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Economic Update 5-03-2021

  • The Federal Reserve meeting last week resulted in no changes in policy, per expectations. Economic data included strong advance GDP results for Q1, as anticipated; and durable goods orders, housing prices, and consumer confidence all experienced growth.
  • U.S. equity markets were mixed to lower for the week, outperforming foreign stocks that lost ground in line with a stronger dollar. Bonds fell back as interest rates ticked higher. Commodities gained across the board along with stronger goods demand coupled with some supply concerns.

Fed Update 4-28-2021

4/28/2021 scott

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Fed Note:

The Federal Reserve Open Market Committee made no changes in monetary policy today, keeping the target short-term interest rate at 0.00-0.25%. Nor was there any change in the pace and magnitude of their treasury and agency mortgage-backed security purchase program (‘quantitative easing’). Today’s outcome was predicted in CME futures markets at a 97% probability, although the chances for this same policy fell a bit to 90% by year-end, with a slim chance of a quarter-percent move higher by then.

Only a few words changed in the formal statement compared to March’s narrative. It acknowledged the degree of economic improvement in recent months, as fiscal policy, reopening, and vaccinations continue to be key drivers. Higher inflation was noted as reflecting ‘transitory factors,’ and the term ‘considerable’ when referring to risks was removed...

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Economic Update 4-26-2021

  • Economic data for the week included a pullback in existing home sales, while new home sales, the index of leading economic indicators, and jobless claims all improved.
  • U.S. equity markets were mixed to lower last week, but outperformed developed markets, while emerging markets ended with a small gain. Bonds were little changed, in keeping with minimal changes in interest rates. Commodities continued a string of gains, with agricultural commodities leading the way, as oil fell.
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Economic Update 4-19-2021

  • Economic data for the week included several robust reports that demonstrate early economic recovery from the pandemic, with favorable ‘base effects’ from low points last March. These include strong readings for retail sales, housing starts, and several regional manufacturing indexes. Jobless claims have also improved. 
  • Global stocks gained last week with continued strong economic data reports. Bonds also fared positively as interest rates ticked downward, with dovish central bank communications. Commodities earned positive returns in all groups, led by energy demand and a weaker dollar.
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Economic Update 4-12-2021

  • Economic data for the week included historical strength in ISM services, coupled with strength in job openings, and an especially strong increase in producer prices.
  • U.S. equity markets gained ground last week, outperforming foreign markets, which also showed gains to a lesser degree. Bonds also fared well with interest rates falling back a bit. Commodities were mixed, with agriculture and metals offsetting a pullback in energy prices.
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Economic Update 4-05-2021

  • On a holiday-shortened week, economic data included strong manufacturing data, as well as continued growth in home prices and consumer confidence. Jobless claims rose a bit, but the March employment situation report came in showing stronger-than-expected recovery.
  • Global equity markets were mixed to higher last week, along with continued improving economic news. Bonds were also mixed, with rates little changed, but gains in corporates as spreads tightened. Commodities were flat on net, with gains in energy offset by declines in metals.
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Economic Update 3-29-2021

  • Economic data for the week included a small upgrade for the prior month’s GDP growth rate, as well as declines in durable goods orders and several housing metrics—largely due to the prior month’s winter weather challenges. Consumer sentiment and jobless claims were slightly improved.
  • U.S. equity markets outperformed foreign last week, with help from the dollar, which appreciated nearly a percent against foreign currencies. Bonds earned positive returns as long-term treasury rates fell back a bit from recent increases. Commodities were mixed to lower, with continued volatility in crude oil, resulting from the Suez Canal shipping accident in the Middle East that created a major global trade bottleneck.
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Economic Update 3-22-2021

  • Economic data for the week included a drop in February retail sales and industrial production, as did several housing metrics. However, several regional manufacturing indexes showed strong gains.
  • Global equity markets were mixed last week, as continued Covid concerns abroad competed with increasing activity, especially in the U.S., leading to rising interest rates. Bonds continued to lose ground, due to rates ticked higher upon ongoing market inflation fears for the near-term. Commodities were mixed, led by oil prices falling sharply.

 

Fed Update 3-17-2021

3/17/2021 scott

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Fed Note:

The Federal Reserve Open Market Committee made no change in policy, keeping the target short-term interest rate at 0.00-0.25%. Similarly, no change was made in the pace and magnitude of ‘quantitative easing,’ which is the ongoing treasury and mortgage bond purchase program.

The formal statement showed an upgrade in the economic outlook, with 2021 growth from 4.2% to 6.5%, unemployment lower from 5.0% to 4.5%, and PCE inflation up from 1.8% to 2.4% (core to 2.2%). However, it was noted that most sectors and inflation remain weak. On the dot plot graph, four members now believe a rate increase in 2022 is likely, while seven remain hinged on 2023.

In looking at the Fed’s mandates, all have improved, which raises questions about the timeline for keeping a low rate policy intact:

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Economic Update 3-15-2021

  • Economic data for the week included tempered increases in both the producer price index and consumer price index, which appeared to calm some fears about rising inflation. Consumer sentiment continued to improve, as did several labor metrics on the margin.
  • Global equity markets gained, with the passage of the U.S. Congressional stimulus package, and stronger optimism surrounding vaccine distribution. Bonds fell back again, with interest rates ticking higher along with festering inflation fears. Commodities were little changed, with metals rising in price, while energy fell back from recent highs.
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Economic Update 3-08-2021

  • Economic data for the week included improvements in manufacturing and construction spending, while services results fell back a bit. The February employment situation report came in stronger than expected, although still being negatively affected by winter weather during the month.
  • U.S. equity markets gained on net for the week, as several negative days based on investors digesting rising interest rates, were offset by a finalization of stimulus, stronger economic numbers, and the availability of a new third vaccine. Domestic markets outperformed foreign stocks, which were little changed on net. Bonds suffered for another week as interest rates ticked higher upon expectations for economic reflation and aftermath of the massive stimulus package. Commodities rose as a whole due to a spike in oil prices, while other segments, such as metals, declined.
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Economic Update 3-01-2021

  • Economic data for the week included little change in 4thquarter GDP, while improvements were seen in personal income, durable goods orders, consumer confidence, and various housing sales metrics.
  • Global equity markets fell, as rising interest rates, fears of inflation, and general profit-taking appeared to dominate sentiment. Bonds also lost ground, being affected by rising rates even more directly. Commodities gained on the heels of stronger crude oil prices.
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Economic Update 2-22-2021

  • Economic data for the week included positive surprises in retail sales and industrial production, while housing results were mixed for the past month—although the recovery trend remains in place.
  • Global equity markets were mixed to lower globally, with the U.K. as the best performer. Bonds pulled back globally, as interest rates again nudged higher due to fears of stimulus leading to eventual inflation. Commodities gained ground, led by strength in industrial metals and natural gas.
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Economic Update 2-16-2021

  • Economic data for the week included inflation that continued to rise slightly (due to commodity prices largely), but still tempered levels on a trailing year basis. Labor metrics improved a bit, but remain challenged relative to pre-Covid levels.
  • Global stock markets experienced a positive week, with foreign outperforming U.S. equity markets. Domestic bonds fell back as interest rates ticked higher, while foreign bonds benefited from a weaker dollar. Commodities rose across the board, with strong demand and supply concerns, particularly for crude oil.
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Economic Update 2-8-2021

  • Economic data for the week included slightly weaker results for manufacturing, but a stronger report for services. The employment situation report for January was disappointing, but other labor reports featured a few bright spots.
  • Global equity markets bounced back sharply last week, with U.S. outperforming foreign by a bit. However, higher-quality bonds fell back in keeping with rising interest rates. Commodity prices rose due to spikes in the prices for crude oil and natural gas.

Fed Update 1-27-2021

1/27/2021 scott

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The Federal Reserve made no policy changes at today’s meeting, as expected. The fed funds rate was kept at the zero bound of 0.00-0.25%.

The formal statement was little changed, noting that the pace of recovery is moderating, with ‘weakness concentrated in the sectors most adversely affected by the pandemic.’ There were no dissents. They did note that the overnight repo facility will be closed down by February, as it appears it’s no longer needed (it had low volume as of late). There was no change to the language about staying accommodative. Much of the speculation before the meeting was centered on trying to gauge the Fed’s timetable for asset purchases (on adding to the purchases and/or when they’ll end), but there was no clarity on this. Also, there have been calls for the Fed and U.S. Treasury to ‘lock in’ low financing rates by extending the average maturities of the portfolio and move issuance to new debt to longer maturities, including perhaps issuing a 50-year bond, as other nations have, but no announcement as of yet.

 

This is how the key Fed inputs look in early 2021...

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Economic Update 1-25-2021

  • Economic data for the holiday-shortened week included a sharp rise in manufacturing, and improvements in several housing metrics—the latter continuing a trend higher from recent months.
  • Equity markets in the U.S. and abroad gained last week as the new Biden administration looks to pass additional stimulus legislation. Bonds were little changed, as interest rates leveled off. Commodities were mixed, with metals gaining a bit, and energy falling slightly.
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Economic Update 1-19-2021

  • Economic data for the week included a deeper-than-expected decline in retail sales, weaker Empire state manufacturing, and an unexpected rise in jobless claims. Producer and consumer inflation measures rose slightly, in keeping with recent trend. Industrial production, on the other hand, continued to increase.
  • Global stock markets declined last week, with mixed economic data resulting from continued high Covid cases. Bonds were little changed in the U.S. in keeping with slower rises in interest rates, while foreign bonds were hampered by a stronger U.S. dollar last week. Commodities were mixed to neutral in several key areas, such as energy, but agricultural prices saw a spike due to rising demand.
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Economic Update 1-11-2021

  • Economic data for the week included stronger reports for ISM manufacturing and services, while the employment situation for December weakened more than expected.
  • Equity markets rose several percent globally, with the U.K. and emerging markets leading other regions, with hopes for larger U.S. stimulus upon the victory of both Georgia Democratic Senate candidates, and in spite of a riot at the U.S. Capitol. Bond prices fell back as interest rates ticked higher based on additional stimulus expectations. Commodities rose, with continued recovery gains in crude oil—which rose back above $50/barrel.

 

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Economic Update 12-29-2020

  • On the shortened holiday week, economic data included a decline in personal income and spending, mixed results in housing, and weaker consumer confidence.
  • Global equity markets were down on net last week, as agreement on Congressional stimulus remained in limbo and Covid case counts remain high, along with a newly identified strain in the U.K. Bonds fared positively in the U.S. with lower interest rates, but hampered elsewhere due to a stronger dollar. Commodity prices generally fell last week.
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Economic Update 12-21-2020

  • Economic data for the week included declines in retail sales, industrial production, as well as in several regional manufacturing indexes. Jobless claims also ticked higher along with rising virus counts nationally.
  • Global equity markets rose last week, with continued easy economic policies announced and optimism over the new Covid vaccines. Bonds were down in the U.S. as rates ticked higher, while foreign bonds benefitted positively from a weaker dollar. Commodity prices rose broadly due to expectations for a global demand recovery, especially for energy and metals.
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Economic Update 12-14-2020

  • In a lighter week for economic data, releases included minor increases in producer and consumer prices, and higher-than-expected jobless claims as an uptick in Covid cases continues to weigh on the jobs market. Consumer sentiment improved with the Covid vaccine news, along with inflation expectations falling a bit.
  • Global stocks declined last week, as higher Covid case counts, lack of economic stimulus from the U.S. Congress, and upcoming deadline for Brexit weighed on investor sentiment. Bonds, on the other hand, fared well as interest rates retreated downward. Commodities gained across the board in keeping with a renewed trend of optimism for higher eventual post-pandemic demand in energy and metals.
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Economic Update 12-07-2020

  • Economic data for the week included slightly weaker ISM manufacturing and services, although the underlying metrics continued to show expansion. The employment situation report for November showed a significant slowing of job growth compared to the recovery over the past six months, due to rising Covid cases.
  • U.S. equity markets led the globe last week, again reaching new highs, while foreign stocks earned positive results as well. Bonds declined in the U.S. as positive sentiment and stimulus hopes led to higher long-term interest rates, while a falling dollar helped foreign bonds. Commodities were mixed with less volatility than seen in recent weeks, as crude oil again climbed higher.
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Economic Update 11-30-2020

  • In a shortened holiday week, economic data included stronger housing prices but a decline in sales, mixed personal income/spending results, and lower consumer sentiment as Covid cases again pick up.
  • U.S. and foreign equity markets both experienced gains last week, as positive sentiment continued. Bonds were mixed, with U.S. corporates and foreign debt also gaining. Commodities were mixed, with cyclically-sensitive energy and industrial metals seeing gains, offset by declines in precious metals.
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Economic Update 11-16-2020

  • In a light week for economic data, releases included slight increases in producer and consumer prices, slow improvements for labor, and weaker consumer sentiment.
  • Global equity markets rallied strongly upon the more solidified U.S. election results from the prior week, and the announcement of promising Covid vaccine trials. Bonds fell back in keeping with higher interest rates, and foreign bonds from a stronger dollar. Commodities also rallied, with oil prices following expected improvement in petroleum demand.
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Economic Update 11-09-2020

  • Economic data for the week included a stronger-than-expected employment situation report, and rising manufacturing and construction activity, yet slightly decelerating results for services.
  • U.S. equity markets gained strongly, with the Biden Presidential win and Congressional composition pointing to a status quo policy outcome. Foreign stocks followed, helped by a weaker dollar. Bonds were generally positive as well, with lower long-term interest rates and tighter credit spreads. Commodities also gained due to currency effects, although crude oil prices remain challenged.

Fed Update 11-05-2020

11/5/2020 scott

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Fed Note:

The Federal Reserve Open Market Committee took no action at their early November meeting, keeping policy unchanged (fed funds rate at 0.00-0.25%), with ongoing stimulative bond purchases and liquidity facilities staying in place to combat the negative economic impacts of the pandemic. There were no dissents.

 

Although Fed comments were a bit more bearish as of late, the formal statement was little changed in content, with economic growth and employment prospects held back by the pandemic. Descriptions of ‘continued to recover’ replaced ‘picked up,’ and overall financial conditions ‘remain accommodative,’ replaced ‘have improved in recent months.’ There were some thoughts that the Fed might add additional stimulus buying of some sort, similar to the enhancements by the Bank of England this week. However, unlike the U.K., the Fed has continued to express hesitation to even consider the concept of negative rates.

 

As for the primary mandates:

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Economic Update 11-02-2020

  • Economic data for the week included U.S. GDP for the 3rd quarter that rebounded in similar fashion to expectations, relative strength in areas such as personal income and durable goods, while housing data and consumer sentiment were mixed.
  • Global markets suffered their worst few sessions in months last week, as rising Covid cases in both the U.S. and especially Europe cast doubt on the near-term economic recovery. Bonds were mixed, with safe havens faring well, but foreign issues negatively affected by a strong U.S. dollar. Commodities also declined modestly, with lower oil prices pulling down the rest of the group.
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Economic Update 10-26-2020

  • Economic data for the week included continued strength in housing data, an improvement in jobless claims, as well as continued growth in the index of leading economic indicators, albeit at a decelerated rate from the past few months.
  • U.S. equity markets declined with continued uncertainty over a Congressional stimulus package; foreign stocks echoed this sentiment but were also pulled down by another wave of Covid cases. Bonds fell back along with higher interest rates, tied to the size of the pending stimulus. Commodities were mixed with oil falling back, but offset by higher agricultural prices.
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Economic Update 10-19-2020

  • Economic data for the week included strength in retail sales and consumer sentiment, regional manufacturing reports were mixed, while industrial production fell back. Producer and consumer inflation ticked up slightly, while jobless claims remain challenged.
  • Flattish U.S. equity markets outperformed foreign stocks, which declined last week, along with mixed political and economic news. Bonds were also mixed, with slightly positive returns domestically, coupled by weakness abroad in keeping with a rising dollar. Commodities were similarly mixed, with agriculture and energy seeing gains.
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Economic Update 10-12-2020

  • In a light week for economic data, the ISM services index continued to show expansion, the trade deficit widened, and the improvement in jobs data decelerated.
  • Global equity markets gained across the board as hopes for further stimulus again improved. Bonds were mixed as interest rates rose, although high yield bonds gained. Commodities rose several percent in several groups, especially in energy, as hurricane-related shutdowns dampened production and supply.
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Economic Update 10-05-2020

  • Economic data for the week included the final GDP release for Q2, which was little changed. Manufacturing and construction continued to show general expansion trends, although month-to-month data remains mixed. Housing metrics and prices continue to show strength. The monthly employment situation report was positive, but not as strong as expected.
  • Global equity markets earned positive returns last week, with signs of continued economic improvement as well as ongoing hope for additional stimulus—despite resurgent and persistent Covid infection counts. U.S. bonds were mixed as rates ticked higher, while foreign bonds were helped by a weaker dollar. Commodities fell as crude oil prices continued to be challenged by difficult supply/demand dynamics.

Fed Update 9-16-2020

9/21/2020 scott

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Fed Note:
 

The Federal Reserve Open Market Committee took no action at their mid-September policy meeting, as expected, leaving the fed funds rate at the zero bound of 0.00-0.25%.

Lately, the action seems to be happening between meetings. The Fed announced a new inflation targeting policy that will utilize an ‘averaging’ method based on recent inflation trends as opposed to the simpler meeting-by-meeting assessment. This will now allow for some drift in permitted inflation above target that would help ‘make up’ for periods of weakness during the pandemic. Presumably, inflation would end up being somewhat symmetrical over time around the 2.0% target, but the main concern is low current levels. The low rate regime also pressure the dollar lower, which has some economic benefits and tends to ease policy further if successful. The key question from economists is whether it will work to stoke inflation as intended.

Today’s formal statement changed quite dramatically in language, and materials noted the changes regarding its new inflation stance, showing interest rate forecasts on hold through 2023. The 2020 economic decline of -6.5% previously noted, was now raised to only -3%. There were two dissents in the meeting, about language and long-term intentions rather than current actions—seeking more flexibility about future policy decisions as inflation and growth conditions evolve, as opposed to appearing ‘boxed in’ with the newer policy of letting inflation run higher than target. Overall, the statement was seen as dovish...

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Economic Update 9-21-2020

  • Economic data for the week included the Federal Reserve keeping monetary policy unchanged, but with more dovish forward guidance. Retail sales and industrial production expanded, but at a slower pace than expected, as did the index of leading economic indicators. Housing results were mixed, although general consumer sentiment improved.
  • Global equity markets were mixed last week, with U.S. equities ending lower, while foreign stocks gained. Bonds were also mixed following the Fed meeting as underlying interest rates changed little. Commodities gained due to a sharp weekly increase in oil prices following tighter supplies, while natural gas experienced the opposite set of conditions.
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Economic Update 9-14-2020

  • On a holiday-shortened week, economic data included a tick upward in producer and consumer inflation, although levels remain tempered. Employment data remained mixed.
  • U.S. equity markets declined last week, as profit-taking in certain higher-growth stock groups continued. Foreign stocks outperformed domestic stocks slightly, along with improved economic prospects. Bonds gained due to inflows from riskier assets, led by investment-grade debt. Commodities were mixed to lower, as priced for crude oil and natural gas continued to show weakness.
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Economic Update 9-8-2020

  • Economic data last week included mixed but generally pointed to expansion for manufacturing and services releases, as well as a better-than-expected employment situation report for August.
  • U.S. and foreign equities both fell back last week, as growth stock strength reversed. Bonds ticked up slightly, although stronger economic data sustained interest rates. Commodities fell broadly, led by lower pricing for crude oil and demand continues to remain weak.
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Economic Update 8-31-2020

  • Economic data for the week included higher than expected durable goods orders, continued strength in house prices and new home sales, and largely stable elevated levels of jobless claims.
  • Global equity markets gained last week upon hopes of Covid therapeutics and a ramped-up vaccine timeline, as well as decent economic news. Bonds lost ground as outflows caused interest rates to tick higher. Commodities were mixed, despite spikes in natural gas prices due to hurricanes affecting the Gulf Coast.
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Economic Update 8-17-2020

  • Economic data for the week included further gains in retail sales, and industrial production, among other measures. Consumer sentiment and jobs results also showed improvement, all of which look to a stronger showing for the third quarter over the second.
  • Global equities experienced gains last week as investors look ahead to economic growth beyond Covid, especially as prospects for a vaccine improve (and Russia approving a vaccine). Bonds fell back, however, as interest rates crept up along with this same news. Commodities gained, with price increases for agriculture and natural gas, and less so for crude oil, which has been more stable as of late.
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Economic Update 8-10-2020

  • Economic data for the week included strength in ISM manufacturing and non-manufacturing surveys, a better-than-expected employment situation report for July, and a slight improvement in jobless claims.
  • Global equity markets inched higher last week with improved economic data and investor sentiment. Bonds were little changed, in keeping with minimal changes in the yield curve. Commodities gained with price increases for metals and natural gas.
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Economic Update 8-03-2020

  • Economic data for the week included the Federal Reserve keeping monetary policy unchanged and accommodative, GDP for the 2ndquarter came in showing historical weakness as expected, jobless claims remained elevated, while housing data showed signs of life with building activity picking up and prices steady due to tight market inventory.
  • U.S. equity markets gained, while foreign stocks experienced mixed results, as returns were largely sector-dependent. Bonds gained as interest rates ticked downward, especially outside of the U.S. as the dollar declined last week. Commodities were mixed, with energy down and metals higher.

Fed Update 7-29-2020

7/30/2020 scott

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The Federal Reserve made no key policy changes in their July meeting, as expected, keeping the fed funds rate at the lower bound of 0.00-0.25%. Earlier this week, the pandemic-based emergency liquidity/lending programs were extended until at least the end of 2020, and dollar swap lines for longer.

The formal statement noted some pickup in economic activity, but noted continued concerns over the human and economic risks posed by Covid. They expect to maintain this target level until substantial repair has occurred. At the risk of stating the obvious, the Fed’s opinion is best summarized by the newly-added comment, ‘The path of the economy will depend significantly on the course of the virus.’

 

The official indicators remain little changed since the pandemic began:..

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Economic Update 7-27-2020

  • Economic data for the week included stronger results for housing prices and sales activity, some of which was due to continued tight inventories. The index of leading economic indicators also showed signs of improvement. However, jobless claims rose, which disappointed relative to expectations.
  • U.S. equity markets lost ground last week, while developed foreign markets offered mixed results, and emerging markets rallied a bit. Bonds also fared well as interest rates declined further. Commodities rose on the back of energy and precious metals.
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Economic Update 7-20-2020

  • Economic data last week included rebounds in retail sales, industrial production, and housing. Inflation metrics also showed a small creep up on prices for certain goods. Manufacturing data was mixed, while consumer sentiment weakened slightly.
  • Equities in developed nations around the globe generally gained, with hopes for a trough in economic growth and stock earnings, in addition to positive Covid vaccine tests. U.S. treasury bonds were flattish, while corporate credit and foreign bonds rallied. Commodities were little changed for the week on net.
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Economic Update 7-13-2020

  • A light calendar of economic data for the week included a record increase in non-manufacturing, lower producer prices, and stronger job openings.
  • Global equity markets rose last week, as stronger economic data outweighed mixed results of pandemic infections around the world. Bonds fared well with credit spreads contracting in the U.S., and weaker dollar helping foreign bonds. Commodities were generally higher due to strength in industrial metals, while crude oil prices were little changed.
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Economic Update 7-6-2020

  • On a shortened holiday week, economic data included sharp improvement in manufacturing, as well as in the June employment situation report. Housing and consumer confidence also showed promise, as a variety of data points appear to be rebounding from extremely low levels.
  • Global equity markets gained, with stronger economic news; U.S. stocks outperformed those abroad. Bonds were mixed to higher as interest rates were little changed, but credit outperformed. Commodities rose broadly, including increases in the prices of crude oil and natural gas.
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Economic Update 6-29-2020

  • Economic data last week included higher than expected durable goods orders, along with mixed housing and jobless claims data. Inflation results remain tempered, as expected from low consumer demand.
  • U.S. equity markets fell sharply last week with a continued rise in Covid infections in newly re-opened states, while foreign stocks fared generally better, with more tempered declines. Bonds were mixed, with gains due to investor flows toward treasuries, and weakness in lower quality corporate credit. Commodities were mixed, with the price of crude oil falling by a few percent.
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Economic Update 6-22-2020

  • Economic data continued to rebound last week from the troughs of commercial activity during lockdowns. Strength was pronounced in retail sales and industrial production, as well as carryover into the index of leading economic indicators.
  • U.S. and foreign equity markets gained as economic results continued to improve along with business reopenings. Bonds were little changed, although corporates rallied from additional Fed intervention. Commodities were led by a sharp rise in crude oil prices back toward more normal levels.
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Economic Update 6-15-2020

  • Economic data for the week included the conclusion of the FOMC, where no monetary policy action was taken but the overall tone remained somber. In keeping with Covid-related economic disruptions, several inflation measures saw deceleration, consumer sentiment improved, while employment conditions continue show multi-decade weakness.
  • U.S. equity markets fell around the globe with a somber assessment by the U.S. Federal Reserve, and an increase in new Covid cases in some regions. Foreign markets followed suit, albeit to a lesser degree. Treasury bonds fared well in the flight from risk, outperforming corporates. Commodities lost ground due to another pullback in energy prices.

Fed Update 6-10-2020

6/10/2020 scott

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Fed Note:

Again, as expected, the FOMC kept the fed funds interest rate steady at a lower-band target of 0.00-0.25%. Without dipping into the unchartered and controversial waters of negative rates, this is as far as they can go.

The formal statement remained bleak in tone, with an outlook for growth extremely challenged due to Covid, not to mention global human suffering and loss of employment; however, some improvement at the margin as the result of government stimulus was noted. Their economic projections noted a mid-single digit expected decline of 2020 GDP, with little change expected in fed funds rate policy for the next 2-3 years. Due to the large degree of medical uncertainty, the Fed appears to be focused on providing accommodation as needed to bridge the gap between Covid economic shutdowns and an eventual recovery; although some observers have raised concerns over tipping the balance toward providing too much, keeping interest rates low for too long, and risking asset pricing bubbles or inflation at some point.

It wasn’t mentioned in the formal policy statement, but there has been increasing talk of the Fed turning to a concept called ‘yield curve control’. This sounds elaborate, but it’s essentially a more targeted version of quantitative easing, and is not a new tool. In World War II, the Fed capped short rates at 0.375% (really 3/8%—fractions were used for bond quotes back then) and long rates at 2.5%. This was done to keep borrowing costs down, maintain a positive-sloping yield curve, and set future market expectations. How would this work? The Fed would essentially engineer purchases to cap rates at a certain level. For example, if the 10-year treasury cap was set at 2.0%, if market activity caused rates to drift up toward 2.1%, the Fed would step in, buying bonds, which would drive prices up and yields down. And repeat as needed. If rates fell, however, to 1.8%, it’s debatable whether action would be taken since lower rates could be seen as preferable. This is just one example; it might work differently in practice. Other central banks, such as Japan, have been doing this for many years with mixed reviews. It may provide a way to keep yields down, though, using a more targeted level of new debt as opposed to a ‘shotgun’ approach.

The official indicators remain similar to the last meeting—a complete reversal of conditions earlier in the year:

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Economic Update 6-08-2020

  • Economic data released last week continued to show broad shutdown-based weakness over the past several months, in manufacturing, services, construction, and employment. However, some signs of improvement are being seen on the margin, which have been taken positively by financial markets.
  • U.S. equity markets gained with signs of economic recovery and a strong jobs report later in the week; foreign markets moved higher to an even greater degree. Bonds lagged with interest rates ticking higher on this same strength. Commodities rose with another strong recovery in crude oil, as producing nations discussed further supply cuts and demand is up.
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Economic Update 6-01-2020

  • On a shortened holiday week, economic data continued its lackluster trend, now reporting the well-known weakness of April and May in many industries. Included were weaker numbers for durable goods, jobless claims, and pending home sales. Consumer sentiment and housing prices were mixed.
  • Global equity markets gained with optimism over lockdowns easing and a slow return to normalized activity. Foreign stocks outperformed U.S., helped by a weaker dollar. Bonds gained upon lower interest rates, and tighter credit spreads. Commodities gained along with hopes for economic recovery, led by higher crude oil prices—which have come a long way in recent weeks.
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Economic Update 5-26-2020

  • Economic news remained dreary, with expected poor results for home sales, leading economic indicators, and manufacturing—although there appear to see some signs of marginal improvement in sentiment for the latter.
  • U.S. and foreign equity markets rose as investors looked ahead to progress on a Covid vaccine, and continued extreme stimulus measures in the meantime, while emerging markets were less positively affected, due to deteriorating U.S.-China relations. Bonds were mixed as rates rose, yet corporate credit spreads tightened. Commodities gained as the price of crude oil and natural gas spiked last week with hope for stronger demand sooner than later.
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Economic Update 5-18-2020

  • Economic data continued to reflect the negative reality of Covid closures, with retail sales and jobless claims continuing to show extreme weakness, as well as a deceleration in inflation. On the other hand, manufacturing sentiment gained a bit—especially in future expectations—while consumer sentiment also improved.
  • Global equity markets fell back last week, as sentiment soured surrounding economic data, further stimulus, Covid infection rates, and foreign relations. Bonds were flat to higher with interest rates remaining tempered. Commodities rose slightly as crude oil prices continued to recover.
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Economic Update 5-11-2020

  • Economic data for the week remained poor from Covid effects, as expected, as ISM non-manufacturing and employment plummeted to lows not seen in years.
  • U.S. and some foreign markets rose as investors looked around the bend at planned reopenings and mixed news about U.S.-China trade. Bonds ticked lower as interest rates rose along the curve along with investors anticipating a bottom in economic conditions. Commodities rose along with expectations for normalizing global supply/demand conditions.

Fed Update 4-29-2020

4/29/2020 scott

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The Federal Open Market Committee had no further policy moves to announce after their meetings this week. This follows lowering rates dramatically in March, to a minimum level of 0.00-0.25%, to counteract anticipated economic effects of the coronavirus. Other current tools being used include unlimited buying of treasury and agency mortgage-backed bonds, designed to keep interest rates contained to a desired low level. Extensive facilities are also in place to help provide liquidity for domestic fixed income markets and even some ETFs.

In their formal statement, the FOMC discussed the hardships from the virus, and disruptions caused. The zero-rate target is expected to remain until they’re ‘confident that the economy has weathered recent events’. With a limited set of policy tools remaining, the public’s confidence in their role in supporting the economy and financial markets as needed remains very important.

The metrics behind the key decision pillars have deteriorated sharply in the last month or two, from relatively strong to about the worst since the Great Depression of the 1930s:

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Economic Update 4-27-2020

  • Economic data for the week continues to reflect the current extreme slowdown, increasingly, as the March and April numbers are calculated and released. Jobless claims continued to come in at all-time highs, durable goods orders fell, and housing has begun to be affected as well.
  • Global equity markets fell back last week due to concerns over plummeting oil prices, continued uncertainty over Covid lockdown timelines, and possible profit-taking. Bonds were little changed. Commodities were strongly affected by a drop in crude oil prices below zero briefly, before recovering a bit.
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Economic Update 4-20-2020

  • Economic news, per the new norm, reflected a slowing economy from Covid-related shutdowns. This included disappointing results in retail sales, regional manufacturing, housing, and employment.
  • Global equity markets were mixed on the week, displaying far less volatility than in recent weeks, as hopes rose for reopening of the global economy sooner than later. Government bonds gained slightly, as interest rates ticked downward, faring better than corporates. Commodities were mixed, with volatility in crude oil continuing due to falling global demand.
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Economic Update 4-13-2020

  • Economic data included tempered produce and consumer inflation figures, and sharply negative results, as expected, for jobless claims, job openings, and consumer sentiment. Impact from coronavirus-related economic shutdowns have begun to filter into official economic data, which is likely to continue in coming months.
  • On a shortened Good Friday week, global equity markets gained sharply as hopes for a flattening of new coronavirus infections boosted investor sentiment. Bonds were mixed, as interest rates ticked higher—helping corporate credit—while governments sold off. Commodities were mixed, with energy markets softer, while metals gained ground.
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Economic Update 4-06-2020

  • Economic data continued to reflect a slowdown in activity as the result of the coronavirus, although last month’s releases were mixed to some degree, based on when the results were measured. A toll can already be seen in ISM non-manufacturing and employment.
  • U.S. and foreign equity markets fell back on continued uncertainty over economic impact from the coronavirus, and anticipation of a difficult few weeks ahead. U.S. bonds gained, upon government purchase support and a general investor avoidance of risk. Commodities gained as crude oil bounced sharply upon rumors of an OPEC production cut being discussed.
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Economic Update 3-30-2020

  • Economic news for the week was largely focused on dramatic actions from Congress and the Federal Reserve, intended to stem damage from the coronavirus-related shutdowns that have just begun. Other released data from months prior to the virus outbreak is now largely considered ‘stale’, but included mixed results for new home sales and durable goods orders.
  • Global equity markets rebounded sharply last week as extensive stimulus measures in the U.S. and Europe raised optimism about the global economy slogging through the months ahead. Bonds also fared well, especially in corporates as new government facilities improved sentiment and liquidity. Commodities were mixed with gold faring well while oil remained weak.
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Economic Update 3-23-2020

  • Economic news last week was largely dwarfed by the dramatic efforts in progress by Congress and the Federal Reserve to stem the tide of economic and financial market damage from coronavirus-related shutdowns. Other released data included weaker retail sales and manufacturing indexes, while housing data exceeded expectations.
  • Global equity markets experienced their worst week since the financial crisis, with medical and economic fallout from the coronavirus expected to drive the world economy into recession. Bonds were also mixed, with U.S. treasuries providing some safe haven benefit, while corporate bonds suffered as spreads widened, particularly in mid- and lower-quality issues. Commodity values also fell, led by new multi-year lows in oil prices due to Russia-Saudi production and policy conflicts.
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Economic Update 3-16-2020

  • In a very light week for economic data, producer prices fell sharply in February, while consumer prices increased slightly. Consumer sentiment also declined a bit, likely in keeping with uncertainty over coronavirus effects. However, over the weekend, the Federal Reserve cut rates by a percent again to near zero in an effort to help stem economic damage.
  • Global equity markets were severely challenged, to say the least, with U.S. markets experiencing their worst one-day percentage drop since 1987, and worst overall week since the financial crisis, bringing declines into bear market territory. Bonds lost ground on net, with yields rebounding after hitting all-time lows for some maturities. Commodities also fared poorly, with continued weakness in oil prices.
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Economic Update 3-09-2020

  • Economic data last week included slower ISM manufacturing, but stronger ISM non-manufacturing/services, construction spending and a positive employment report on Friday, which surpassed expectations.
  • U.S. and foreign equity markets experienced another topsy-turvy week, ending with a net gain. Investors continued to react to new cases and spread of the coronavirus. Bonds fared well, due to the ongoing flight to safety as interest rates again reached new all-time lows. Commodities were highlighted by extremely weak crude oil prices, and strength in precious metals.
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Economic Update 3-02-2020

  • While overshadowed by volatile financial markets last week, economic data included strong housing results and prices, decent increases in consumer confidence, as well as durable goods orders that declined less than expected.
  • Equities in both U.S. and foreign markets experienced their worst week since the financial crisis, driven lower by uncertainty about the economic impact of the coronavirus outbreak. Bonds fared well, though, coupled with treasury interest rates reaching new lows for the cycle. Commodities also suffered due to dampened prices for crude oil—affected by perceived lower demand.

 

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Economic Update 2-25-2020

  • On a shortened holiday week, economic data included stronger regional manufacturing results, a rebound in the broader measure of leading economic indicators, and decent housing data.
  • U.S. and foreign equity markets fell back last week as the economic impact of the coronavirus again negatively weighed on market sentiment. However, bonds fared well, as investors sought safety. Commodities were mixed, featuring stronger results for precious metals and the energy sector.
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Economic Update 2-18-2020

  • Economic data for the week included improvements in retail sales, jobless claims, and consumer sentiment; industrial production declined for the month, led by some idiosyncratic factors. Consumer and import price inflation remained tempered, in line with recent trends.
  • U.S. equity markets gained on the week as progress in containment of the coronavirus appeared to raise hopes for mitigating economic damage from the contagion. Foreign stocks gained slightly in local terms, but were held back by a stronger dollar. Bonds were little changed, with credit outperforming governments. Commodities gained, especially in energy and industrial metals, which are most sensitive to economic activity.
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Economic Update 2-10-2020

  • Economic data for the week featured an unexpected rebound in manufacturing sentiment, continued strength in non-manufacturing/services sentiment, as well as an upside surprise for the employment situation report for January.
  • Global equity markets recovered last week, with progress noted on virus containment as well as financial stimulus from the Chinese government. Bonds lost ground as investors moved back into risk assets, pushing interest rates higher. Commodities were mixed, with crude oil prices seeing continued pressure from demand concerns and high inventories.
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Economic Update 2-04-2020

  • Economic news for the week included the Federal Reserve taking no action on interest rates, and GDP gaining nominally for the last quarter of 2019. Durable goods came in better than expected, tempered results were seen in housing and consumer confidence, while manufacturing weakened in the well-watched Chicago PMI survey.
  • Equities around the world lost ground during the week as uncertainties surrounding the new coronavirus put a damper on early-year positive sentiment. In keeping, high-quality bonds gained due to the reversal of flows. Commodities also suffered due to the unknown, but assumed negative economic growth impact.
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Economic Update 1-27-2020

  • In a lighter week for economic numbers, home prices and sales both increased, while the index of leading economic indicators showed a decline to end the year.
  • Global equity markets all fell due to global concerns over the new outbreak of the coronavirus in China. Bonds, in typical fashion, fared well with interest rates ticking down across the treasury yield curve. Commodities also suffered along with fears of a global growth impact from the virus—especially affecting already-battered energy prices.
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Economic Update 1-21-2020

  • Economic news for the week included better results from several regional manufacturing indexes as well as stronger housing starts. On par with forecasts were tempered producer and consumer inflation readings, as were retail sales, while industrial production came in on the weaker side.
  • U.S. and foreign equity markets gained, with U.S.-China trade progress and the improved economic data. Bonds were little changed, although foreign debt was affected by a rise in the dollar. Commodities declined due to currency effects and lower energy prices.
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Economic Update 1-13-2020

  • Economic data for the week included a stronger than expected ISM non-manufacturing/services survey. While the December employment data came a bit below expectations, it still showed decent growth.
  • U.S. equity markets fared positively, as geopolitical strains with Iran tempered, outperforming foreign developed market stocks, but underperformed emerging markets. Bond markets were little changed on net. Commodities lost ground as crude oil prices plummeted with Middle East U.S.-Iran de-escalation and high global supplies.
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Economic Update 1-6-2020

  • Economic data for the turn of the New Year included mixed results in manufacturing, yet stronger construction and housing data, as well as continued strength in labor featured by low jobless claims.
  • U.S. and foreign equity markets ended the week flat to downward, on the heels of geopolitical turmoil in the Middle East by the end of the week. Bonds fared well, as interest rates declined along with investors seeking safety in such an environment. Commodities ticked higher along with higher crude oil prices.
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Economic Update 12-23-2019

  • In a heavier week for economic releases, housing data came mixed but on a stronger trend as of late, industrial production increased more than expected, while manufacturing was mixed, as was labor data.
  • U.S. equity markets gained along with stronger geopolitical optimism, as did emerging markets, both of which outperformed foreign developed markets. Bonds lost ground on the heels of this better sentiment and accompanying higher interest rates. Commodities generally gained ground as well, led by energy and metals.
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Economic Update 12-16-2019

  • Economic news for the week included the Federal Reserve keeping interest rates unchanged following their monetary policy meeting, as expected. Consumer inflation came in slightly higher than forecasts, while producer prices disappointed, and retail sales were positive but below expectations.
  • U.S. and foreign equity markets both gained ground with an announced preliminary U.S.-China trade deal, which boosted sentiment. Bonds were mixed to slightly higher, as interest rate policy remained consistent. Commodities gained across a variety of sub-sectors, including crude oil, due to planned OPEC production cuts.

Fed Update 12-11-2019

12/11/2019 scott

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Fed Note:

The Federal Reserve Open Market committee decided to keep the fed funds target interest rate unchanged—at a level of 1.50-1.75%. This was widely anticipated as Fed committee members, through various speeches and other comments, have been hinting that they’re essentially ‘done’ with rate cuts for the time being, absent any further deteriorating data. Fed funds futures predicted a 98% chance of this outcome, while only a 65% chance of rates staying in this range next year through June, and 40% by next December (both dates feature increasing odds of at least one more quarter-percent cut). The vote was unanimous, with no dissentions...

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Economic Update 12-09-2019

  • Economic data for the week included a sharply better than expected employment report for November, as well as stronger consumer sentiment, yet weaker readings for both ISM manufacturing and services data, although the latter survey remained in expansion.
  • U.S. and foreign equity markets both gained, as trade optimism and economic results outweighed early pessimism. Likewise, interest rates rose, which punished government bonds but rewarded credit. Commodities gained as OPEC production cuts buoyed crude oil prices sharply last week.
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Economic Update 12-02-2019

  • In a shortened holiday week, economic data releases included an upward revision for Q3 GDP, stronger durable goods orders, lower jobless claims, and continued mixed but somewhat encouraging results in housing.
  • U.S. and foreign equity markets gained last week, with continued optimism about a potential trade deal coming to pass. Bonds were little changed, with U.S. fixed income outperforming foreign. Commodities lost ground overall due to lower prices for crude oil and natural gas.
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Economic Update 11-25-2019

  • During the week, several housing metrics continued to show improvement, although still a bit below expectations, coupled with positive consumer sentiment. On the other, the index of leading economic indicators declined again, reflecting a general tempering in economic growth.
  • U.S. and foreign equity markets declined last week, as optimism for a trade deal again waned. U.S. bonds gained, as the recipient of asset flows away from stocks, while foreign debt was held back by a stronger dollar. Commodities were down slightly, as declines in metals acted as more of an influence than the minimal change in the price of crude oil.
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Economic Update 11-11-2019

  • In a light week for economic data, ISM non-manufacturing sentiment strengthened beyond expectations, while labor data was mixed, but remained generally positive.
  • Global equity markets rose in value during the week, with slightly better-than-expected economic results and again high hopes for an early phase trade deal. Bonds experienced a rougher week with negative returns, as rates ticked higher along with stronger growth expectations. Commodities were mixed, but generally higher, led by stronger prices for crude oil and natural gas in the energy sector.
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Economic Update 11-04-2019

  • Economic data during the week included the Federal Reserve lowering key interest rates by a quarter-percent for the third straight time. Insofar as data was concerned, several manufacturing metrics continued to show contraction, while housing/construction and the employment situation report for October came in stronger than expected.
  • Global equity markets rose in line with the U.S. Fed lowering rates, and extension of Brexit, and lack of any negative U.S.-China trade sentiment. Bonds rallied as rates across the curve ticked downward to reflect the newly-lowered short-term rate along with tempered inflation readings. Commodities were flattish overall, despite a drop in crude oil prices over the week.

Fed Update 10-30-2019

10/30/2019 scott

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The Federal Reserve Open Market Committee decided to cut interest rates a third time, by another 0.25%, to a new range of 1.50-1.75%. As with the two prior cuts in recent months, this move was controversial. The economic community was mixed as to the underlying need for this continued easing, highlighted by the two dissents this time, by governors preferring to keep rates where they were.

The formal statement was little changed from September from a policy standpoint, but was simplified, which tends to follow Chairman Powell’s plain-language style. It noted that the labor market remains strong and economic activity continues to rise at a ‘moderate’ rate. Also noted again were strength in household spending, while business fixed investments and exports remain weaker than the FOMC would like. The term ‘act as appropriate’ has now been removed, which has signaled that this rate cut could be the last for a while (barring further economic deterioration).

The dashboard of relevant Fed variables continues to show mixed results, in keeping with the varied sentiment about the rate cuts:

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Economic Update 10-28-2019

  • Economic data for the week included weaker readings for durable goods and consumer sentiment. Housing data points were down for the month but mixed on a longer-term standpoint, while jobless claims fell, which was a positive.
  • Global equity markets generally gained on the week, with U.S. and foreign stocks performing largely in line. Fixed income returns were flat, as interest rates were again little changed from the prior week. Commodities gained due to sharp price increases for crude oil contracts.

 

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Economic Update 10-21-2019

  • Economic news last week included mixed reports on the regional manufacturing and housing front. Additionally, retail sales and industrial production disappointed relative to expectations. The index of leading economic indicators declined slightly, in keeping with data that continues to show a mixed picture.
  • Equity markets experienced gains globally, based on decent headline earnings reports and some optimism about formalized trade progress. Fixed income was little changed in the U.S. on the week, while foreign bonds outperformed due to a weaker dollar. Commodities were also little changed on the week, with a divergence in the energy space between natural gas and crude oil prices.
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Economic Update 10-14-2019

  • In a slow week for economic data, producer and consumer inflation measures were mixed, but remained in tempered ranges. Labor releases were mixed as well, with government measures of job openings falling, while jobless claims remained low.
  • U.S. and foreign equity markets both gained several days last week with positive sentiment towards U.S.-China trade meetings staying on track. On the flip side, bonds fell as flows moved toward equities, pushing up interest rates a bit. Commodities generally moved higher, along with a spike in oil prices in keeping with new Iranian flare-ups in the Persian Gulf.
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Economic Update 10-07-2019

  • Economic data during the week included weaker-than-expected ISM manufacturing and services reports, in addition to a contractionary Chicago PMI. The employment situation report was mixed, with payrolls coming a bit below expected, but the unemployment rate fell to multi-decade lows.
  • World equity markets lost ground as concerns over global manufacturing slowdowns and economic weakness held back sentiment in the U.S. and abroad. Bonds, as usual, benefitted as rates fell in response. Commodities lost ground due to demand fears pulling down crude oil prices to their lowest levels in several months.
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Economic Update 9-23-2019

  • Economic data for the week was highlighted by the Federal Reserve lowering short-term interest rates by another quarter-point, in line with financial market expectations. Otherwise, industrial production and housing sales came in stronger than expected, several regional manufacturing indexes declined but remained expansionary, while the index of leading economic indicators was little changed.
  • Equity markets lost ground last week moderately, both in the U.S. and abroad. Bonds fared better, with positive returns in keeping with the Fed’s lowering of interest rates. Commodities rose due to a spike in crude oil prices on the heels of an attack on Saudi oil facilities, threatening near-term supplies.
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Economic Update 9-18-2019

  • Economic news for the week included largely-as-expected results for the producer price index and consumer price index, while retail sales surprised to the upside, and labor metrics were mixed.
  • Global equity markets gained on the week, as trade sentiment moved to optimistic once again. Bonds, however, suffered as interest rates corrected sharply higher with flows away from risk. Commodities markets were mixed, as crude oil lost ground, offsetting gains elsewhere.

Fed Update 9-18-2019

9/18/2019 scott

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Fed Note:

As expected, the Federal Reserve Open Market Committee lowered the fed funds rate a second time by 0.25%, to a new range of 1.75-2.00%. There were a few dissents, strangely in opposite directions, with one member wanting a larger 0.50% cut and two others voting for no cut.

The formal statement was minimally changed, upgrading the note that household spending has been rising at a strong pace, while business fixed investment and exports have weakened. However, the ‘dot plot’ showed no additional cuts through the end of next year—in fact, a quarter-percent higher than today.

Today’s decision had the potential of being muddled by several factors from the past several days, although...

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Economic Update 9-09-2019

  • Economic news for the week included positive results for the ISM services index, while the ISM manufacturing index contracted. Employment results were mixed, with the nonfarm payroll report somewhat slower than expected.
  • Equities rose on optimism for a trade resolution last week, both in the U.S. and abroad. Bonds, however, lost ground as interest rates ticked higher. Commodities gained a bit, led by sharply higher prices for natural gas.
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Economic Update 8-26-2019

  • In a lighter week for economic news, the index of leading economic indicators reversed course and showed a monthly gain—lowering odds of an upcoming recession. Other positive news included existing home sales coming in better than expected, while new home sales declined, but largely due to positive revisions from the prior month.
  • U.S. equity markets lost ground worldwide as trade tensions continued to vacillate, while foreign stocks fared slightly better. Bonds were flat to higher as interest rates changed minimally on the week. Commodities lost ground, primarily in the agricultural and industrial metals segments, while precious metals fared well.
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Economic Update 8-19-2019

  • Economic data for the week included positive reports in retail sales, several regional manufacturing surveys, and a combination of several labor statistics. On the disappointing side were industrial production, housing starts, and jobless claims, which ticked up on the week.
  • Global equity markets in both the U.S. and overseas endured a volatile week, with several high percentage days in both directions, but ending only about a percent lower on net. Bonds fared more positively on the investment-grade side, due to lower interest rates and flows away from risk. Commodities were mixed to lower, mostly due to lower grain prices.
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Economic Update 8-12-2019

  • Economic news for the week included weaker but still-positive numbers from the ISM non-manufacturing index, tempered producer prices, and a strong jobless claims report.
  • U.S. equity markets declined around the world, with trade tensions again escalating early in the week, before subsiding somewhat. Bonds fared well in the aftermath of poor risk asset performance, as interest rates declined across the yield curve. Commodities were mixed, as price declines in energy offset gains in precious metals.
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Economic Update 8-05-2019

  • Last week saw the Federal Reserve reduce interest rates, largely as expected, although the official statement language was mixed. Positively, consumer confidence rose last week, as did personal income and housing, while manufacturing results showed some weakness. The employment situation report for July came in largely as expected, showing decent growth, although the pace of improvement has slowed.
  • Equity markets in the U.S. and abroad declined several percent during the week, due to announcements of new tariffs on China and Fed policy language being less accommodative than expected. Conversely, bonds fared very well as interest rates across the yield curve declined sharply. Commodities also declined on net, with energy and industrial metals falling in price.

Fed Update 7-31-2019

7/31/2019 scott

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Fed Note:

The July FOMC meeting resulted in a 0.25% reduction in the federal funds rate, to a new range of 2.00-2.25%. The policy vote was far from unanimous, with eight members supporting the change, and the Fed presidents from Kansas City and Boston each dissenting. This reflects the varied commentary from members in recent weeks as to the necessity of the cut. This was the first rate cut since December 2008, when circumstances were obviously far different from those seen today.

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Economic Update 7-29-2019

  • In a slower week for economic data, gross domestic product for the second quarter, durable goods orders, and jobless claims each came in better than expected. Several housing statistics continued to point to mixed conditions.
  • U.S. equity markets fared well with positive returns, outperforming foreign stocks, which were held back by a stronger dollar. Bonds were generally flat on the week, with credit outperforming governments, and foreign markets mixed. Commodities lost ground broadly, due to the dollar effect, although energy was the sole exception as crude oil prices ticked modestly higher.
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Economic Update 7-22-2019

  • Economic data for the week included positive surprises in retail sales as well as several regional manufacturing surveys, mixed results in industrial production and housing, while the index of leading economic indicators pointed to weakening conditions.
  • U.S. equity markets declined as earnings season kicked off for the most recent quarter.  Foreign stocks fared slightly better, despite a stronger dollar.  Bonds gained as investors moved away from risk during the week, and the Fed continued to hint at lower interest rates.  Commodities declined as prices for crude oil and natural gas declined sharply.
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Economic Update 7-15-2019

  • Economic news for the week included a slightly stronger-than-expected consumer price inflation reading, mixed jobless claims, and slightly weaker government job openings. The minutes from the June FOMC meeting noted some economic concerns and raised expectations for possible interest rate cuts sooner than later.
  • U.S. equity markets fared well in the U.S., led by a variety of sectors, outperforming foreign stocks, which largely ended in the negative for the week. Bonds lost ground globally as interest rates ticked higher. Commodities gained in almost all segments, led by energy due to oil prices rising back above $60.
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Economic Update 7-08-2019

  • Economic data for the week was led by declines in both ISM manufacturing and non-manufacturing indexes, as well as weaker data in construction and factory orders. However, the employment situation report came in far stronger than expected, and jobless claims remain at low levels.
  • US equity markets fared well last week, with improved sentiment over trade; foreign equities were also positive, but gains were pared by a strong dollar. Bonds were mixed, with credit outperforming governments as interest rates ticked slightly higher. Commodities were also flattish, with little change in the price of crude oil last week.

 

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Economic Update 7-01-2019

  • Economic data for the week included a little-changed GDP report for Q1, mixed housing results and consumer confidence readings, yet a weaker durable goods report.
  • U.S. equity markets generally lost ground last week, while foreign equities earned small positive returns. Bonds were generally positive as rates continued to tick downward in keeping with dovish central bank language. Commodities were mixed, with crude oil gaining an additional few percent on the week, offsetting lower prices in agriculture.
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Economic Update 6-24-2019

  • Economic data for the week included no action by the FOMC, although the communication was far more dovish. Other news included a sharp decline in several key regional manufacturing indexes, a flattish index of leading economic indicators, mixed to lower housing market metrics, while jobless claims improved again to low levels.
  • U.S. and foreign equity markets both experienced strong gains for the week, led by optimism for trade resolution and dovish central bank language about interest rates. Bonds fared well also, due to the recent ongoing drop in interest rates across the developed world, led by comments from the Fed and ECB. Commodities gained ground due to higher oil prices following rising tensions in the Middle East.

Fed Update 6-19-2019

6/19/2019 scott

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Fed Note:

Following their June meeting, the Federal Open Market Committee (FOMC) made no change to the 2.25-2.50% range for the fed funds rate. However, member appeared split on the outlook, with one member voting for a cut today, while others expect cuts towards the end of the year. This does seem to raise the probability significantly for a cut in July or September.

The formal statement reflected a change in economic growth from ‘solid’ to ‘moderate,’ and although household spending has picked up, business capex spending has remained soft. The inflation picture was acknowledged as weakening, while long-term expectations remained unchanged. As expected, the term ‘patient’ was removed, with concerned noted about a variety of ‘uncertainties.’

This was largely as expected, although in recent weeks, futures markets had begun to price in a 20-25% chance of a quarter-point cut at this meeting. The odds for a rate cut down the road, though, have risen sharply, with December futures implying probabilities for 2-3 cuts by year-end, and more in 2020. This seems a bit extreme on the surface, but markets do tend to overshoot, with the fed funds assumption markets being no exception.

The narrative, at least from the market’s perspective, has certainly changed, with the possibility of easier monetary policy rising in light of a possible longer trade negotiation with China and the ramifications of imposed tariffs in the meantime resulting in global slowdown risks. However, in recent speeches, the Fed hasn’t alluded to cutting rates specifically—merely that they would do as they always do and ‘act as appropriate’ to stabilize the economy. This is particularly tricky now, though, with economic conditions continuing to show modest expansion for the most part, but with greater uncertainty on the margin, so the Fed has been put into a bit of a corner. Historically, merely seeing potential for slowing hasn’t been a clear path to rate cuts without concrete reports of deteriorating data. This is in contrast to hopes by some for ‘insurance’ cuts, which would presumably be made as a hedge against bad outcomes that may or may not unfold—a strategy that the Fed hasn’t generally used. The President’s continued calls for lower interest rates to sustain the economic expansion have also represented a political (and an integrity) burden on an otherwise independent entity...

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Economic Update 6-17-2019

  • Economic data for the week included generally as-expected reports for retail sales, producer prices and consumer prices, retail sales and industrial production came in higher than expected, while consumer sentiment and labor figures disappointed a bit.
  • Global equity markets were relatively flat on net for the week, with U.S. stocks ending slightly in the positive, and foreign slightly in the negative. Bonds experienced similar results, with the yield curve little changed, upon few changes in investor risk preferences. Commodity markets were characterized by lower prices for crude oil offset by sharp price gains in the grains complex.
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Economic Update 6-10-2019

  • Economic data for the week included positive results in ISM non-manufacturing, while ISM manufacturing lost a bit of ground for the prior month. The employment situation report for May also came in weaker than expectations.
  • U.S. and foreign equity markets recovered sharply last week, with hopes of the Fed lowering interest rates in response to growing economic headwinds. Bonds also fared positively, as rates declined across the yield curve. Commodities were mixed, with oil prices recovering slightly.
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Economic Update 5-28-2019

  • Economic data for the week included slightly disappointing housing sales, and weaker durable goods orders, but jobless claims that remained status quo at a strong cyclical level.
  • Equity markets globally generally lost ground as trade tensions between the U.S. and China intensified. Bonds, as expected, fared well as investors fled from risk—pushing down interest rates. Commodities were mixed, with weather affects pushing commodity prices higher, while higher inventories and slowdown concerns damped sentiment for crude oil.
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Economic Update 6-03-2019

  • During a shortened week, economic data consisted of a downwardly-revised but still-strong Q1 GDP report, continued low jobless claims, and mixed consumer confidence. Housing data was again mixed to a bit weaker.
  • Equity markets around the world lost significant ground on the week, as existing (China) and new (Mexico) trade issues drove sentiment in developed nations, while emerging markets gained ground. Bonds again rallied with U.S. treasury rates falling to their lowest levels in several years. Commodities also were hit, due to a recent sharp decline in crude oil prices, which offset higher prices for grains.

 

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Economic Update 5-20-2019

  • Economic data for the week included weakness in retail sales and industrial production, while several regional manufacturing surveys, jobless claims, consumer sentiment, and housing stats came in stronger than expected.
  • Equity markets in the U.S. and in emerging markets ended the week with declines, while developed foreign regions gained slightly on net. On the other hand, bonds and real estate fared decently as interest rates declined. Commodities gained, despite the stronger dollar, due to agriculture and energy affected by sector-specific factors, such as weather and geopolitics.
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Economic Update 5-13-2019

  • Economic data for the week included ongoing mixed to lower reports for producer and consumer inflation, little changed conditions but lower demand for bank loans, and continued positive jobs markets and claims data.
  • Equities fell across the globe last week, due to threats and eventual implementation of U.S.-China tariffs. Government bonds fared well as flows moved away from risk, while credit lagged a bit. Commodities were mixed to lower, with little change in either the dollar or crude oil prices.

 

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Economic Update 11-06-2017

  • Economic news for the week was dominated by a Fed meeting that resulted in no policy change, mixed manufacturing results, stronger optimism and a below-par employment situation report—several releases continue to demonstrate the effects of recent hurricanes.
  • Equities continued their run of success, with gains in the U.S. and foreign markets, on the back of strong earnings and economic growth.  Bonds also fared well as rates decreased.  Commodities gained on the week, in keeping with higher oil demand and lower production.
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Economic Update 10-09-2017

  • Economic data for the week was led by especially strong ISM manufacturing and non-manufacturing reports, decent construction spending, while the employment situation report for September was a mixed bag of
  • U.S. stock markets continued to churn forward, while a stronger dollar held back developed foreign markets—with the exception of emerging markets, which outperformed all groups.  Bond returns were tempered, as U.S. rates rose a bit.  Commodities lagged due to a drop in the price of crude oil and natural gas.
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Economic Update 10-02-2017

  • Economic news for the week included generally few surprises—a small revision upward for prior-quarter GDP, strong manufacturing results, mixed but generally disappointing housing data, slightly weaker sentiment and weather-affected jobless claims.
  • U.S. equity markets rose, led by small-cap stocks, while foreign markets were mixed, being negatively affected by a stronger U.S. dollar.  Bonds lost ground on the government side with higher rates, while credit fared better.  Commodities were mixed, as a pullback in metals was matched by higher pricing for crude oil.