal Income (DPI) increased $48.3 billion or 0.3% and Personal Consumption Expenditures (PCE) increased $152.3 billion or 0.9%.
Second Estimate of 1st Quarter 2022 GDP – Released 5/26/2022 – Real Gross Domestic Product (GDP) decreased at an annual rate of 1.5% in the first quarter of 2022, according to the second estimate released by the Bureau of Economic Analysis. GDP increased 6.9% in the fourth quarter of 2021. the GDP second estimate is based on data that re more complete than the advance estimate which estimated that GDP declined 1.4% in the first quarter. The second estimate primarily reflects downward revisions to private inventory investment and residential investment that were partly offset by an upward revision to consumer spending. The decrease in real GDP reflected decreased in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Personal Consumption Expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased.
Durable Goods – Released 5/25/2022 – New orders for manufactured durable goods in April increased $1.2 billion or 0.4% to $265.3 billion. Transportation equipment led the increase up $0.6 billion or 0.6% to $86.7 billion.
New Residential Sales – Released 5/24/2022 – Sales of new single-family homes decreased 16.6% to 591k, seasonally adjusted, in April. The median sales price of new homes sold in April was $450,600 with an average sales price of $570,300. At the end of April, the seasonally adjusted estimate of new homes for sale was 444k. This represents a supply of 9 months at the current sales rate.
Existing Home Sales – Released 5/19/2022 – Existing home sales decreased in April marking three consecutive months of declines. Sales declined 2.4% to a seasonally adjusted rate of 5.61 million in April. Sales decreased 5.9% year-over-year. Housing inventory sits at 1.03 million units. Up 10.8% from March’s inventory, down 10.4% over last year. Unsold inventory sits at a 2.2-month supply. The median existing home price for all housing types was $391,200 which is up 14.8% from April 2021. This marks 122 consecutive months of year-over-year increased, the longest-running streak on record.
Housing Starts – Released 5/18/2022 – New home starts in April were at a Seasonally Adjusted Annual Rate of 1.724 million; down 0.2% below March, but 14.6% above last April’s rate. Building Permits were at a Seasonally Adjusted Annual Rate of 1.819 million, down 3.2% compared to March, but up 3.1% over last year.
Industrial Production and Capacity Utilization – Released 5/17/2022 – In April, Industrial Production increased 1.1%. Manufacturing increased 0.8%. Utilities output increased 2.4%. Mining output increased 1.6%. Total industrial production was 6.4% higher in April than a year ago. Total capacity utilization increased 0.7% to 79% in April which is 0.5% below its long run average.
Retail Sales – Released 5/17/2022 – US retail sales for April increased 0.9% to $677.7 billion and retail sales are 8.2% above April 2021. US retail sales for the February 2022 through April 2022 period were up 10.8% from the same period a year ago.
Producer Price Index – Released 5/12/2022 – The Producer Price Index for final demand increased 0.5% in April. PPI less food and energy increased 1%. The change in PPI for final demand has increased 11% year/y.
Next week we get data on the PPI, Retail Sales, Industrial Production and Capacity Utilization, and Housing Starts.
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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