Monthly Market Updates - 0722

U.S. Economics

Inflation still elevated, 2Q GDP estimate lower

Gross Domestic Product (2Q22 GDP Now): The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 was -2.1% as of July 1.
Employment (June): Total nonfarm payroll employment rose by 372,000 in June, and the unemployment rate was steady at 3.6%. The labor force participation rate was 62.2% in June, little changed from May. Notable job gains occurred in professional and business services, leisure and hospitality, and health care.
Inflation (May): The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.0% in May on a seasonally adjusted basis after rising 0.3% in April. Over the last 12 months, the all-items index increased 8.6% before seasonal adjustment. The index for all-items less food and energy rose 0.6% in May, the same increase as in April. The all-items less food and energy index rose 6.0% over the last 12 months.
The Producer Price Index (PPI) (May) for final demand increased 0.8% in May, seasonally adjusted. On an unadjusted basis, final demand prices moved up 10.8% for the 12 months ended May 2022.
Retail and Food Services Sales (May): Advance estimates of U.S. retail and food services sales for May 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $672.9 billion, a decrease of 0.3% (±0.5%) from the previous month, and 7.7% (±0.7%) from the same period a year ago.
Personal Income and Consumer Spending (May): Personal income increased $113.4 billion (0.5%) in May, while personal consumption expenditures (PCE) increased $32.7 billion (0.2%). The PCE price index for May increased 6.3% from one year ago, reflecting increases in both goods and services. Energy prices increased 35.8% while food prices increased 11.0%. Excluding food and energy, the PCE price index for May increased 4.7% from one year ago.

Commodities

OPEC Production Target Increased The 30^th OPEC and non-OPEC Ministerial Meeting was held via videoconference on June 30. In view of current oil market fundamentals and the consensus on its outlook, the OPEC and participating non-OPEC oil-producing countries agreed to:

Reconfirm the production adjustment plan and the monthly production adjustment mechanism approved at the 19th and 29^th OPEC and non-OPEC Ministerial Meetings and the decision to adjust upward the monthly overall production for the month of August by 0.648 mb/d.

Global Economy

World Growth Projections for 2022

According to the Organization for Economic Co-operation and Development (OECD), growth is projected to slow from 5.8% in 2021 to 3.0% in 2022 and 2.8% in 2023. This is 1.4 percentage points lower for 2022, than projected in December 2021, primarily due to the conflict in Ukraine and supply-chain disruptions exacerbated by shutdowns in China due to the zero-COVID policy.

Organization for Economic Co-operation and Development (OECD) (June 2022):

Americas:

U.S.: +2.5%
Canada: +3.8%

Asia:

China: +4.4%
Japan: +1.7%

Emerging Markets:

India: +6.9%

Europe:

U.K.: +3.6%

Euro-zone: +2.6%

Germany: +1.9%
France: +2.4%
Italy: +2.5%
Spain: +4.1%

Latin America:

Brazil: +0.6%

TOTAL World: +3.0%

Central Banks

Fed Hikes by +75 bps in June, July Hike Expected

The Fed raised rates by +75 bps in June, increasing the Fed funds rate to a range of 1.50% to 1.75%. The June meeting also included an updated Summary of Economic Projections (SEP), which indicated the FOMC’s median forecast for the Fed funds rate as of year-end 2022 was 3.4%, compared to 1.9% in March projections.

Highlights of the May meeting Minutes include:

- - Monetary Policy: “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4% and anticipates that ongoing increases in the target range will be appropriate.”
  - Inflation: “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. The Committee is strongly committed to returning inflation to its 2% objective.”
  - Economic Conditions: “Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low.”
  - Balance Sheet Run-off: “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.”
  - July Meeting Expectations from Powell press conference: “I said the next meeting could well be about a decision between 50 and 75, that would put us at the end of July meeting.”

Financial Markets

Monthly and YTD returns

Definitions, sources, and disclaimers

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.

Important Disclosures:

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