Bear Market Bounce or the Start of Something More?
US equities finished the week higher, recovering somewhat after sharp losses in the prior week (when the S&P logged its worst weekly performance since March 2020). This recovery came in a relatively catalyst-light period characterized by rising recession fears and weaker commodity prices. There was also help from a notable drop in Treasury yields, a move which at one point saw the 2Y yield move back below 3% for the first time since 9-Jun. The dollar was lower, with the DXY (0.5%) after three weeks of gains. The greenback was weaker on the euro and sterling crosses, but a bit better vs. the yen. Gold was down 0.6%, adding to the prior week’s 1.9% drop. Oil was marginally lower, with WTI settling down 0.3% after its 10.5% drop in the previous week. There were limited concrete developments, with the recession talk heightening fears of demand destruction amid suspicions Russia is exporting more crude than thought.
It was a fairly quiet, holiday-shortened week with a limited number of catalysts at play. Some of the week’s strength was chalked up to an oversold bounce following the prior week’s nearly 6% drop for the S&P (the index had dropped 12% between 2-Jun and last Friday. Broadly negative sentiment and positioning indicators were also part of the narrative. Nevertheless, the drag from the Fed-led tightening of global monetary policy remains, and there continues to be a good deal of analyst focus on risk to Q2 earnings amid inflation and FX pressures. These worries seemed to coalesce this week into an upwelling of recession fears — Citi said it now sees a 50% change of a global recession, a broadly cited Fed paper talked of a sizeable risk of recession in the quarters ahead, and even Chair Powell mentioned it as a possibility in his congressional testimony. Yet alongside these fears there also seemed to be something of a bad-news-is-good-news atmosphere, with recent softer economic data encouraging the market to scale back its 2022 rate-hike estimates, if only slightly. Recession fears also sparked a drop in select commodity prices this week, which seemed to put some starch back in the peak-inflation theme.
Chair Powell delivered his semiannual testimony to Congress this week, though there was little change to his monetary-policy narrative that the Fed is unconditionally committed to bringing inflation down and will remain alert to the evolving economic landscape. He did caution that further upside surprises to inflation could be in store and conceded that Fed hikes could provoke a recession. Powell also reiterated that a soft landing may be very challenging to attain.
While it was a light week of economic data, those releases continued to underwhelm, keeping the Citi Economic Surprise Index near its 2020 lows. The final readout of the UMich consumer sentiment survey came in for outsized attention after Chair Powell mentioned the preliminary read at the June FOMC meeting. While the headline read continued to move lower, there was focus on slightly softer readings for one- and five-year inflation expectations. Elsewhere, May housing data were mixed, with existing-home sales falling m/m, but not as sharply as forecast (and May new-home sales picked up). Weekly initial jobless claims were above consensus, but remained in their recent range. Finally, June’s flash Markit US composite PMI missed, with manufacturing seeing the first contraction in new orders since July 2020 while services showed the steepest drop in client demand in more than two years.
The Baker Hughes rig count increased by 13 this week. There are 753 oil and gas rigs operating in the US – up 283 over last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims– Released Thursday 6/23/2022 – The week ending June 18th observed a decrease of 2k in initial claims decreasing to 229k. The four-week moving average of initial jobless claims increased 4.5k to 223.5k.
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 – Compensation 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 in 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
New Residential Sales–Released 6/24/2022 – Sales of new single-family homes increased 10.7% to 696k, seasonally adjusted, in May. The median sales price of new homes sold in May was $449,000 with an average sales price of $511,400. At the end of May, the seasonally adjusted estimate of new homes for sale was 444k. This represents a supply of 7.7 months at the current sales rate.
Existing Home Sales – Released 6/21/2022 – Existing home sales decreased in May marking four consecutive months of declines. Sales declined 3.4% to a seasonally adjusted rate of 5.61 million in Mat. Sales decreased 8.6% year-over-year. Housing inventory sits at 1.16 million units. Up 12.6% from April’s inventory. Down 4.1% over last year. Unsold inventory sits at a 2.6-month supply. The median existing home price for all housing types was $407,600 which is up 14.8% from May 2021. This marks 123 consecutive months of year-over-year increases, the longest-running streak on record.
Recent Economic Data
Links take you to the data source
Industrial Production and Capacity Utilization – Released 6/17/2022 – In May, industrial production increased 0.2%. Manufacturing decreased .01%. Utilities output increased 1%. Mining output increased 1.3%. Total industrial production was 5.8% higher in May than a year ago. Total capacity utilization increased to 79% in May which is 0.5% below its long run average.
Housing Starts–Released 6/16/2022 – New home starts in May were at a Seasonally Adjusted Annual Rate (SAAR) of 1.549 million; down 14.4% below April, and 3.5% below last May’s rate. Building permits were at a SAAR of 1.695 million, down 7% compared to April, but up 0.2% over last year.
Retail Sales– Released 6/15/2022 – US retail sales for May decreased 0.3% to %672.9 billion but retail sales are 8.1% above May 2021. US retail sales for the March 2022 through May 2022 period were up 7.7% from the same period a year ago.
Producer Price Index– Released 6/14/2022 – The Producer Price Index for final demand increased 0.8% in May. PPI less food and energy increased 0.7%. The change in PPI for final demand has increased 10.8% year/y.
Consumer Price Index –Released 6/10/2022 – Consumer prices rose 1% m/m in May following a 0.3% increase in April. Consumer prices are up 8.6% for the 12-month 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 SAAR 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%.
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 SAAR 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 decrease 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 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 are 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.
Next week we get data on Durable Goods, the 3rd Estimate of 1st Quarter GDP, Personal Income, Consumer Confidence, Chicago PMI, US Construction Spending, and Manufacturing PMI.
Good Life Advisors – Talking Points – Week 24
Bear Market Bounce or the Start of Something More?
US equities finished the week higher, recovering somewhat after sharp losses in the prior week (when the S&P logged its worst weekly performance since March 2020). This recovery came in a relatively catalyst-light period characterized by rising recession fears and weaker commodity prices. There was also help from a notable drop in Treasury yields, a move which at one point saw the 2Y yield move back below 3% for the first time since 9-Jun. The dollar was lower, with the DXY (0.5%) after three weeks of gains. The greenback was weaker on the euro and sterling crosses, but a bit better vs. the yen. Gold was down 0.6%, adding to the prior week’s 1.9% drop. Oil was marginally lower, with WTI settling down 0.3% after its 10.5% drop in the previous week. There were limited concrete developments, with the recession talk heightening fears of demand destruction amid suspicions Russia is exporting more crude than thought.
It was a fairly quiet, holiday-shortened week with a limited number of catalysts at play. Some of the week’s strength was chalked up to an oversold bounce following the prior week’s nearly 6% drop for the S&P (the index had dropped 12% between 2-Jun and last Friday. Broadly negative sentiment and positioning indicators were also part of the narrative. Nevertheless, the drag from the Fed-led tightening of global monetary policy remains, and there continues to be a good deal of analyst focus on risk to Q2 earnings amid inflation and FX pressures. These worries seemed to coalesce this week into an upwelling of recession fears — Citi said it now sees a 50% change of a global recession, a broadly cited Fed paper talked of a sizeable risk of recession in the quarters ahead, and even Chair Powell mentioned it as a possibility in his congressional testimony. Yet alongside these fears there also seemed to be something of a bad-news-is-good-news atmosphere, with recent softer economic data encouraging the market to scale back its 2022 rate-hike estimates, if only slightly. Recession fears also sparked a drop in select commodity prices this week, which seemed to put some starch back in the peak-inflation theme.
Chair Powell delivered his semiannual testimony to Congress this week, though there was little change to his monetary-policy narrative that the Fed is unconditionally committed to bringing inflation down and will remain alert to the evolving economic landscape. He did caution that further upside surprises to inflation could be in store and conceded that Fed hikes could provoke a recession. Powell also reiterated that a soft landing may be very challenging to attain.
While it was a light week of economic data, those releases continued to underwhelm, keeping the Citi Economic Surprise Index near its 2020 lows. The final readout of the UMich consumer sentiment survey came in for outsized attention after Chair Powell mentioned the preliminary read at the June FOMC meeting. While the headline read continued to move lower, there was focus on slightly softer readings for one- and five-year inflation expectations. Elsewhere, May housing data were mixed, with existing-home sales falling m/m, but not as sharply as forecast (and May new-home sales picked up). Weekly initial jobless claims were above consensus, but remained in their recent range. Finally, June’s flash Markit US composite PMI missed, with manufacturing seeing the first contraction in new orders since July 2020 while services showed the steepest drop in client demand in more than two years.
Table of Contents
Fixed Income
June FOMC Statement Balance Sheet Reduction Plan Credit, Liquidity and Balance Sheet Federal Reserve Dot Plots
US Corporate Debt Tops 7 Trillion. Treasury.gov yields FOMC Policy Normalization Statement Longer Run Goals August 2020
Foreign Exchange Market
Energy Complex
The Baker Hughes rig count increased by 13 this week. There are 753 oil and gas rigs operating in the US – up 283 over last year.
Metals Complex
Employment Picture
Weekly Unemployment Claims – Released Thursday 6/23/2022 – The week ending June 18th observed a decrease of 2k in initial claims decreasing to 229k. The four-week moving average of initial jobless claims increased 4.5k to 223.5k.
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 – Compensation 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 in 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
New Residential Sales – Released 6/24/2022 – Sales of new single-family homes increased 10.7% to 696k, seasonally adjusted, in May. The median sales price of new homes sold in May was $449,000 with an average sales price of $511,400. At the end of May, the seasonally adjusted estimate of new homes for sale was 444k. This represents a supply of 7.7 months at the current sales rate.
Existing Home Sales – Released 6/21/2022 – Existing home sales decreased in May marking four consecutive months of declines. Sales declined 3.4% to a seasonally adjusted rate of 5.61 million in Mat. Sales decreased 8.6% year-over-year. Housing inventory sits at 1.16 million units. Up 12.6% from April’s inventory. Down 4.1% over last year. Unsold inventory sits at a 2.6-month supply. The median existing home price for all housing types was $407,600 which is up 14.8% from May 2021. This marks 123 consecutive months of year-over-year increases, the longest-running streak on record.
Recent Economic Data
Links take you to the data source
Industrial Production and Capacity Utilization – Released 6/17/2022 – In May, industrial production increased 0.2%. Manufacturing decreased .01%. Utilities output increased 1%. Mining output increased 1.3%. Total industrial production was 5.8% higher in May than a year ago. Total capacity utilization increased to 79% in May which is 0.5% below its long run average.
Housing Starts – Released 6/16/2022 – New home starts in May were at a Seasonally Adjusted Annual Rate (SAAR) of 1.549 million; down 14.4% below April, and 3.5% below last May’s rate. Building permits were at a SAAR of 1.695 million, down 7% compared to April, but up 0.2% over last year.
Retail Sales – Released 6/15/2022 – US retail sales for May decreased 0.3% to %672.9 billion but retail sales are 8.1% above May 2021. US retail sales for the March 2022 through May 2022 period were up 7.7% from the same period a year ago.
Producer Price Index – Released 6/14/2022 – The Producer Price Index for final demand increased 0.8% in May. PPI less food and energy increased 0.7%. The change in PPI for final demand has increased 10.8% year/y.
Consumer Price Index – Released 6/10/2022 – Consumer prices rose 1% m/m in May following a 0.3% increase in April. Consumer prices are up 8.6% for the 12-month 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 SAAR 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%.
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 SAAR 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 decrease 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 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 are 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.
Next week we get data on Durable Goods, the 3rd Estimate of 1st Quarter GDP, Personal Income, Consumer Confidence, Chicago PMI, US Construction Spending, and Manufacturing PMI.
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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