Trade The Journey

Trade The Journey

Rates higher for longer!

Top of the Morning! I hope everyone is enjoying their weekend and preparing for the week ahead. This past week saw another CPI report released that confirmed inflation is decelerating but maybe not enough for the FED to end its hiking cycle. The rate inflation is still far above the Fed’s Mandate and San Francisco Fed President, Mary Daly, voiced her opinion about rates needing to remain higher for longer.

Along with the increase in long-term debt securities issuance by the Treasury, this was possibly too much for the market to take as it sold off after the comments by Mary Daly. China also released various economic data reports that depicted their economies’ sluggish growth. Even with the rate adjustments, China has yet to recover, and the amount of loans being issued declined.

China also saw its economy drift into deflation with exports and imports declining. China is a major consumer of resources and the factory hub for many economies. This coming week, we’ll get an overview of the retail environment with several large retail chains reporting. The retail sales report will also be released at the beginning of the week.

With volatility retreating towards the end of the week, another attempt at a run up may not be out of the picture. However, its also likely that the enthusiasm of the possibility of a soft-landing may have already been priced in.

Economy

Consumer Health

Consumer Credit: June

Annually, consumer credit rose 4%, with revolving credit rising 7.1%, and non-revolving credit rising 3%. Consumer credit rose at an annual rate of 4.3%. In June, revolving credit decelerated, contracting by 0.6%. Nonrevolving credit rose by 6%. The total outstanding amount of revolving credit was virtually unchanged from May while nonrevolving credit rose slightly.

The flow data which represents changes in the level of credit due to economic and financial activity showed that revolving credit contracted by $7.3 billion and nonrevolving credit expanded by $209 billion. As a reminder, non-revolving credit includes loans for motor vehicles, mobile homes, education, boats, trailers, and vacations but excludes home loans.

While consumers seem to be shunning adding additional credit card debt or paying down their credit balance, it seems like they are still optimistic enough to take on loans. Rates for the loans weren’t provided and will most likely be available once the third quarter data is released. Although data is lagging it provides a glimpse into consumer sentiment.

University of Michigan Consumer Sentiment- Preliminary Report: August

Consumer sentiment declined by 0.4 points to 71.2 and nearing the historical average of 86. The index for current economic conditions rose 0.8 points to 77.4. The index of consumer expectations fell one point to 67.3. Year-ahead inflation declined slightly from 3.4% to 3.3%. Long-run expectations remained within the 2.9-3.1% range at 2.9%.

Below is a chart that depicts the trend in consumer sentiment and news reported as favorable or unfavorable. It seems that unfavorable news heard is magnified when consumer sentiment worsens. Watching the news and overall sentiment conveyed during news segments could serve as confirming signal to what consumers are feeling about current economic environment.

Consumer Price Inflation: July

The headline CPI total came in within forecast, rising 0.2%, which is the same amount as the June total. Year over year, CPI rose 3.2%. The main contributor to CPI’s rise was shelter. The food index rose 0.2%, increasing slightly from the June level. Food at home rose 0.3% after zero growth in prices in May and an increase 0.1% in May. Food away from home rose 0.2%, decelerating by 0.2% in June and declining 0.1% in May.

The energy index rose 0.1%. Fuel oil and other fuels rose 3.7% after declining for two consecutive months. Utility (piped) gas service rose 2% after also falling for two straight months.

 Core CPI rose by the same amount. Year over year, CPI rose 4.7%. Airline fares, medical care, communication and used cars & trucks prices declined in July. Shelter, which contributed to 90% of the CPIs’ rise, was unchanged in its rise at 0.4%. Rent or shelter increased by the same amount. Owners’ equivalent rent rose 0.5%. Motor vehicle insurance rose 2% after rising 1.7% the previous month.

Initial Claims

Initial claims came in above forecast, rising to 248,000 claims this prior week. Continuing claims declined by 8,000 to 1.684 million. The four-week moving average for initial claims rose by 3,000 to 231,000. As of this week, the moving average has declined by 16,000 from the prior month, indicating that the labor market remains strong. Employers seem to be hesitant to release workers even as the economy weakens a bit as hopes of a soft-landing grow.

Producer/Wholesale Health

Producer Price Inflation: July

Producer Price Inflation for final demand rose 0.3%, with final demand for services rising 0.5%, and final demand for goods rising 0.1%. Core PPI, excluding foods, energy & trade services rose 0.2%. For final demand services, the rise can be attributed to a 7.6% rise in prices for portfolio management. Margins for food and alcohol retailing fell by 2.5%, indicating that retailers may be lowering their prices.

For final demand goods, the rise was attributed to a rise in meat of 5%. Gas fuels, utility natural gas, and motor vehicles also moved higher. Transportation and warehousing prices rose by 0.5% after flattening in June.

Prices for intermediate demand for processed goods declined by 0.6% and unprocessed goods rose 1.7%.  Most of the decline in prices for intermediate demand for process goods can be traced to the 7.6% decline in steel mill product prices. Fuel and industrial material prices also fell.  Materials and components for manufacturing declined by 1%, falling for a third consecutive month.

For unprocessed goods, most of the increase can be attributed to an 8.4% rise crude petroleum.  Unprocessed fuel rose 7.3%. Unprocessed fuel refers to raw or natural materials that can be converted into energy but have not undergone significant refinement or processing.

Prices for services for intermediate demand rose by 0.5%. Most of the rise in services was contributed to by margins for chemicals & allied products wholesaling. Construction for intermediate demand rose 0.3%, rising for a sixth consecutive month. Construction for intermediate demand refers to demand for construction services and related activities that contribute to the production process of intermediate goods and services.

Stages of Intermediate Demand

Stage 4: Prices in this stage of intermediate demand rose by 0.3%. Prices for total good inputs edged down by 0.3% and rose 0.8% for services.

Stage 3: Prices for stage 3 edged down by 0.6%, declining for a sixth straight month. Prices for total goods inputs fell by 1.8% and rose 0.3% for services.

Stage 2: Prices for stage 2 rose by 1.4%. Prices for total goods inputs moved up 3.3% while the prices for services at this stage were unchanged.

Stage 1: Prices for stage 1 edged down by 0.2%. Prices for total goods fell by 0.9% while prices for services inputs rose 0.8%. Goods prices have fallen for sixth straight months as services input prices have fluctuated within the last six months.

While the prices for goods in each stage mostly declined, prices for services inputs rose at every stage except for stage 2.

Wholesale Inventories: June

Wholesale inventories declined for a second consecutive month, falling 0.5%. Inventories for durable goods fell by 0.1% after rising by 0.3% in July. Inventories for nondurable goods fell for a second consecutive month, falling by 1.2% in July. Sales for merchant wholesalers declined by 0.7%.  Durable goods sales fell by 0.6% after rising 0.7% in May.  Nondurable goods sales fell for a second consecutive month, declining by 0.9%. The inventories/sales ratio rose by 0.11 points to 1.41, indicating that wholesalers are holding a larger level of inventory compared to the amount they’re selling.

Small Business Environment

NFIB Small Business Optimism Index: July

The small business optimism index rose by 0.9 points to 91.9, which is still below the 48-year average of 98. Inflation is still the main concern for small business owners. Aside from inflation, filling job openings is also a challenge.  A net 61% reported that they are hiring with 92% reporting few qualified applicants. A net 38% reported raising compensation, and 22% plan on raising compensation within the next three months. Owners remain uncertain about the economic environment but the outlook for better business conditions is trending higher although still negative.

Capital outlays rose two points to 55%, with most reporting their spending on new equipment, followed by spending on acquiring vehicles and improving or expanding facilities. Inventory gains were unchanged with shortage reported in retail, transportation, manufacturing, and services. Fewer owners reported raising prices and fewer are expecting real sales to be higher.

Three percent of owners reported that their borrowing needs were not satisfied, with 25% reporting that their credit needs were met and 62% reporting they were not interested in a loan.

Trade Balance and Treasury Account

Trade Balance

The US International Trade in Goods and Services deficit showed that the deficit declined by 4.1%. Exports declined by 0.1% and imports fell by 1%. Exports fell in Industrial supplies & materials and consumer goods.  Capital goods exports increased in industrial machinery and telecommunications equipment.

Exports of services also fell, with transport exports declining. Imports fell in Industrial supplies & materials and capital goods. Imports rose in Automotive vehicles, parts & engines, and consumer goods. Imports of services fell, led by travel. The deficit with China declined with both exports and imports declining. Clearly, economic growth both here and abroad is slowing.

Treasury Budget Account: July

The treasury budget increased by $19.8 billion from the preceding year. The deficit in July increased by $220.8 billion. The treasury has recently stated that it plans to issue $103 billion in long-term debt securities this quarter. This issuance is one of the largest since the quarter issuance in November 2020 of $122 billion.

Technical Story:

This past weeks’ cash flow in review:

This past week was a little stressful being that my first check wouldn’t be cleared for over week. Luckily some of the backpay from my previous company arrived for unused vacation and sick time. The amount I received will be enough to carry me for the week. I’ll also be able to able to add a sizeable amount to my savings account.

With the taxes I’ll have to pay, my monthly isn’t what I’d thought it be, so I’ll have to be a little more careful with my expenditures. When my check clears, I’ll be adding any extra amount to my trading account. I am growing increasingly confident about my chances of succeeding in trading.

I can forego a few pleasures to enrich myself in the long time.

Grade: C

Reason: Some hiccups but my spending plan was adhered to too.

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