LSA Connect

Economic Update 11-27-2023 

• In a holiday-shortened week, economic data included the index of leading economic indicators continuing their slide downward over the past half-year. Durable goods orders also declined, as did existing home sales. On the positive side, jobless claims fell back. 

• Equities were slightly higher last week, on light volume in the U.S. and few dramatic data releases. Bonds were mixed as interest rates ticked slightly higher, but spirits were boosted by a decent auction for long-term U.S. Treasuries. Commodities were also mixed with gains in metals offset by a slight drop in oil prices. 

Economic Update 11-20-2023 

• Economic data for the week included producer and consumer inflation readings decelerating far faster than expected, boosting the mood of financial markets. Manufacturing releases were mixed, as was housing data, while retail sales fell back a bit. 

• Global equities saw gains as consumer price inflation eased, leading to lower interest rates. Bonds gained accordingly as well. Commodities were mixed, with gains in metals offset by a continued drop in crude oil as supplies stayed elevated. 

Economic Update 11-13-2023 

• In an oddly quiet week for economic data, consumer sentiment declined, jobless claims were little changed, while the Fed’s bank loan officer survey showed continued tighter standards. 

• Stocks were mixed globally with gains in the U.S. large cap group and a small increase in Europe offset by declines elsewhere due to mixed sentiment, mixed data, and disappointing central bank communications. Bonds generally declined as interest rates ticked back up. Commodities lost ground generally, led by a drop in crude oil prices with fewer geopolitical concerns. 

Economic Update 11-06-2023 

• Economic data for the week included the Federal Reserve holding interest rates steady, ISM manufacturing and services both showing declines, gains in home prices, while the employment situation report showed job positive gains, but at a weaker pace than expected. 

• Equities rose globally as hopes of central bank peak rates looked increasingly likely, and acceptable (not too good or too soft) U.S. economic data. Bonds fared positively as interest rates declined sharply following the FOMC meeting. Commodities were mixed, with crude oil prices pulling back. 

U.S. stocks experienced sharp gains last week, in fact the best week of 2023 thus far. Early week results were strong with news of a tentative agreement between the United Auto Workers and GM. The somewhat dovish comments from the FOMC after their policy meeting mid-week also appeared to strongly propel sentiment for several days, as chances for a December hike appear to remain low. Friday’s weaker jobs report also provided some reassurance that labor markets might be cooling, also lessening the chances of further tightening needs. There appeared to be high volume from larger firms as well, including tax loss trades before the common Oct. 31 fiscal year end. 

The Federal Reserve Open Market Committee kept the Fed funds rate unchanged today at 5.25-5.50%. The vote was unanimous. The formal statement wording was minimally changed, but with more important underlying meaning. Economic activity was upgraded from ‘solid’ to ‘strong,’ while the comment about job gains changed from ‘slowed’ to ‘moderated.’ On the other hand, a reference to ‘tighter credit conditions’ was updated to ‘tighter financial and credit conditions.’ 

Based on CME Fed funds futures¹ just before the meeting, there was about a 99% chance of no change, reinforced by hints from several Fed members in recent weeks. (Interestingly, a 3% chance for a quarter-point rate cut appeared earlier in the week—the first time in a while.) Commentary from other members has been a bit more hawkish, pointing to continued concern over high inflation and surprise at the strength of economy and labor markets—leading to futures pricing a ~25% chance of a hike in December. After estimates earlier in the year calling for a dramatic decline in the Fed funds rate in 2024, expectations have become more restrained. Consensus guesses point to highest odds of a -0.25% cut by June, with the likeliest odds at about 4.50-4.75% by December. This points to today’s levels being very near peak rates. 

Economy. U.S. economic growth for Q3 came in at 4.9%², far stronger than expected versus Q2, driven by still-robust consumer spending. Albeit not precise, some measures show consumer savings draining, leading to lower expectations for future quarters. Based on the Atlanta Fed’s GDPNow measure³, an early estimate for Q4 growth has dropped from an initial 2.3% to 1.2%, with the Blue Chip economist median estimate just under 1.0%. Among private sector economists, expectations for 2024 have settled in a fairly wide range of 1.0-2.0% range, which isn’t far from the level of longer-term trend growth, based on demographics/labor force change and assumed productivity. All else equal, slowing growth would pressure interest rates eventually downward. 

Economic Update 10-30-2023 

• Economic data for the week included U.S. GDP growth for Q3 coming in over double that of the prior quarter. Durable goods orders also came better than expectations. In housing, new home and pending home sales both exceeded estimates. 

• Equities fell back as several growth metrics led investors to assume continued higher interest rate policy. Bonds fared positively as yields actually fell back. Commodities were mixed with a small decline in crude oil offset by a spike in natural gas. 

Economic Update 10-23-2023 

• Economic data for the week included the leading economic indicator index continuing to fall back. Housing data was mixed with existing sales down but starts up. On the positive side, retail sales and industrial production gained for the prior month. 

• Equities lost ground worldwide, due to uncertainty over the Israel/Gaza conflict, and interest rates continued to tick higher. Bonds struggled due to the same interest rate concerns. Commodities earned small gains in a variety of sectors. 

Economic Update 10-17-2023 

• Economic data for the week included producer price inflation decelerating further on a year-over-year basis, while consumer prices remained somewhat sticky. Consumer sentiment also fell back, with higher inflation expectations. 

• Equities rose in the U.S. but were little changed overall in foreign markets. Bonds fared positively, as interest rates came back down from highs as investors sought a bit of safety. Commodities rose due to higher prices for crude oil and gold, related to geopolitical concerns in Israel and the Middle East. 

Economic Update 10-11-2023 

• Economic data for the week included ISM manufacturing staying in contraction, but continuing to improve, while ISM services slowed a bit, but continued to expand at a rapid clip. The employment situation report surprised to the upside, as did job openings earlier in the week. 

• Global equities were mixed, with net gains in U.S. large cap, while small cap and international stocks declined. Bonds also fell back again due to interest rates inching higher. Commodities declined as crude oil prices pulled back sharply. 

Economic Update 10-04-2023 

• Economic data for the week included U.S. GDP for Q2 unchanged from prior editions, while expectations for Q3 remain far higher than trend. Durable goods orders rose a bit, although after-inflation results remained depressed. Housing data was mixed, with home prices remaining on an upward trend, while new home sales fell sharply. 

• Global equities fell back last week, as the ‘higher for longer’ interest rate message from central banks was a worldwide negative. Bonds fell back as well, due to the further rise in yields, with foreign bonds pressured downward by the stronger U.S. dollar. Commodities were mixed with oil up only slightly last week.

Economic Update 9-25-2023 

• Economic data for the week included the Federal Reserve keeping interest rates unchanged but kept language relatively hawkish. Housing data was negative, with a drop in existing home sales as well as starts and homebuilder sentiment, although building permits improved. The index of leading economic indicators remained in a negative trend. 

• Global stocks fell back last week, due to the hawkish tone of central bank commentary, as opposed to actual rate hikes done, as well as idiosyncratic economic stresses. Bonds fell back, directly due to the rise in longer-term yields. Commodities were mixed, with crude oil prices little changed for the week.