Week in Review: April 14, 2023
April 17, 2023
Recap & Commentary
Markets ended the week higher as investors analyzed March inflation data, the release of the Fed’s March meeting minutes, and the start of first quarter earnings season. Yields as measured by the 10-Year Treasury ended the week up 0.11%, as underlying pressure on services prices, and the release of the Fed’s March meeting minutes reinforced the likelihood of another 0.25% rate hike at the Fed’s May meeting.
The Fed’s March meeting minutes showed that officials remain committed to lowering inflation, seeing scant evidence of core services prices, excluding housing, slowing. While it was anticipated that there would be a tightening of financial conditions following the collapse of Silicon Valley Bank, participants acknowledged that the extent of the effects was highly uncertain. Adding to concerns about a potential recession, the Fed’s staff projections indicated that as a result of tighter financial conditions, it was expected that the US would experience a “mild recession starting later this year, with a recovery over the subsequent two years.”
First quarter earnings season officially commenced with announcements by multiple large banks including JP Morgan, Citigroup, and Wells Fargo. While all three banks saw an increase in deposits late in the quarter following the collapse of Silicon Valley Bank, all three banks also set aside additional money for expected future losses, a step banks often take as economic conditions slow.
March headline consumer inflation (CPI) rose 0.1%, while core CPI, excluding food and energy prices, rose to 0.4%, down slightly from February’s 0.5% gain. Shelter prices decelerated slightly to 0.6% compared to the 0.8% increase in each of the prior three months. Compared to a year ago, headline CPI slowed from 6.0% to 5.0%, while core CPI rose from 5.5% to 5.6%. Fed Chair Powell’s closely watched super-core inflation, core-services ex-shelter, moderated from 0.4% in February to 0.2% in March.
Headline producer inflation (PPI) surprised to the downside, falling 0.5% vs. the 0.1% forecast. Compared to a year ago, headline PPI fell 2.2% to 2.7%, better than the expected 3.0%. The combination of slowing CPI and PPI data lends credence to the idea that the Fed might pause further rate hikes following one additional 0.25% increase in May.
Retail sales fell 1.0% in March, the fourth decline in the past five months, and largest since December. Core sales, excluding vehicles and gas, declined 0.3%. The data adds to growing evidence that economic activity continues to slow.
Weekly jobless claims rose 11K to 239K, coming in above the consensus of 235k. The four-week average of claims rose by 2,250 to 240,000. Following the revisions to seasonal adjustment factors there has been a clear uptrend in claims since February of this year.
According to industry group Edmunds, only 17% of new vehicles cars sold in March were under $30K, compared to 44% five years ago. Rising inventories, which now stand at 1.8M, up 73% from a year ago, might help slow price increases, but still need to effectively double to return to pre-pandemic levels of ~3.5M vehicles.
Market Indices (As of 04/14)
|U.S. Bond Market||-0.5%|
|10-Year Treas. Yield||3.52%|
|WTI Oil ($/bl)||$83|
The Week Ahead
- Housing Starts
- Existing Home Sales
- US PMI- Mfg. & Services
- Weekly Jobless Claims