Trade The Journey

Trade The Journey

Happy 4th of July

Top of the Afternoon! I hope everyone is enjoying this extended holiday weekend. Lots of economic data were released this past week. Let’s jump into it.

Durable goods rose slightly on the month. Shipments were up 1.3%, unfilled orders rose 0.3%, inventories rose 0.6% and nondefense new orders for capital goods rose 1.6%. Unfilled orders for nondefense capital goods and communications equipment rose the most for the month of May.  Computers and related products posted the largest increase in inventory. Transportation Equipment led an increase in unfilled orders, durable goods, and shipments. New orders for durable goods have remained within the same levels for the past three months after falling in February. Companies are continuing to order which is a sign the economy still has some strength.

Consumer confidence continues to fall, as rising prices for essential goods like food and gas continue to rise. Consumers’ expectations in the short term fell sharply to their lowest level in a decade. Consumers’ opinion on the present situation has held steady near recent levels. Although consumers continue spending, their activity and outlook on their financial situation are worsening.

Advanced Wholesale inventories rose 2.0% and retail inventories rose 1.1% for the month of May. Durable and nondurable goods inventories rose for both wholesale and retail. The international trade balance deficit decreased from May buoyed by higher Exports. Exports of industrial supplies led to the increase. However, imports of industrial supplies also rose. Alongside the increase in industrial supplies were automotive vehicles. Consumer goods, foods, feeds & beverages and capital goods imports for the month of May fell.

The third estimate of GDP fell 1.6% for the first quarter after being revised from the -1.5% estimate. Investment in equipment, intellectual property, and non-residential showed the largest increase. Disposable income decreased 1.3% and the personal savings rate also fell even as current-dollar personal income rose. Current dollars are unadjusted for inflation. For a more accurate measurement of income growth, real dollar income is needed. Real disposable income decreased by 7.8%. Profits of domestic financial and non-financial corporations fell in the first quarter. The personal consumption expenditure (PCE) index remained stable but rose for PCE excluding food and energy. Below is a chart showing industries contributing to the GDP growth or lack thereof.

The PCE index report showed that PCE rose 0.4% from a month ago but held steady at 6.3% from a year ago. Excluding food and energy, the PCE held at 0.3% on the month but decreased by 0.2% from a year earlier. There were increases in spending on services but a decrease in the spending on goods.

Initial claims remain stable at decade lows while the four-week moving averages have been rising since May 28. Continuing claims fell the past week. With the recent layoffs and hiring freezes in the tech industry and slowing growth in the economy, initial claims are sure to rise in the coming weeks.

The manufacturing sector rose for the 25th consecutive month albeit down from the previous month. Demand is still intact as supply chain and labor challenges remain. The following industries registered moderate-to-strong growth:

Computer & Electronic Products; Machinery; Transportation Equipment; Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Chemical Products

Some of the concerns and remarks from respondents:

  • New orders are expected to decline
  • Continued strong demand for transportation equipment
  • Material availability concerns
  • Ocean freight costs are beginning to fall

Looking closer at the Manufacturing PMI, new orders are contracting as is employment. Production and inventories are growing faster. Backlog of orders, and new export orders are growing slower. Supplier deliveries are slowing slower and customer inventories are still low. Factories are still struggling to hit their ideal levels of production. Suppliers are still facing challenges meeting demand as they continue to seek out labor to help fill orders at a faster pace. One piece of good news is that customer inventories are low, and companies can still reach higher levels of production.

Another piece of good news is that prices are falling even if at a snail’s pace.

Inventories in manufacturing refer to inventories purchased by companies for production, while “customer inventories” refer to finished product inventories already sold to customers.

Total construction fell 0.1% on the month. Private construction was unchanged, while public construction fell 0.8% for the month of May. Public construction for residential increased slightly while nonresidential construction fell. The same story could be told for private construction.

Mortgage rates declined to 5.84% albeit still high. Mortgage applications increased 0.7% from the previous week. The refinance and adjusted purchase index also rose from the previous month. It seems like the housing bubble is at risk of popping.

The fed has made it very clear that they plan on returning stability to prices despite a possible recession. The bank of England is also seeing a record level of inflation and has similar plans to raise rates to help quell inflation. Bond buyers stepped in across maturities pushing down yields in the process. There’s a lot for markets to process as rising prices and rates add uncertainty to markets. No one knows how the Fed tightening will ultimately affect the economy. Some analysts are saying that engineering a soft-landing is nearing impossibility while others say there is still a chance.

As China continues to reopen, how will its progress affect the economy and oil prices? China alongside India is still purchasing cheaper oil from Russia. China has pledged to support the economy. One article mentioned that oil could reach over $300 a barrel with incoming sanctions on Russia. As the Russia and Ukraine conflict rages on, Russia defaulted on its first bond payment. Finland and Sweden are preparing to join NATO much to Russia’s displeasure.

Unfortunately, the future is too hard to call. One thing is for sure, calling a bottom for markets is premature. This week, I’ll be looking for option trades in the form of butterflies and iron condors. Last week, I placed my first iron condor trade and the stock price landed right between the two price points set in the trade also known as the body of the condor.

Not knowing that the condor gains most of its value near the end of the contract, I closed the position prematurely for a small profit. Had I would have kept the position open, I would have captured the entire profit for the trade. Although I made a trading error, I feel good about my technical analysis abilities.

*Charts feature tables have last week’s levels at the top and possible levels at the bottom.

This past week’s cash flow:

Last week went well with no major emergencies or large bills due. In the coming months, I have several large expenses that I must plan for and handle. In last week’s post, I mentioned forming a budget, but I have yet to do so. Hopefully, this coming week I’ll have time to sit down and formulate a new budget for the new career I’m embarking upon.

Although I won’t see a significant increase in my salary, I still believe that managing money isn’t a function of the amount but more so discipline. If you can manage your spending with $100, then you can do so with $1000 and so on.

Grade: C

Reason: Stability

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