June 11, 2022

Weekly Market Commentary June 6th to June 10th 2022

A light, but important, week for economic data ended with the highly anticipated Consumer Price Index (CPI) report. CPI rose by 1.0% this month exceeding expectations of 0.7%. The year-over-year increase jumped to 8.6%. The leading contributors to the high reading were food, gas, and shelter. The Core CPI (ex-food and energy) stayed flat from last month and is up 6.0% year-over-year. The higher than anticipated reading weighed on market sentiment and gives the Fed further justification to pump the brakes on the economy and be more aggressive in hiking rates.

Consumer Credit increased $38.1 billion in April, down from a record high increase of $47.2 billion in March. The total Consumer Credit balance is now at $4.6 trillion, which is up 10.1% annually. Credit cards, auto, and school loans continued to be main factors in the high credit balance. With inflation outpacing wage growth and the savings rate being the lowest since 2008, there is some concern as to how long this can continue.

The Trade Balance was expected to stabilize this month following March’s record high of -$107.7 billion. The April report of -$87.1 billion was in-line with expectations. This stabilization is important because the Trade Balance last quarter was a strong contributor to negative GDP growth. Imports fell for the first time in nine months while exports rose 3.5%.

Weekly Mortgage Applications fell 6.5% this week after a 2.3% decline last week. This is the fourth straight week of declines as affordability and low inventory are weighing on home buyers.

University of Michigan Consumer Sentiment was expected to be flat at 58 but came in much lower at 50.2. 46% of respondents attributed low sentiment to concerns about elevated levels of inflation.

Equity markets started the week mostly flat but by Thursday afternoon took a meaningful downturn and did not look back. The S&P 500 index declined 5.1%, while the Dow and Nasdaq were down 4.6% and 5.6%. The 10-year Treasury Yield rose 22 basis points while the 2-year jumped by 39 bps due to the higher than anticipated inflation report and the increased likelihood of sustained Fed tightening.

Next week the Federal Reserve meets where the FOMC is expected to raise the Federal Funds Rate by 0.50%. Key economic releases include Producer Prices, Retail Sales, Industrial Production, Housing Starts, and Building Permits.

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