Trade The Journey

Trade The Journey

The rally continues!

Top of the Morning! I hope everyone is enjoying their weekend. This post will be extremely short not because I’m unwilling to write or feel uninspired. This weekend I must move some of my stuff out of my room because new hardwood floors are being placed in my room. I guess you can say this is a trial run before I move out.

One benefit to writing about the markets and economic data released weekly is that you get a bird’s eye view of the developing trends in the U.S. and the world. My next move from my room will be into a townhouse. However, with historically high prices and rates, I’ll have to wait until theirs a decrease in mortgage rates and house prices.

With housing becoming unaffordable, people have decided to rent instead of own, which is pushing rent prices to historic levels. This is a challenging market to decipher with so many conflicting signs.

The White House is saying that we are not in a recession due to the strong labor market and other factors that still signal some growth in the economy. While there is a contraction in the Economy evidenced by the two negative GDP reports, some are still not convinced we are in a recession. There’s also the signal from bond markets in the form of an inverted yield curve.

The indices are rallying which is also lending credence to the fact that maybe the bottom was a month ago and a recession has already been priced into the market. Some agree with this idea and others disagree citing that the market has not priced a deep recession. Initially, I felt that my years of market observation and experience had failed me because I could not figure out what was happening in the markets.

However, listening to a podcast featuring one of the top global macro traders eased my concern as he couldn’t figure out what was going on either. Shorts had to remove their positions as the market kept rising and retail traders jumped back into the market believing the worst had already been priced into the market. A good indicator to watch is the Russell 2000 which includes mostly smaller companies and encapsulates more risk than the indices with more stable and larger companies.

I’m not so sure. Food and fuel prices are still at historic highs and it’s evident that countries around the world, namely Europe are preparing for a recession. Due to the Russia/Ukraine conflict fertilizer is at all-time highs forcing food prices to rise. There are concerns that we are heading into a stage of global food shortage.

In some countries like Sri Lanka, residents are rioting, angry with their economic conditions and sky-high inflation. Sri Lanka also defaulted on its debt. Apart from Japan, countries are raising rates to help quell decade-high inflation and there are concerns that countries may start defaulting on their payments.

There’s also the developing story of China’s response to Pelosi’s visit to Taiwan. China has pledged a strong response to the visit. As Pelosi landed in Taiwan, China began performing military exercises and launching missiles near the island. China has also ceased communication with the United States regarding military and climate calls and sanctioned Pelosi. China views Taiwan as an extension of China and has vowed to reclaim Taiwan. The United States has pledged to protect Taiwan if there is any military advancement.

Economy

The Ism manufacturing index had its 26th month of consecutive growth although it’s the lowest reading since June 2020. The index was at 52.8% for June which still indicates expansion. New Orders, the supplier, supplier deliveries, and production indexes fell slightly. The prices index fell heavily for the month. The backlog of Orders fell slightly, and the employment index fell for the third straight month. The inventory index rose slightly.

Moderate to Strong growth:

  • Petroleum and Coal Products
  • Computer Electronics
  • Transportation and Equipment
  • Machinery

Panelists are optimistic although they are warning of a slowing economy. Employment is improving but employee turnover continues to stifle peak production. Now having too much inventory on hand is a major concern moving forward.

Respondents Concern:

  • A pullback by consumers, holding back on building up inventory
  • Extended lead times
  • Inflation, higher costs for materials.

The slowing growth in Prices could be attributed to:

  • Volatility in Energy markets
  • Softening in Copper, Steel, and aluminum prices
  • Decrease in chemical demand

Lead time for capital expenditures decreased by three days bringing the number to 183 days for delivery. Production materials lead time remains at all-time highs, 100 days.

  • The nonmanufacturing index came in 1.4% higher than the June reading.
  • Business activity rose by 3.8%
  • New orders rose by 4.3%
  • Supplier deliveries came in lower by 1.4%
  • Prices fell 7.8%
  • The inventory index fell by 7.8%
  • Inventory sentiment fell by 2.5%
  • Employment and backlog of orders fell

These numbers shouldn’t be surprising as the recent GDP report highlighted the growth in the services sectors as consumers switch from goods to services spending.

Respondents concern:

Restaurant sales have softened, Interest rates are affecting homebuilders, the economy is weakening, rising costs for materials and inventory might need to be reduced. Foodservice remains strong.

Filling positions is still a challenge. Lack of drivers for deliveries and global supply issues are increasing lead times and contributing to higher backlogs.

Factory orders increased 2.0%. New orders rose 2.0%, shipments rose 1.8%, unfilled orders rose 0.7% and inventories increased 0.3%. The inventories to shipment ratio decreased from 1.46 to 1.45 while the unfilled orders to shipments ratio rose from 5.98 to 6.03. New orders were led by transportation equipment and nondurables and durable new orders rose 2.0%. Shipments led by Computer and Electronic goods rose 0.3% and Petroleum & Coal led shipments for nondurable goods, rising by 2.0%.

Unfilled orders advance were led by the transportation equipment. Inventories for durable goods rose by 0.4% led by machinery and nondurable goods inventory rose by 0.4% led by Machinery.

Job openings decreased slightly with hires & total separations, quits, layoffs, and discharges little changed. The largest decrease in job openings was in the retail and wholesale trade and state and local government education. Quits fell in construction but rose in state and local government education. Layoffs and discharges increased in wholesale trade, finance & insurance, and the federal government. Job openings rose for small businesses but fell for medium and large businesses.

Both public and private employers’ hirings decreased in June. Openings and separations fell both public and private employers.

Total construction spending fell by 1.19%. Private construction fell by 1.3% and public construction fell by 0.5%. New single-family residential construction fell by a good amount while new multifamily construction rose. Residential also fell for public construction as well.

The employment situation report showed that the labor market is still strong. Total employment rose, adding over 500,000 jobs. The unemployment rate ticked down 0.1% bringing the unemployment rate to 3.5%. Job growth could be seen in leisure & hospitality, healthcare, and professional & business services. The labor force participation rate and employment to population ratio were both unchanged. Long-term unemployment fell. Average hourly earnings rose by 0.5% or 15 cents. Jobs also increased in construction and manufacturing.

Initial claims increased slightly as did the continuing claims. The labor market is still strong, although we may have reached a bottom, capping the labor market’s strong growth and unemployment.

Consumer credit continues to increase with nonrevolving credit increasing by 14.6%. At the annual rate consumer credit increased by 10.5%. Rates also increased for credit cards and consumer credit outstanding rose heavily in total. This report showed that consumers are borrowing more to help with rising prices and depleted saving accounts.

Mortgage applications fell 8.3% this past week. The refinance and purchase index also fell. Purchase applications for all loan types fell, indicating possible weakness in home sales moving forward. Adjustable-rate mortgage applications continue to rise as the portion of applications for mortgages.

 


Week in Review

I received my first paycheck and, I am disappointed. I’m making the same amount as in my previous job which isn’t too encouraging. One positive takeaway from my new employment is that there is room for growth. As much as I want to move out and purchase my first home or townhouse, I must be patient and continue to watch my purchases.

I thought that with my new employment, I could loosen my budget but that won’t be happening anytime soon. I know that I can save money and live on a budget, I just thought that this new job would allow me to enjoy myself more.

I really enjoy working at my new job, so I’ll just have to keep that in mind when I receive my paycheck every two weeks.

Grade: C

Reason: Maintaining my adherence to my budget.

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