Weekly Market Commentary June 13th to June 17th 2022
The week’s economic news was headlined by a 0.75% increased in the Federal Funds Rate, the overnight rate for lending between banks. This big hike was expected by markets after last week’s CPI report came in higher than expected. There have now been 1.5% worth of hikes this year, and members of the committee who vote on these rate changes expect roughly eight more 0.25% hikes through early 2023.
Growth in the Producer Price Index came in at 10.8% and 8.3% when excluding food and energy, both slightly lower than estimates. These numbers are quite a bit higher than Consumer inflation readings, reflecting the fact that companies are unable to pass on all the cost increases to consumers.
Retail Sales declined 0.3% from last month, whereas economists were looking for a 0.1% increase. Excluding auto sales, which have been weak due to the semiconductor shortage, sales were up 0.5% vs. a 0.7% projection. This is quite weak because the number factors in inflation, meaning that the entirety of the increase in retail spending is coming from higher prices. There was a 1.3% decline in spending on electronics & appliances, which matches up with company reports showing lessened demand for these products.
Housing Starts and Building Permits both missed expectations. Starts of 1.55 million missed projections of 1.68 million, although last month’s tally was revised upwards. Permits of 1.7 million fell from 1.82 million last month. Both numbers are annualized and adjusted for seasonal fluctuations.
At 229,000, Initial Jobless Claims remain historically low but elevated from the numbers we saw in the Spring. This week’s number was higher than the 217,000 economists were looking for and follows news about a series of large layoffs at housing and cryptocurrency-related companies.
Two closely watched regional manufacturing surveys (Philadelphia and New York) slipped into contractionary territory. Companies mentioned continued supply chain disruptions and high raw material costs as headwinds. Elsewhere, Industrial Production rose 0.2% monthly in a national survey, while last month’s growth was revised upwards to 1.4%.
It was another tough week for equities, as the S&P 500 fell more than 6% to finish at 3,675. The Dow held up slightly better thanks to its exposure to blue-chip value stocks, off roughly 5% to 29,889. The yield on the 10-Year U.S. Treasury rose from 3.15% to 3.23%, reflecting expectations for more Federal Reserve interest rate hikes. Shorter-term rates rose even faster to reflect higher borrowing costs, and the all-important spread between the 2 and 10-year Treasuries narrowed from 0.11% to 0.06%.
Next week, key economic releases include both Existing and New Home Sales, U.S. Manufacturing and Services PMI readings, and Jobless Claims.