Monthly Market Update

Inflation Remained Flat, Employment Still Strong

• • Gross Domestic Product (4Q23): The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2023 is 1.3% on December 6, up from 1.2% on December 1.
  • Employment (November): Total nonfarm payroll employment increased by 199,000 in November, and the unemployment rate edged down to 3.7%. The labor force participation rate was little changed at 62.8% and has been essentially flat since August. Job gains occurred in health care and government. Employment also increased in manufacturing, reflecting the return of workers from a strike. Employment in retail trade declined.
  • Inflation (October): The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in October on a seasonally adjusted basis, after increasing 0.4% in September. Over the last 12 months, the all items index increased 3.2% before seasonal adjustment. The index for all items less food and energy rose 0.2% in October, after rising 0.3% in September. The all items less food and energy index rose 4.0% over the last 12 months, its smallest 12-month change since the period ending in September 2021.
  • The Producer Price Index (PPI) (October): PPI for final demand fell 0.5% in October, seasonally adjusted. On an unadjusted basis, the index for final demand rose 1.3% for the 12 months ended in October (vs. 2.2% in September).
  • Retail and Food Services Sales (October): Advance estimates of U.S. retail and food services sales for October 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $705.0 billion, down 0.1% (±0.5%) from the previous month, and up 2.5% (±0.7%) above October 2022.
  • Personal Income and PCE (October): Personal income increased $57.1 billion (0.2% at a monthly rate) in October, according to estimates released by the Bureau of Economic Analysis. The PCE price index increased less than 0.1% on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.2% from September. From the same month one year ago, the PCE price index for October increased 3.0% (down from 3.4%). Food prices increased 2.4% and energy prices decreased 4.8%. Excluding food and energy, the PCE price index increased 3.5% from one year ago (compared to 3.7% in September).

OPEC Countries Announce Additional Voluntary Cuts

The OPEC Secretariat noted the announcement of several OPEC+ countries of additional voluntary cuts to the total of 2.2 million barrels per day, aimed at supporting the stability and balance of oil markets.

• These additional voluntary cuts are announced by the following OPEC+ countries: Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman starting 1st of January until the end of March 2024. Afterwards, in order to support market stability, these voluntary cuts will be returned gradually subject to market conditions. This will be in addition to the announced voluntary cut by the Russian Federation of 500 thousand barrels per day for the same period (starting 1st of January until the end of March 2024), which will be made from the average export levels of the months of May and June of 2023, and will consist of 300 thousand barrels a day of crude oil and 200 thousand barrels per day of refined products.

World Growth Projections Updated

According to the Organization for Economic Co-operation and Development (OECD), Global growth is projected to be 2.9% in 2023, and weaken to 2.7% in 2024. As inflation abates further and real incomes strengthen, the world economy is projected to grow by 3% in 2025. Global growth remains highly dependent on fast-growing Asian economies.

Organization for Economic Co-operation and Development (OECD) (November 2023):

Markets Expect to Hold Steady at Next Fed Meeting

The final FOMC of 2023 is scheduled for December 13^th. The Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.50% for the second consecutive time on the last FOMC meeting November 1^st. As of this writing, markets are pricing in over 97% chance of the FED maintaining rates at the current level and less than 3% chance of raising rates +25 bps to the target range of 5.50% to 5.75%.

Highlights of FOMC November Minutes:

• Further Tightening May be Appropriate: “In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee’s 2% objective over time. All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks.”
• Monitor Yields Closely: “Participants highlighted that longer-term yields could be volatile and that the factors behind the recent increase, as well as their persistence, were uncertain. However, they also noted that, whatever the source of the rise in longer-term yields, persistent changes in financial conditions could have implications for the path of monetary policy and that it would therefore be important to continue to monitor market developments closely”.
• Balance Sheet Reductions: “All participants judged that it would be appropriate for policy to remain at a restrictive stance for some time until inflation is clearly moving down sustainably toward the Committee’s objective. Participants also observed that the continuing process of reducing the size of the Federal Reserve’s balance sheet was an important part of the overall approach to achieving their macroeconomic objectives. A few participants noted that the process of balance sheet runoff could continue for some time, even after the Committee begins to reduce the target range for the federal funds rate”.

Highlights of Beige Book include:

• Prices: “Price increases largely moderated across Districts, though prices remained elevated. Rising utilities and insurance costs were notable across Districts. Two Districts cited increased cost of debt as an impediment to business growth. Most Districts expect moderate price increases to continue into next year”.
• Labor Markets: “Demand for labor continued to ease, as most Districts reported flat to modest increases in overall employment. The majority of Districts reported that more applicants were available, and several noted that retention improved as well”.
• Overall Economic Activity: “On balance, economic activity slowed since the previous report, with four Districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity. The economic outlook for the next six to twelve months diminished over the reporting period”.

Monthly and YTD returns

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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