Monthly Market Updates - 0922

U.S. Economics

Payrolls Solid, Inflation Easing

Gross Domestic Product (3Q22 GDPNow): The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 1.4% on September 7, down from 2.6% on September 1.
Employment (August): Total nonfarm payroll employment rose by 315,000 in August, and the unemployment rate rose to 3.7%. The labor force participation rate increased by 0.3 percentage points over the month to 62.4% but is 1.0 percentage points below its February 2020 level. Notable job gains occurred in professional and business services, health care, and retail trade.
Inflation (July): The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis after rising 1.3% in June. Over the last 12 months, the all-items index increased 8.5% before seasonal adjustment (vs. 9.1% in June). The index for all items less food and energy rose 0.3% in July, a smaller increase than in April, May, or June. The all-items less food and energy index rose 5.9% over the last 12 months (unchanged from June).
The Producer Price Index (PPI) (July) for final demand fell 0.5 % in July, seasonally adjusted. On an unadjusted basis, final demand prices moved up 9.8% for the 12 months that ended in July (vs. 11.3% in June).
Retail and Food Services Sales (July): Advance estimates of U.S. retail and food services sales for July 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $682.6 billion, virtually unchanged (±0.5%) from the previous month, but 10.3% (±0.7%) above July 2021.
Personal Income and Consumer Spending (July): Personal income increased by $47.0 billion (0.2%) in July. Personal consumption expenditures (PCE) increased $23.7 billion (0.1%). The PCE price index decreased 0.1% in July on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.1% from June. From the same month one year ago, the PCE price index for July increased 6.3%. Prices for goods increased 9.5% and prices for services increased 4.6%. Food prices increased 11.9% and energy prices increased 34.4%. Excluding food and energy, the PCE price index increased 4.6% from one year ago.

Commodities

OPEC Likes High Prices The 32^nd OPEC and non-OPEC Ministerial Meeting was held via videoconference on September 5. The OPEC and non-OPEC Ministerial Meeting noted the adverse impact of volatility and the decline in liquidity on the current oil market and the need to support the market’s stability and its efficient functioning. The Meeting noted that higher volatility and increased uncertainties require the continuous assessment of market conditions and a readiness to make immediate adjustments to production in different forms, if needed, and that OPEC+ has the commitment, the flexibility, and the means within the existing mechanisms of the Declaration of Cooperation to deal with these challenges and provide guidance to the market. The meeting decided to:

Revert to the production level of August 2022 for OPE and non-OPEC Participating Countries for the month of October 2022, noting that the upward adjustment of 0.1 mb/d to the production level was only intended for the month of September 2022

Central Banks

Fed Hawks Spotted at Jackson Hole Although the Fed did not have an FOMC meeting in August, Chair Powell spoke at the Kansas City Fed’s annual Jackson Hole retreat. The next FOMC meeting is scheduled for September 21, and will include an update to the Fed’s Summary of Economic Projections (SEP). Highlights of the July FOMC Meeting Minutes and Chair Powell’s Jackson Hole press conference include:

Monetary Policy: “At our most recent meeting in July, the FOMC raised the target range for the federal funds rate to 2.25 to 2.5%, which is in the Summary of Economic Projection's (SEP) range of estimates of where the federal funds rate is projected to settle in the longer run. In current circumstances, with inflation running far above 2% and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause.”
Inflation: “The Federal Open Market Committee's (FOMC) overarching focus right now is to bring inflation back down to our 2% goal. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.”
Economic Conditions: “Members agreed that recent indicators of spending and production had softened. Members also concurred that, nonetheless, job gains had been robust in recent months and the unemployment rate had remained low.”
Recession Risk: “Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
Balance Sheet Run-off: “Regarding expectations for the evolution of the Federal Reserve’s balance sheet, market participants expected the Committee to increase the monthly caps on System Open Market Account (SOMA) redemptions beginning in September, as announced in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet issued in May. Treasury coupon principal payments would first fall below the $60 billion cap in September, with the remainder of redemptions met with maturities of Treasury bills. Paydowns of agency mortgage-backed securities (MBS) were projected to fall below the higher September cap of $35 billion beginning in September.
September Meeting Expectations: “July's increase in the target range was the second 75 basis point increase in as many meetings, and I said then that another unusually large increase could be appropriate at our next meeting. We are now about halfway through the intermeeting period. Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.”

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 payroll. 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 that 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:

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 for 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.

Not FDIC Insured | Not Bank Guaranteed | May Lose Value | Not Insured By Governmental Agencies | Member FINRA/SIPC, Registered Investment Advisor