Geopolitical uncertainty drives another weekly pullback:
Russia’s invasion of Ukraine dominated the news cycle and weighed heavily on risk sentiment this week. While Russia’s hope for a quick takeover of major cities was dented by fierce resistance from Ukrainian troops and logistical headwinds, the attacks intensified as the week progressed and fueled concerns the most destructive part of the offensive is still to come. There were no meaningful breakthroughs in two rounds of ceasefire talks, though a third round is expected next week. Despite the slower-than-expected military progress, the severity of the sanctions imposed by the US, EU, UK and others last weekend and the obvious loss of the messaging war, there seemed to be a marked pickup in skepticism surrounding the notion that Putin would look for an off ramp. There was also a lot of uncertainty surrounding Putin’s mental state, particularly after he ordered Russia’s nuclear on high alert. The market was particularly focused on the record surge in commodities, most notably energy, which exacerbated concerns about more persistent inflation pressures. Inflation concerns had already been the key driver of the hawkish Fed policy repricing that had put the path of least resistance for stocks lower before geopolitical concerns even came into play. While there was some unwinding of this repricing this week, bond market signaling may have been partly distorted by (short) positioning dynamics. More importantly, Fedspeak suggested that despite geopolitical headwinds, the Fed still sees itself on track for a fairly aggressive, front-loaded tightening cycle. Some of the other areas of concern this week revolved around still stretched valuations as the median S&P 500 stock forward P/E is 19.
Bullish talking points overshadowed by geopolitical tensions:
While overshadowed by geopolitical uncertainty, there were still plenty of bullish talking points this week. Some of the focus was on the sharp decline in real yields, which Citi cited as one of the factors behind its upgrade of US equities and the global IT sector. Positioning was still cited as supportive with JPMorgan noting systematic in the 7th percentile and CTAs still near max short levels. The firm also flagged a near six-decade-high in equity risk premium. In addition, depressed sentiment readings continued to be seen as a contrarian buy signal, with bulls in the latest Investors Intelligence survey falling below bears for the first time since April 2020. The market received some near-term clarity on the Fed as Powell largely blessed a 25 bp liftoff at the March FOMC meeting. Elevated ISM new orders and well-behaved (still tight) credit spreadsfit with still strong earningsand capex trends in 2022. The February employment report was another bright spot on the economic calendar as nonfarm payrolls surprised to the upside (678k) while average hourly earnings missed in the face of a continued ramp in concerns about the potential for a wage-price spiral. BofA noted that the S&P 500 has very limited direct exposure to Russia while when looking at indirect effects. There was a bit of hope that some parts of Build Back Better could be salvaged as Manchin made a counteroffer on a basic party-line package that could secure his vote. Along with expectations for more policy support measures out of the NPC meetings, there were also reports China is looking at ways to dial back zero-tolerance approach to Covid.
Unless there is a massive rally, the 50-day moving average looks like it will cross below the 200 day within a week or two.
Banks down big, reopening plays lag, energy rally rolls on:
Banks were among the biggest decliners this week with some of the focus on a disappointing investor update, particularly around expense guidance. Credit cards were another group in the financials that came under outsized pressure. Tech and communications services lagged with semis and social media among the drags. Reopening plays tended to underperform even though Covid continued to move off the market’s radar. Airlines, cruise lines and casual diners were among the notable decliners. Despite the selloff in the airlines, industrials ended higher this week with underpinned by geopolitical tensions, select machinery boosted by the commodity rally and railsanother bright spot. Industrial metals were another beneficiary of the commodity rally. Energy continued its massive ytd outperformance as WTI crude surged more than 26%. Precious metals miners were underpinned by the 4%+ rally in gold. The defensive rotation this week led to good gains for utilities, while REITs also seemed to take advantage of the lower rate backup. Healthcare also finished higher with hospitals and managed care the best performers. Treasuries rallied sharply with the safe haven bid seemingly exacerbated by positioning. The yield on the 10-year note ended the week down 25 bp at 1.73%. The dollar index gained 2% and played into concerns about tightening financial conditions.
The Baker Hughes rig count was unchanged this week. There are 650 oil and gas rigs operating in the US – Up 247 over last year.
Metals Complex
Employment Picture
February Jobs Report–BLS SummaryReleased 3/4/2022 – The US Economyadded 678k nonfarm jobs in February and the Unemployment rate declined to 3.8%. Average hourly earnings were little changed at $31.58. Hiring highlights include +151k Leisure and Hospitality, +86k Professional and Business Services, and +61k Retail Trade.
Average hourly earnings were little changed at $31.58.
The labor force participation rate increased to 62.3%.
Average work week rose 0.1 hour to 34.7 hours.
Weekly Unemployment Claims– Released Thursday 3/3/2022 – The week ending February 26th observed a decrease of 18k in initial claims currently at 215k. The four-week moving average of initial jobless claims decreased 6k to 230.5k.
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 3/3/2022 – Economic activity in the non-manufacturing sector grew in January for the 21st consecutive month. ISM Non-Manufacturing registered 56.5 percent, which is 3.4 percentage points below the adjusted January reading of 59.9 percent.
PMI Manufacturing Index – Released 3/1/2022 – February PMI increased 1.0% to 58.6% up from January’s reading of 57.6%. The New Orders Index was 61.7% up 3.8% from January’s reading of 57.9%. The Production Index registered 58.5%, up 0.7%.
U.S. Construction Spending– Released 3/1/2022 – Construction spending increased 1.3% in January measuring at a seasonally adjusted annual rate of $1,677.2 billion. The January figure is 8.2% above the January 2021 estimate. Private construction spending was 1.5% above the revised December estimate at $1,326.5 billion. Public construction spending was 0.6% above the revised December estimate at $350.7 billion.
Chicago PMI–Released 2/28/2021 – Chicago PMI declined by 8.9 points in February to 56.3. This decline marks the first decline since November 2021. All five of the main five indicators fell, with New Orders and Supplier Deliveries taking the largest hit. Only Inventories edged up over the month.
Recent Economic Data
Links take you to the data source
US Light Vehicle Sales – Released 2/25/2022 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.018 million units in January.
Personal Income – Released 2/25/2022 – Personal income increased $9.0 billion or 0.1 percent in January according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $19.8 billion or 0.1 percent and personal consumption expenditures (PCE) increased $337.2 billion or 2.1 percent.
Durable Goods– Released 2/25/2022 – New orders for manufactured durable goods in January increased $4.3 billion or 1.6% to $277.5 billion. Transportation equipment led the increase rising $3.3 billion or 3.4% to $87.6 billion.
Second Estimate of 4th Quarter 2021 GDP – Released 2/24/2022 – Real gross domestic product (GDP) increased at an annual rate of 7.0 percent in the fourth quarter of 2021, according to the second estimate released by the Bureau of Economic Analysis. GDP increased 2.3 percent in the third quarter of 2021. The second estimate is based on source data that are more complete than that of the advance estimate. 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. The updated estimates primarily reflected upward revisions to nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by downward revisions to personal consumption expenditures (PCE) and exports.
New Residential Sales– Released 2/24/2022 – Sales of new single-family homes decreased 4.5% to 801k, seasonally adjusted, in January. The median sales price of new homes sold in January was $423,300 with an average sales price of $496,900. At the end of January, the seasonally adjusted estimate of new homes for sale was 406k. This represents a supply of 6.1 months at the current sales rate.
Consumer Confidence–Released 2/22/2022 – The Consumer confidence index decreased in February following a decrease in January. The Index now stands at 110.5, down from 111.1 in January.
Existing Home Sales–Released 2/18/2022 – Existing home sales increased in January following a decline in December. Sales increased 6.7% to a seasonally adjusted rate of 6.50 million in January. Sales decreased 2.3% year-over-year. Housing inventory sits at 860k units. Down 2.3% from December’s inventory. Down 16.5% over last year. Unsold inventory sits at a 1.7-month supply. The median existing home price for all housing types was $350,300 which is up 15.4% from January 2021. This marks 119 consecutive months of year-over-year increases, the longest-running streak on record.
Housing Starts–Released 2/17/2022 – New home starts in January were at a seasonally adjusted annual rate of 1.638 million; down 4.1% below December, and 0.8% above last January’s rate. Building Permits were at a seasonally adjusted annual rate of 1.899 million, up 0.7% compared to December, and up 0.8% over last year.
Industrial Production and Capacity Utilization – Released 2/16/2022 – In January Industrial production increased 1.4%. Manufacturing increased 0.2%. Utilities output increased 9.9%. Mining output increased 1.0%. Total industrial production was 4.1% higher in January than a year ago. Total capacity utilization increased 1.0% to 77.6% in January which is 1.9% below its long run average.
Retail Sales– Released 2/16/2022–- U.S. retail sales for January increased 3.8% to $649.8 billion and retail sales are 13.0% above January 2021. U.S. retail sales for the November 2021 through January 2022 period were up 16.1% from the same period a year ago.
Producer Price Index– Released 2/15/2022 – The Producer Price Index for final demand increased 1.0% in January. PPI less food and energy increased 0.8%. The change in PPI for final demand has increased 9.7% year/y.
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.
Next week we get data on Consumer Credit, U.S. Trade Balance, CPI, and JOLTS.
Good Life Advisors – Talking Points – Week 9
Covid No Longer In Control of the Markets
Geopolitical uncertainty drives another weekly pullback:
Russia’s invasion of Ukraine dominated the news cycle and weighed heavily on risk sentiment this week. While Russia’s hope for a quick takeover of major cities was dented by fierce resistance from Ukrainian troops and logistical headwinds, the attacks intensified as the week progressed and fueled concerns the most destructive part of the offensive is still to come. There were no meaningful breakthroughs in two rounds of ceasefire talks, though a third round is expected next week. Despite the slower-than-expected military progress, the severity of the sanctions imposed by the US, EU, UK and others last weekend and the obvious loss of the messaging war, there seemed to be a marked pickup in skepticism surrounding the notion that Putin would look for an off ramp. There was also a lot of uncertainty surrounding Putin’s mental state, particularly after he ordered Russia’s nuclear on high alert. The market was particularly focused on the record surge in commodities, most notably energy, which exacerbated concerns about more persistent inflation pressures. Inflation concerns had already been the key driver of the hawkish Fed policy repricing that had put the path of least resistance for stocks lower before geopolitical concerns even came into play. While there was some unwinding of this repricing this week, bond market signaling may have been partly distorted by (short) positioning dynamics. More importantly, Fedspeak suggested that despite geopolitical headwinds, the Fed still sees itself on track for a fairly aggressive, front-loaded tightening cycle. Some of the other areas of concern this week revolved around still stretched valuations as the median S&P 500 stock forward P/E is 19.
Bullish talking points overshadowed by geopolitical tensions:
While overshadowed by geopolitical uncertainty, there were still plenty of bullish talking points this week. Some of the focus was on the sharp decline in real yields, which Citi cited as one of the factors behind its upgrade of US equities and the global IT sector. Positioning was still cited as supportive with JPMorgan noting systematic in the 7th percentile and CTAs still near max short levels. The firm also flagged a near six-decade-high in equity risk premium. In addition, depressed sentiment readings continued to be seen as a contrarian buy signal, with bulls in the latest Investors Intelligence survey falling below bears for the first time since April 2020. The market received some near-term clarity on the Fed as Powell largely blessed a 25 bp liftoff at the March FOMC meeting. Elevated ISM new orders and well-behaved (still tight) credit spreads fit with still strong earnings and capex trends in 2022. The February employment report was another bright spot on the economic calendar as nonfarm payrolls surprised to the upside (678k) while average hourly earnings missed in the face of a continued ramp in concerns about the potential for a wage-price spiral. BofA noted that the S&P 500 has very limited direct exposure to Russia while when looking at indirect effects. There was a bit of hope that some parts of Build Back Better could be salvaged as Manchin made a counteroffer on a basic party-line package that could secure his vote. Along with expectations for more policy support measures out of the NPC meetings, there were also reports China is looking at ways to dial back zero-tolerance approach to Covid.
Unless there is a massive rally, the 50-day moving average looks like it will cross below the 200 day within a week or two.
Banks down big, reopening plays lag, energy rally rolls on:
Banks were among the biggest decliners this week with some of the focus on a disappointing investor update, particularly around expense guidance. Credit cards were another group in the financials that came under outsized pressure. Tech and communications services lagged with semis and social media among the drags. Reopening plays tended to underperform even though Covid continued to move off the market’s radar. Airlines, cruise lines and casual diners were among the notable decliners. Despite the selloff in the airlines, industrials ended higher this week with underpinned by geopolitical tensions, select machinery boosted by the commodity rally and rails another bright spot. Industrial metals were another beneficiary of the commodity rally. Energy continued its massive ytd outperformance as WTI crude surged more than 26%. Precious metals miners were underpinned by the 4%+ rally in gold. The defensive rotation this week led to good gains for utilities, while REITs also seemed to take advantage of the lower rate backup. Healthcare also finished higher with hospitals and managed care the best performers. Treasuries rallied sharply with the safe haven bid seemingly exacerbated by positioning. The yield on the 10-year note ended the week down 25 bp at 1.73%. The dollar index gained 2% and played into concerns about tightening financial conditions.
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 was unchanged this week. There are 650 oil and gas rigs operating in the US – Up 247 over last year.
Metals Complex
Employment Picture
February Jobs Report – BLS Summary Released 3/4/2022 – The US Economy added 678k nonfarm jobs in February and the Unemployment rate declined to 3.8%. Average hourly earnings were little changed at $31.58. Hiring highlights include +151k Leisure and Hospitality, +86k Professional and Business Services, and +61k Retail Trade.
Weekly Unemployment Claims – Released Thursday 3/3/2022 – The week ending February 26th observed a decrease of 18k in initial claims currently at 215k. The four-week moving average of initial jobless claims decreased 6k to 230.5k.
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 3/3/2022 – Economic activity in the non-manufacturing sector grew in January for the 21st consecutive month. ISM Non-Manufacturing registered 56.5 percent, which is 3.4 percentage points below the adjusted January reading of 59.9 percent.
PMI Manufacturing Index – Released 3/1/2022 – February PMI increased 1.0% to 58.6% up from January’s reading of 57.6%. The New Orders Index was 61.7% up 3.8% from January’s reading of 57.9%. The Production Index registered 58.5%, up 0.7%.
U.S. Construction Spending – Released 3/1/2022 – Construction spending increased 1.3% in January measuring at a seasonally adjusted annual rate of $1,677.2 billion. The January figure is 8.2% above the January 2021 estimate. Private construction spending was 1.5% above the revised December estimate at $1,326.5 billion. Public construction spending was 0.6% above the revised December estimate at $350.7 billion.
Chicago PMI – Released 2/28/2021 – Chicago PMI declined by 8.9 points in February to 56.3. This decline marks the first decline since November 2021. All five of the main five indicators fell, with New Orders and Supplier Deliveries taking the largest hit. Only Inventories edged up over the month.
Recent Economic Data
Links take you to the data source
US Light Vehicle Sales – Released 2/25/2022 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.018 million units in January.
Personal Income – Released 2/25/2022 – Personal income increased $9.0 billion or 0.1 percent in January according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $19.8 billion or 0.1 percent and personal consumption expenditures (PCE) increased $337.2 billion or 2.1 percent.
Durable Goods – Released 2/25/2022 – New orders for manufactured durable goods in January increased $4.3 billion or 1.6% to $277.5 billion. Transportation equipment led the increase rising $3.3 billion or 3.4% to $87.6 billion.
Second Estimate of 4th Quarter 2021 GDP – Released 2/24/2022 – Real gross domestic product (GDP) increased at an annual rate of 7.0 percent in the fourth quarter of 2021, according to the second estimate released by the Bureau of Economic Analysis. GDP increased 2.3 percent in the third quarter of 2021. The second estimate is based on source data that are more complete than that of the advance estimate. 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. The updated estimates primarily reflected upward revisions to nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by downward revisions to personal consumption expenditures (PCE) and exports.
New Residential Sales – Released 2/24/2022 – Sales of new single-family homes decreased 4.5% to 801k, seasonally adjusted, in January. The median sales price of new homes sold in January was $423,300 with an average sales price of $496,900. At the end of January, the seasonally adjusted estimate of new homes for sale was 406k. This represents a supply of 6.1 months at the current sales rate.
Consumer Confidence – Released 2/22/2022 – The Consumer confidence index decreased in February following a decrease in January. The Index now stands at 110.5, down from 111.1 in January.
Existing Home Sales – Released 2/18/2022 – Existing home sales increased in January following a decline in December. Sales increased 6.7% to a seasonally adjusted rate of 6.50 million in January. Sales decreased 2.3% year-over-year. Housing inventory sits at 860k units. Down 2.3% from December’s inventory. Down 16.5% over last year. Unsold inventory sits at a 1.7-month supply. The median existing home price for all housing types was $350,300 which is up 15.4% from January 2021. This marks 119 consecutive months of year-over-year increases, the longest-running streak on record.
Housing Starts – Released 2/17/2022 – New home starts in January were at a seasonally adjusted annual rate of 1.638 million; down 4.1% below December, and 0.8% above last January’s rate. Building Permits were at a seasonally adjusted annual rate of 1.899 million, up 0.7% compared to December, and up 0.8% over last year.
Industrial Production and Capacity Utilization – Released 2/16/2022 – In January Industrial production increased 1.4%. Manufacturing increased 0.2%. Utilities output increased 9.9%. Mining output increased 1.0%. Total industrial production was 4.1% higher in January than a year ago. Total capacity utilization increased 1.0% to 77.6% in January which is 1.9% below its long run average.
Retail Sales – Released 2/16/2022–- U.S. retail sales for January increased 3.8% to $649.8 billion and retail sales are 13.0% above January 2021. U.S. retail sales for the November 2021 through January 2022 period were up 16.1% from the same period a year ago.
Producer Price Index – Released 2/15/2022 – The Producer Price Index for final demand increased 1.0% in January. PPI less food and energy increased 0.8%. The change in PPI for final demand has increased 9.7% year/y.
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.
Next week we get data on Consumer Credit, U.S. Trade Balance, CPI, and JOLTS.
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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