Economic Update 4-10-2023
- Economic data for the week included weaker ISM manufacturing and non-manufacturing results, while the employment situation report came in just above expectations, despite some slowing under the surface.
- Equities were mixed globally, with flattish results in the U.S. and Europe seeing gains. Bonds fared well as weaker economic data pulled down treasury yields. Commodities rose upon early week news of oil production cuts, boosting prices in the energy space.
U.S. stocks began the quarter positively, but fell back a bit Tues. with JPMorgan CEO Jamie Dimon noting that the banking crises was not over and negative ‘repercussions’ would be felt for years to come, and the President of the Cleveland Fed expected rates to get to over 5% and ‘stay there’. Both comments appeared to sour sentiment a bit. Otherwise, conditions were mixed with economic data coming in a bit below expectations. By sector, defensive health care and utilities saw gains over 3%, followed by energy with higher oil prices; the largest declines were seen in industrials and consumer discretionary. Reporting on Q1 earnings results will start in coming weeks, but expectations remain mixed. We don’t tend to see a recession without a decline in corporate earnings, but sharp earnings declines haven’t been priced in (beyond the -5% or so year-over-year drop for Q4-2022/Q1-2023).
In foreign markets, the U.K. and Europe saw gains, as fears of a wider banking crisis seemed to abate, while Japan and the emerging markets declined. In fact, industrial production in Germany unexpectedly rose, as did manufacturing orders, showing signs of economic life. Inflation also continued to decelerate. The Reserve Bank of Australia kept cash rates steady at 3.60%, pausing to reassess slowing economic conditions. This was taken as a sign of possible similar actions by other banks, including the U.K, which hinted that they may be nearing an end.
Bond prices saw gains, as headline economic data continued to deteriorate, causing yields to drop across the middle and longer end of the yield curve. High yield corporates were the only area to see declines. Foreign bonds saw a similar pattern, while also boosted by a half-percent decline in the dollar.
Commodities ended the week generally higher, with energy leading the way, and mixed results in metals—industrial metals down and gold up. Crude oil prices rose nearly 7% on the week to just under $81/barrel; however, natural gas prices fell back by nearly -10% again due to weather forecasts for April looking warmer. Markets early in the week were surprised by the OPEC+ production cut of over 1 mil. barrels/day to sustain prices, ‘realigning’ markets. Often, political movements lie behind the scenes, such as the assumption that the U.S. decision to not refill the Strategic Petroleum Reserve at lower oil price levels upset Saudi Arabia, when relations between the two nations have become more tenuous. Overall, in many commodities, concerns about slower economic growth continue to dominate, as opposed to supply shocks.
|Period ending 4/7/2023||1 Week %||YTD %|
|Bloomberg U.S. Aggregate||1.12||4.11|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.