Monthly Market Update

Labor Market Blows Past Consensus, CPI Sticky

• Gross Domestic Product (2Q24): The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2024 is 6% on June 6, up from 1.8% on June 3.
• Employment (May): Total nonfarm payroll employment increased by 272,000 in May, and the unemployment rate changed little at 4.0%. The labor force participation rate came in at 62.5%, little changed in May. Employment continued to trend up in several industries, led by health care; government; leisure and hospitality; and professional, scientific, and technical services.
• Inflation (April): The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3% in April on a seasonally adjusted basis, after rising 0.4% in March, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 4% before seasonal adjustment. The index for all items less food and energy rose 0.3% in April, after rising 0.4% in each of the 3 preceding months. The all items less food and energy index rose 3.6% over the last 12 months.
• The Producer Price Index (PPI) (April): The Producer Price Index for final demand rose 0.5% in April, seasonally adjusted. On an unadjusted basis, the index for final demand moved up 2.2% for the 12 months ended in April, the largest increase since rising 2.3% for the 12 months ended April 2023.
• Retail and Food Services Sales (April): Advance estimates of U.S. retail and food services sales for April 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $705.2 billion, virtually unchanged (±0.4%) * from the previous month, but up 3.0% (±0.5%) above April 2023.
• Personal Income and PCE (April): Personal income increased $65.3 billion (0.3% at a monthly rate) in April, according to estimates released today by the Bureau of Economic Analysis. From the preceding month, the PCE price index for April increased 0.3%. Excluding food and energy, the PCE price index increased 0.2%. From the same month one year ago, the PCE price index for April increased 2.7% (unchanged from March). Food prices increased 1.3% and energy prices increased 3.0%. Excluding food and energy, the PCE price index increased 2.8% from one year ago.

OPEC+ Extends Key Oil Production Cuts

OPEC plus countries which announced additional voluntary cuts in April 2023 and November 2023 including Saudi Arabia, Russia, Iraq, United Arad Emirates, Kazakhstan, Algeria, and Oman held a meeting in person in Riyadh on the sideline of the 37^th OPEC and non-OPEC Ministerial Meeting (ONOMM).

• The meeting was conducted to reinforce the precautionary efforts of OPEC+ countries, aiming to support the stability and balance of oil markets. The aforementioned countries decided, in addition to the latest decisions from the 37^th ONOMM, to extend the additional voluntary cuts of 1.65 million barrels per day that were announced in April 2023, until the end of December 2025. Moreover, these countries will extend their additional voluntary cuts of 2.2 million barrels per day, that were announced in November 2023, until the end of September 2024 and the 2.2 million barrels per day cut will be gradually phased out on a monthly basis until the end of September 2025 to support market stability. This monthly increase will be paused or reversed subject to market conditions. In the spirit of transparency and collaboration, the meeting welcomed the pledges made by the Republic of Iraq, the Russian Federation and the Republic of Kazakhstan to achieve full conformity and resubmit their updated compensation schedule to the OPEC Secretariat for the overproduced volumes since Jan 2024 before the end of June 2024 as agreed in the 52^nd Meeting of the Joint Ministerial Monitoring Committee (JMMC).

Fed Minutes Indicate Worries Over Inflation Progress

The last FOMC meeting took place on May 1^st, 2024. The Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.50% for the 6^th straight meeting. As of this writing, markets are pricing in at 99.9% chance of the Fed maintaining rates at the current level for the June 12^th, 2024 meeting.

Highlights of FOMC Minutes:

• Higher for Longer: “In their consideration of monetary policy at this meeting, all participants judged that, in light of current economic conditions and their implications for the outlook for employment and inflation, as well as the balance of risks, it was appropriate to maintain the target range for the federal funds rate at 5¼ to 5½%. Participants assessed that maintaining the current target range for the federal funds rate at this meeting was supported by intermeeting data indicating continued solid economic growth and a lack of further progress toward the Committee’s 2% inflation objective in recent month”.
• Lack of Progress on Inflation: “Participants discussed maintaining the current restrictive policy stance for longer should inflation not show signs of moving sustainably toward 2% or reducing policy restraint in the event of an unexpected weakening in labor market conditions. Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate”.
• Concern Over Stubborn Inflation: “Domestic data releases over the intermeeting period pointed to inflation being more persistent than previously expected and to a generally resilient economy. Policy expectations shifted materially in response. The policy rate path derived from futures prices implied fewer than two 25 basis point rate cuts by yearend”.
• Fed is Not Gaining Greater Confidence: “Participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2% objective. The recent monthly data had showed significant increases in components of both goods and services price inflation. In particular, inflation for core services excluding housing had moved up in the first quarter compared with the fourth quarter of last year, and prices of core goods posted their first three-month increase in several months”.

Monthly and YTD returns

Source: Morningstar asset class screening total return 1 month USD and total return YTD as of June 7^th, 2024

Definitions:

Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).

• • GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
  • The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
  • Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
  • The Consumer Price Index (CPI):Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
  • The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
  • The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work. Source: Bureau of Labor Statistics (BLS).
  • Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
  • Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
  • The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
  • The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

  Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

  Financial Markets – Monthly and YTD returns (Table): Asset class performance is in USD and refers to the following indices: Equities: US Large Caps (S&P 500), Emerging Markets (MSCI EM), Europe (MSCI Europe), Japan (MSCI Japan). Fixed Income: 10-Yr. US Treasuries (BofAML US Treasury Current 10-Yr.), Emerging Markets Sovereign (USD) (JPM EMBI Global), US High Yield (BofAML US HY Master II), US Investment Grade (BarCap US Aggregate Bond), and Developed Markets Sovereign (excl. US) (JPM GBI Global Ex US). Source: Morningstar.

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  The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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