Trade The Journey

Trade The Journey

The Bull Run Continues

Top of the Morning! I hope all is well and everyone is enjoying their weekend. The market rose on the release of the CPI which showed that prices for consumers rose less than forecasted. The indices gapped upon the news. The S&P and the Nasdaq both finished the week making a new high. Bonds buyers returned this week as yields pressed lower.

Crude oil reached the 200 SMA and retreated as there were supply disruptions in Libya and Nigeria, and a coming reduction from Russia. The dollar sank to a new low as yields declined and the prospect of future rate hikes is receding. Gold met resistance at the 50 SMA.

This coming week: Retail Sales and Industrial Production & Capacity Utilization (Tuesday), Wednesday (Housing Starts & Building Permits), Initial Claims and Existing Home Sales (Thursday)

Economy

The consumer

Consumer Credit Report: Released by Fed

Although the consumer credit report is a lagging report by about two months, it still can provide insight on the health of the consumer. Consumer credit decelerated in May, only rising 1.8% on an annual basis. Revolving credit declined 5.6% to 8.2% from Aprils’ level, and nonrevolving credit contracted by 0.4%. Total flow fell sharply, declining from 246.3 billion to 86.9 billion.

Both revolving and nonrevolving flow declined, with nonrevolving contracting by 15.1%. Total outstanding credit declined slightly for both revolving and nonrevolving credit. Total flow represents the net increase or decrease for credit card balances for nonrevolving and the net increase or decrease in fixed loans (Excluding home loans). Flow represents the changes in balances, and total outstanding represents the total amount of debt held.

From this report we can gather that consumers are taking on less debt mostly likely due to higher rates and from the consumer report we can glean a forecast of how they feel about the economy moving forward. New car loan rates are now nearing 8%, while credit card plans remain at 20%. Personal loan rates remained at the 11.48% level. All data included in this summary is seasonally adjusted.

University of Michigan- Consumer confidence report

The preliminary report showed that the index of consumer sentiment rose for the second consecutive month, rising to 72.6. The index of current economic conditions 8.5 points to 77.5. The index of consumer expectations rose 7.9 points to 69.4. Consumer expectations has risen sharply from 47.3 level from a year ago. The report noted that sentiment improved across the demographic groups except for low-income consumers.

Long-term business conditions rose 19% and short-run business conditions rose 16%. Year-ahead inflation expectations rose 0.1% to 3.4%. Long-run inflation remained within the 2.9%-3.1% range and was unchanged for July at 3.1%.

Consumer Price Inflation

The CPI rose 0.2%, after rising 0.1% in May, coming in below market expectations. Over the last twelve months, inflation rose 3%. Core CPI rose 0.2%, after rising 0.6% in May.  Over the past twelve months, core CPI rose 4.8%.

The food index rose 0.1% with food at home flat and food away from home declining by 0.1% to 0.4%. Only two of grocery store food groups rose which were fruits & vegetables and cereals & bakery products. For food away from home, full-service meals rose 0.3% and limited-service meals rose 0.4%.

After consecutive monthly declines, the energy index rose 0.6%. The gasoline index rose 1%, the electricity index rose 0.9% and the natural gas index fell 1.7%. Over the past twelve months, the energy index has declined over 16%.

The shelter index rose 0.4% and has essentially oscillated between this level and 0.6% since March. Rent rose 0.5% and the index for owners’ equivalent rent rose 0.4%. Owners’ equivalent rent is a measure of how much homeowners would receive if they were to rent out their homes. It can also be said that it is a measure of the cost of housing for homeowners. The index for lodging away from home fell 2%.

The index for commodities less food and energy commodities contracted by 0.1%, with new vehicles flat and used cars & trucks contracting by 0.5%. Apparel was unchanged at 0.3% and medical care commodities fell 0.4% to 0.2%. Transportation services fell by 0.7% to 0.1%.

Initial Claims

Initial claims came in below forecast, falling from the previous week to 237,000. Continuing claims rose by 11,000 to 1.729 million. The four-week moving average for initial claims declined to 247,000 level reached in early June.

MBA Weekly Report

Mortgage applications volume rose 0.9%. Both the refinance index and the purchase index fell from the previous week, 1% and 2% respectively. The average rate for the 30-year fixed mortgage on a conforming loan rose by 0.22% to 7.07%. The average rate for the 30-year fixed mortgage on a jumbo loan rose by 0.09% to 7.04%.

Producer Price Index

The producer price index for final demand rose 0.1% in June, after declining 0.4% in May. Core PPI rose 0.1%. Final demand for services added to the bulk of the increase in Final demand prices, rising 0.2%, virtually unchanged from the previous month.

Final demand services rise can mostly be attributed to a 5.4% rise in deposit services. Prices for truck transportation of freight fell by 2.1%. Food & alcohol wholesale prices also fell alongside residential real estate loans. Final demand for services excluding trade, transportation & warehousing was flat in June. Final demand construction rose by 0.1% after contracting by 0.2% in May.

Final demand for goods were unchanged after declining 1.6% in May. Final demand for energy rose 0.7%. Leading the final demand goods increase was prices for gasoline which rose 3.4%. Final demand for goods excluding foods and energy fell by 0.2%. In the same category, finished consumer goods rose 0.1% with durable goods unchanged and nondurable goods rising 0.1%. Private capital equipment rose 0.1%, with manufacturing industries rising 0.2% and nonmanufacturing industries rising 0.1%.

Moving to intermediate demand, processed goods fell 0.6% and unprocessed goods fell 2.1%. For processed goods, most of the decline can be attributed to a 3.5% fall in industrial chemicals. For unprocessed goods, most of the decline can be attributed to a 5.9% fall in crude petroleum. Intermediate demand for services was unchanged in June. Excluding trade, transportation and warehousing, services rose slightly by 0.1%.

Transportation and warehousing services for intermediate demand declined by 0.4%. Each stage of intermediate declined except for stage 4 which was unchanged. While stage 4 was unchanged for goods and services inputs, most of the stages show declining prices for goods and services inputs, with Stage 1 services inputs increasing by 0.3%.

 

NFIB Small Business Optimism Report

Small business optimism rose by 1.6 points to 91, which is still below the 49-year average of 98 but a noticeable improvement. Inflation and labor quality remain a concern for small business owners. Average selling prices decreased three points bringing the level to their lowest level in the last two years. Small businesses expecting improving business conditions over the next six months rose 10 points.

Revisiting labor, 42% of all small business owners reported that they had job openings they were unable to fill in the current period. Industries facing significant challenges include manufacturing, construction, and transportation. 15% are planning on to create new jobs in the next three months, down slightly from May levels. According to the labor report released last month, the percentage of small business owners reporting at least one unfilled opening remains near the highs at the beginning of 2022.

57% of the small business owners reported capital outlays, slightly down from May levels. New equipment led the increase, followed by vehicles and improved/expanded facilities. Only 2% of the owners reported that all their borrowing need were unmet. 36% reported raising compensation, down five points from the May level. 22% plan on raising compensation in the next three months.

All eyes are on the Federal Reserve, which has signaled that it might raise interest rates by half a point (50 basis points) by year end. Higher rates will discourage borrowing to finance spending of all types, including capital spending which is needed to improve productivity and real income. Higher interest rates lead to lower asset values because a risk-free return on Treasury bonds of 4% or higher beats investing in a risky business venture (which would create new jobs if successful). Stock markets will react negatively as a rate hike looks more likely. – Excerpt of Commentary from the Report

Treasury Budget

The treasury budget showed a decreasing deficit in June; however, the year-to-date deficit rose. The largest outlays were in health, social security, interest on debt and defense, totaling $646 billion in outlays. Outlays have been trending higher, rising toward the March highs. The total receipts were in social insurance & retirement, individual income taxes, and corporation income taxes, totaling $418 billion.

Receipts while high are still below last year’s June’s level.

Department Budget outlays were highest for the Department of Health & Human Services, social security administration and interest on treasury debt securities. The deficit for the treasury stands at $1.392 trillion already higher than the treasury deficit of last year at $1.375 trillion.

Import/Export Prices

Import prices fell 0.2% and export prices fell 0.9%. Import prices declined for a second consecutive month. Prices lowered for imports of foods, feeds, & beverages, nonfuel industrial supplies & materials, and finished goods, declining the largest for nonfuel industrial supplies & materials. Both manufactured durable and nondurable goods import prices both declined in June. Capital goods decreased slightly in June. Commodities import prices declined for a fourth consecutive month.

Export prices declined for a fourth consecutive month. Agricultural exports fell 1.6% in June, led by lower prices for soybeans, fruits, and nuts.  Excluding agricultural, industrials supplies & materials declined by 2.4%. Finished goods were up across all categories, led by a 1.8% rise in transportation equipment excluding motor vehicles. Capital goods exports rose 0.2% and consumer goods rose 0.1%. Consumer goods rose for a fourth consecutive month, rising for both manufactured durables and nondurables goods.

Prices for exports to China declined by 1.1% and declined 0.4% in prices for imports from China, led by 0.7% decrease in computer and electronic product manufacturing. Import prices from China have not had a monthly advance since October 2022.

Earnings

Earnings season kicked off last week with most of the attention on the banking/financial sector. JP morgan and Wells Fargo both beat on earnings and revenue forecasts. Citigroup beat on revenue but missed on earnings forecasts.

JP Morgan report showed that it did well despite the $2.7 billion capital outlay involved in acquiring first republic bank. The acquisition, included $203 billion in loans & securities, and $92 billion in deposits. Net Income surged 67% and Revenue climbed 34%, rising mostly due to higher net interest income. JP Morgan issued a positive forward guidance, citing a resilient job market and consumer balance sheet. JP Morgan increased its loss provisions for the office commercial real estate sector.

Wells Fargo increased its net interest income rose 29% year-over-year. The bank saw a positive contribution from consumer and small banking earnings, rising 19% year-over-year. While the bank had a positive quarter, they did increase loss provisions particuarly in the office commercial real estate sector.

Citigroups revenue fell 1% this past quarter and net income fell 36% year-over-year. Revenue from personal banking and wealth management rose 6% this past quarter. Citigroup has yet to rebound its investment banking division and the losses weighed down on its revenue.

Most of the banks were able to continue buying back shares after passing the latest bank stress test, commisioned by the Fed. Although the earnings reports were mostly positive, banks issued cautious guidance and remained uncertain about future conditions.

Technicals Picture

This Past weeks’ cash flow in Review:

This past week, I was able to maintain my spending plan as I prepare for a significant increase in my income. I look forward to the opportunity to finally put my trading plans in motion.

Grade: C-

Reason: Continued discipline in maintain my spending plan

Leave a Comment

Your email address will not be published. Required fields are marked *