Monthly Market Updates

Jobs Holding Up, Core Inflation Rose in August

• • Gross Domestic Product (3Q22 GDPNow): The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 was 2.9% as of October 7.
  • Employment (September): Total nonfarm payroll employment increased by 263,000 in September, and the unemployment rate edged down to 3.5%. The labor force participation rate was little changed at 62.3%. Notable job gains occurred in leisure and in health care.
  • Inflation (August): The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in July on a seasonally adjusted basis after being unchanged in July. Over the last 12 months, the all-items index increased 8.3% before seasonal adjustment (vs. 8.5% in July). The index for all-items less food and energy rose 0.6% in August, a larger increase than in July. The all-items less food and energy index rose 6.3% over the last 12 months (vs. 5.9% in July).
  • The Producer Price Index (PPI) (August) for final demand fell 0.1% in August, seasonally adjusted. On an unadjusted basis, final demand prices moved up 8.7% for the 12 months ended in August (vs. 9.8% in July).
  • Retail and Food Services Sales (August): Advance estimates of U.S. retail and food services sales for August 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $683.3 billion, an increase of 0.3% (±0.5%) from the previous month, and 9.1% (±0.7%) above August 2021.
  • Personal Income and Consumer Spending (August): Personal income increased $71.6 billion (0.3%) in August. Personal consumption expenditures (PCE) increased $67.5 billion (0.4%). The PCE price index increased 0.3% in August on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.6% from July. From the same month one year ago, the PCE price index for August increased 6.2%. Prices for goods increased 8.6% and prices for services increased 5.0%. Food prices increased 12.4% and energy prices increased 24.7%. Excluding food and energy, the PCE price index increased 4.9% from one year ago.

OPEC Cuts Production, Venezuela Sanctions Easing?

The 33^rd OPEC and non-OPEC Ministerial Meeting took place in person at the OPEC Secretariat in Vienna, Austria, on Wednesday, October 5. In light of the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive, and pre-emptive, which has been consistently adopted by OPEC and non-OPEC Participating Countries in the Declaration of Cooperation, the Participating Countries decided to:

• Adjust downward the overall production by 2 mb/d from the August 2022 required production levels, starting November 2022 for OPEC and non-OPEC Participating Countries
• Hold the 34^th OPEC an non-OPEC Ministerial Meeting on 4 December 2022

In other news, the Wall Street Journal reported that the Biden Administration is considering allowing easing of sanctions against Venezuela, in order to help the U.S. oil company Chevron resume oil production from the country. However, there have been no formal changes to the Venezuela sanctions policy as yet, according to press reports.

World Economic Growth Projections Lowered

The Organization for Economic Co-operation and Development (OECD) updated its global growth forecasts. Although the OECD maintained its outlook for global GDP to grow by 3.0% in 2022, it lowered the outlook for 2023 to 2.2%, down from 2.8% in its June forecast.

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

Americas:

• U.S.:           +1.5%
• Canada:    +3.4%

Asia:

• China:       +3.2%
• Japan:       +1.6%

Emerging Markets:

• Russia       -5.5%
• India:         +6.9%

Europe:

• U.K.:           +3.4%

Euro-zone:         +3.1%

• Germany: +1.2%
• France:      +2.6%
• Italy:          +3.4%
• Spain:        +4.4%

Latin America:  +3.0%

• Brazil:       +1.7%
• Mexico      +2.1%

TOTAL World:   +3.0%

Fed Raises Rates by +75 bps in September

At its September FOMC meeting the Fed raised the Fed Funds rate by +75 bps, as expected. The release also included an update of the Summary of Economic Projections (SEP), showing that the median Fed funds rate forecast for 2023 rose to 4.6%, from 3.8% previously.  

Highlights of the September FOMC Meeting and Chair Powell’s press conference:

• Monetary Policy: “With today’s action, we have raised interest rates by 3 percentage points this year. At some point, as the stance of monetary policy tightens further, it will become appropriate to slow the pace of increases, while we assess how our cumulative policy adjustments are affecting the economy and inflation. We will continue to make our decisions meeting by meeting.”
• Inflation: “Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2%. We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate; the pace of those increases will continue to depend on the incoming data and the evolving outlook for the economy.”
• Recession Risk: “We have always understood that restoring price stability while achieving a relatively modest decline, or rather increase, in unemployment and a soft landing would be very challenging and we don’t know, no one knows whether this process will lead to a recession or if so, how significant that recession would be.”
• Balance Sheet Run-off: “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May.”
• Future Rate Hikes: “Clearly today, we’ve just moved I think probably into the very lowest level of what might be restrictive and certainly in my view and the view of the Committee, there’s a ways to go.”

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.

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 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.

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