LSA Connect

Economic Update 3-13-2023 

• Economic data for the week was largely focused on labor markets, with nonfarm payrolls and ADP employment coming in stronger than expected, while job openings declined and the unemployment rate increased. This pointed to a mixed overall message.

• Stocks fell back in both the U.S. and foreign markets due to tough central bank talk that pointed to higher interest rates, as well as volatility in financials late in the week due to a large regional bank failure. Bonds benefited from flows away from risk. Commodities declined due to lower perceived demand as recession risks remained high, in addition to warmer weather.

Economic Update 2-27-2023 

• Economic data for the holiday-shortened week included U.S. GDP data for Q4 that stayed solidly positive but with a slight downward revision, mixed to improved housing data, decent jobless claims, and stronger consumer sentiment. However, higher PCE inflation was interpreted negatively.

• Global equities lost ground last week as higher inflation readings continued to sustain assumptions for tighter central bank policy. Bonds suffered during the week as well, due to the same factors elevating interest rates. Commodities were mixed with crude oil little changed, but natural gas prices seeing some supply-driven recovery.

Economic Update 2-22-2023 

• Economic data for the week included producer and consumer prices staying elevated, although still decelerating on a year-over-year basis. Industrial production was little changed, while several regional manufacturing indexes showed divergent results. Housing data was also mixed.    

• Equities ended in varied directions last week, with flattish U.S. returns, while Europe gained, and Asia fell back. Bonds also lost ground with interest rates moving higher along with persistent inflation concerns. Commodities fell across the board, along weaker energy prices and a stronger dollar.

• In an unusually light week for economic data releases, consumer sentiment improved and jobless claims continued to come in at low levels. Bank lending standards have continued to tighten, due to recession fears.

• Equities were mixed to lower last week, despite little news. Bonds fell back as interest rates ticked higher. Commodities gained overall, as crude oil prices soared.

U.S. stocks ended lower last week on net, with little meaningful economic news to drive sentiment, although large cap stocks outperformed small cap stocks. Most sectors were little changed on the week, with the exception of energy, which gained almost 5% with higher oil prices, and communications, with fell -6%, led by a poor display by Alphabet/Google in an artificial intelligence demonstration. Real estate also fell back -2% along with higher interest rates.

Economic Update 1-30-2023 

• Economic data for the week included U.S. GDP coming in for Q4 at a stronger pace than expected, in addition to positive reports for durable goods orders, new home sales, and consumer sentiment.

• Global stocks rose last week, with the U.S. leading the way, upon rising hopes for the economy achieving a soft landing and inflation easing. Bonds were little changed on the week. Commodities were mixed, with both crude oil and natural gas prices falling due to higher supply pressures.

Economic Update 1-23-2023 

• In a shortened week, economic data included weaker results for retail sales, industrial production, and some regional manufacturing activity. Housing sales and starts continued to decline; on the other hand, homebuilder sentiment surprisingly improved.

• Global equities were mixed to higher last week, due to mixed economic data, but also increased signs of falling inflation and optimism over China’s reopening. Bonds ticked higher as interest rates fell back along most of the yield curve. Commodities also rose with expected higher demand in coming months.

Economic Update 1-18-2023 

• Economic data for the week included consumer price inflation that continued to decelerate to close out 2022, but still remains high. Other positive news included jobless claims falling back and an improvement in consumer sentiment.

• Equities fared well globally last week to continue a winning streak in the new year, thanks to lower inflation and optimism over the current earnings season. Bond prices rose along with falling interest rates. Commodities also gained, helped by a weaker U.S. dollar and stronger crude oil prices.

Economic Update 1-10-2023 

• Economic data for the first week of the year included several reports continuing to show a strong labor market, although not as strong as it has been. However, ISM manufacturing fell further into contraction, joined by ISM services for the first time since the pandemic.

• Global equities gained to start the first week of the year, with foreign outpacing domestic. Bonds also gained as interest rates pulled back on softer implications for inflation and growth. Commodities fell back along with weaker oil prices.

Economic Update 1-03-2023 

• Economic data for the week included housing prices that continued a decline from peak levels, as well as a drop in pending home sales. Some regional PMI data improved, while jobless claims remained at a steady low level.

• Global equities were flat to down last week to close out 2022. Fixed income also fell back as interest rates ticked higher. Commodities gained ground last week, led by crude oil prices.

• Economic data for the week included consumer inflation decelerating at a faster degree than expected; however, the Federal Reserve and other global central banks maintained policies of raising interest rates at a fast clip. Retail sales and industrial production both declined, continuing a trend of weaker key economic data, while several regional manufacturing indexes were mixed.

• Global equity markets fell back along with continued-hawkish central bank language. Domestic bonds, however, gained as long-term rates fell along with slower growth expectations. Commodities were mixed, with crude oil prices moving higher. 

The Federal Reserve Open Market Committee raised the Fed funds rate today by 0.50%, to a range of 4.25-4.50%. The vote was unanimous, and marks a downshift from a pace of four straight 0.75% hikes. The formal statement language was barely changed from the prior month, offering no new information.

According to the CME Fed funds futures market¹, expectations were high (~80%) for a half-percent change, with chances of a larger hike having steadily fallen since the early November meeting. Based on current quarterly probabilities for 2023, the key rate is expected to rise 0.50% by March to 4.75-5.00%, with little change through June, but then drifting lower to a wider range of 4.50-5.00% by September, which implies either a continued pause or even a slight rate cut. The December assumed level has fallen to 4.25-4.50%, which implies further cuts. Probabilities have changed slightly in recent weeks, with a longer expected pause and drop in the terminal rate, with marked calls for easing later in keeping with higher chances of recession over that stretch. All-in-all, futures markets put the terminal rate right around 5.00%, with estimates from private economists running plus or minus a quarter-percent around that level. There remains a decent degree of uncertainty about this; again, with the key variable being how long it takes for inflation to ease enough to satisfy the Fed.

Economic Update 12-12-2022 

• Economic data for the week included an unexpected gain in ISM services/non-manufacturing, higher-than-expected producer prices, and an improvement in consumer sentiment.

• Global equity markets fell back last week, along with higher interest rates; however, Chinese stocks gained with new government measures designed to reopen the economy. Bonds fell back due to rising yields. Commodities were led lower by a sharp drop in crude oil prices.