Monthly Market Update

Employment Data Supporting Fed Cut

• Gross Domestic Product (3Q24): The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 is 2.5% on August 1, down from 2.8% on July 26.
• Employment (July): The unemployment rate rose to 4.3% in July, and nonfarm payroll employment edged up by 114,000. The labor force participation rate, at 62.7%, changed little in July and was little changed over the year. Employment continued to trend up in health care, in construction, and in transportation and warehousing, while information lost jobs.
• Inflation (June): The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1% on a seasonally adjusted basis, after being unchanged in May, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 3.0% before seasonal adjustment. The index for all items less food and energy rose 0.1% in June, after rising 0.2% the preceding month. The all items less food and energy index rose 3.3% over the last 12 months and was the smallest 12-month increase in that index since April 2021.
• The Producer Price Index (PPI) (June): The Producer Price Index for final demand advanced 0.2% in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. On an unadjusted basis, the index for final demand rose 2.6% for the 12 months ended in June, the largest advance since moving up 2.7% for the 12 months ended
• Retail and Food Services Sales (June): Advance estimates of U.S. retail and food services sales for June 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $704.3 billion, virtually unchanged (±0.5%) from the previous month, but up 2.3% (±0.5%) above June 2023.
• Personal Income and PCE (June): Personal income increased $50.4 billion (0.2% at a monthly rate) in June, according to estimates released today by the U.S. Bureau of Economic Analysis. From the preceding month, the PCE price index for June increased 0.1%. Excluding food and energy, the PCE price index increased 0.2%. From the same month one year ago, the PCE price index for June increased 2.5%. Food prices increased 1.4% and energy prices increased 2.0%. Excluding food and energy, the PCE price index increased 2.6% from one year ago.

OPEC to Continue Oil Market Assessment

The 55^th JMMC meeting took place on August 1^st, 2024, to review the crude oil production data for the months of May and June 2024 and noted the high overall conformity for participating OPEC and non-OPEC countries of the Declaration of Cooperation.

• The Committee noted the Republic of Iraq, the Republic of Kazakhstan, and the Russian Federation assurance during the meeting to achieve full conformity and welcomed the recent submission of their compensation plans for the overproduced volumes since Jan 2024 to the OPEC Secretariat.
• During the meeting, the member countries that participated in the June 2nd, 2024 meeting in Riyadh along with Oman, reiterated that the gradual phase-out of the voluntary reduction of oil production could be paused or reversed, depending on prevailing market conditions. These countries had announced the extension of the voluntary reduction of oil production by 2.2 million barrels per day until the end of September 2024 and outlined plans for this reduction to be gradually phased out on a monthly basis until the end of September 2025.
• The Committee will continue to monitor the conformity of the production adjustments decided at the 37th ONOMM held on the 2nd of June 2024, including the additional voluntary production adjustments announced by some participating OPEC and non-OPEC countries and will continue to closely assess market conditions.

Interest Rate Cuts on the Horizon

The last FOMC meeting took place on July 31^st, 2024. The Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.50% for the 8^th straight meeting. As of this writing, markets are pricing in at an 83.5% chance of a –50 bps rate cut at the next September 18^th, 2024, meeting.

Highlights of Press Conference Transcript:

• September Cut on the Table: “On September, let me say this, we have made no decisions about future meetings and that includes the September meeting. The broad sense of the Committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate. In that, we will be data dependent but not data point dependent, so it will not be a question of responding specifically to one or two data releases. The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market. If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.
• Second Quarter Inflation Progress: “The second-quarter’s inflation readings have added to our confidence, and more good data would further strengthen that confidence. We will continue to make our decisions meeting by meeting. We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks”.
• Fed Focused on Achieving Dual Mandate Goals: “My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Our economy has made considerable progress toward both goals over the past two years. The labor market has come into better balance and the unemployment rate remains low. Inflation has eased substantially from a peak of 7% to 2.5%. We are strongly committed to returning inflation to our 2% goal in support of a strong economy that benefits everyone.

Monthly and YTD returns

Source: Morningstar asset class screening total return 1 month USD and total return YTD as of August 1^st, 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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