Week in Review: January 14, 2022
January 18, 2022
Recap & Commentary
Markets ended the week lower as investors continued to fret over rising inflation and interest rates. At the short end of the curve the 2-Year Treasury yield climbed another 0.07%, to end the week at 0.99%, its highest level since February 2020. Further out on the curve, rates were effectively flat for the week, despite some intra-week volatility. Mortgage rates continued to tick higher with the average 30-Year mortgage rate increasing 0.23% to 3.45%, the highest level since March 2020.
Speaking before Congress, Federal Reserve Chair Jay Powell indicated that the Fed is willing to raise rates higher than expected to prevent current levels of inflation from becoming “entrenched,” something Powell said could ultimately lead to a recession. With respect to stimulus, Powell said that the economy “no longer needs or wants” it and is strong enough to withstand its removal.
Inflation continued its steady upward climb with headline consumer and producer prices rising 7.0% and 9.7%, respectively, over the past year. For those still hopeful that inflation will prove to be transitory, the monthly increase for Consumer Price Index (CPI) slowed from 0.8% in November to 0.5% in December. Likewise, the monthly increase for Producer Price Index (PPI) slowed from 1.0% to 0.2%. The deceleration in monthly PPI is notable, as it seems to corroborate recent ISM data for manufacturers showing a moderation in pricing pressures due in part to improving commodity inventory levels and decreasing commodity prices.
Economic Commentary
CPI inflation rose 0.5% in December, less than the 0.8% pace recorded in November. Compared to a year ago, inflation increased 7.0%, the fastest pace since 1982. Reflecting ongoing supply chain disruptions impacting auto manufacturers, used car and truck prices jumped 37.3% Y/Y. Excluding more volatile food and energy prices, core CPI rose 5.5% from a year ago, the fastest annual pace since 1991.
PPI inflation rose 0.2%, down sharply from the 1.0% pace recorded in November and its slowest pace in 13 months. Compared to a year earlier, producer prices rose 9.7%.
Retail sales declined significantly in December, falling 1.9%. This likely reflected consumers pulling forward their holiday shopping into November, and even October, in an attempt to avoid the ramifications of supply chain constraints. Despite the drop off in December, the National Retail Federation, reported that 2021 holiday sales rose 14.1% $886.7B, a new record.
Industrial production unexpectedly fell in December, impacted by a 1.3% decline in auto manufacturing as supply chains continue to impact the sector.
Consumer sentiment dipped in the first half of January falling to its second lowest reading in the past decade. Concerns about Omicron and inflation weighed on the reading.
Of Note
China’s economy grew 8.1% in 2021, the fastest in a decade. However, quarterly growth declined sequentially over the course of the year, with 4Q21 slowing to 4.0%, impacted by Omicron and the country’s slowing real estate sector.
| S&P 500 | -0.3% |
| Small Caps | -0.8% |
| Intl. Developed | 0.2% |
| Intl. Emerging | 2.6% |
| Commodities | 2.2% |
| U.S. Bond Market | -0.3% |
| 10-Year Treas. Yield | 1.79% |
| US Dollar | -0.9% |
| WTI Oil ($/bl) | $84 |
| Gold ($/oz) | $1,816 |
The Week Ahead
- Housing Starts
- Existing Home Sales
- Weekly Jobless Claims
