LSA Connect

Economic Update 6-27-2022

• Economic data for the week included a drop in existing home sales offset by stronger sales for new homes. Consumer sentiment fell to an all-time low, although long-term inflation expectations improved (declined) from an earlier report.

• Global equity markets recovered sharply last week with sentiment improving, as inflation may be showing signs of slowing. Bonds also fared positively, with yields falling and corporate spreads tightening. Commodities also fell back in a variety of segments, including grains, metals, and natural gas.

• Economic news for the week included the Federal Reserve raising interest rates sharply in their fight with inflation. Data was mixed, with the index of leading economic indicators and retail sales softer, while industrial production improved. Producer prices remained high, but showed some deceleration. Housing starts and sentiment continued to decline, not helped by rising mortgage interest rates.

• Global equity markets responded negatively to persistent worries over high inflation, rate hikes, and rising recession risks. Bonds fell back on higher yields globally, and pressure on credit. Commodities fell broadly with a pullback in crude oil and natural gas prices.

Fed Note:

The Federal Reserve Open Market Committee continued its aggressive tightening pace in the June meeting, by raising the key fed funds interest rate today by 0.75%—to a new range of 1.50-1.75%. This was the largest single meeting hike since 1994, and featured one dissenting vote (by a member favoring 0.50%). Why 0.75% and not 0.50%? It appeared the most recent consumer price index reading (still persisting around peak levels) and longer-term inflation expectations in the recent Univ. of Michigan consumer sentiment survey in recent days may have been catalysts for the stronger message and front-loading of hikes from later to earlier meetings.

The formal statement language noted that overall economic data has picked up since Q1, with a strong labor market, and elevated inflation. The committee noted that it is ‘highly attentive’ to inflation risks, highlighting this policy priority. In the accompanying data, their expectation of the fed funds rate for year-end 2022, 2023, and 2024 have risen to 3.4%, 3.8%, and 3.4% respectively.

Economic Update 6-13-2022

• Economic data for the week included consumer price inflation coming in high in keeping with expectations. Consumer sentiment remains challenged, at its lowest levels in decades, due to high inflationary pressures, notably with gasoline. Jobless claims were little changed, when adjusted for seasonal effects.

• Global equity markets fell back last week, as high inflation reports and poor consumer sentiment dampened risk-taking. However, emerging market stocks fared better as pandemic conditions in China appear to be improving. Bond markets fell back again with interest rates rising across the board. Commodities were mixed overall, but oil and natural gas prices continued to move higher.

Economic Update 6-06-2022

• Economic data for the holiday-shortened week included a rise in manufacturing sentiment and small drop in services sentiment, despite both remaining solidly expansionary. House prices continued to increase at a dramatic pace. The May employment situation report outpaced expectations, although results were not as strong as in recent months.

• Global equity markets fell back from a steep recovery the prior week, except for emerging markets, which gained ground as Chinese lockdowns eased. Bond prices declined as the result of higher treasury interest yields. Commodities were mixed, with higher energy prices offsetting a pullback in grains.

Economic Update 5-30-2022

• Economic data for the week included a slight downward revision in first quarter GDP, positive durable goods orders, along with weaker new home sales data and consumer sentiment.

• Global equity markets rose broadly last week, with U.S. stocks outperforming foreign. Bonds also fared positively, with interest rates pulling back upon a possible peaking in inflationary pressures. Commodities rose due to gains in crude oil and natural gas.

Economic Update 5-23-2022

• Economic data for the week included gains in retail sales and industrial production. On the other hand, regional manufacturing sentiment fell back, as did several housing metrics as activity slowed along with historically-low residential home inventories.

• Global equities were mixed on the week, with U.S. stocks down sharply once again, while foreign stocks gained ground. Bonds fared positively, with interest rates backing off of peaks. Commodities gained a bit, led by industrial metals rather than oil.