KEY DRIVERS & CALENDAR
TIP – This is a brief bullet-point summary. It is a tool that gives investors and financial advisors a fast and simple list of what to news and market data watch that may move the markets.
- Ukraine Conflict (Ukraine Running Out of Ammo, Losing Ground, Peace Agreement Possible?)
- Rising Inflation, Recession & Stagflation Fears
- Monday, June 27 – Durable Goods Orders (MoM) (May)
- Tuesday, June 28 – CB Consumer Confidence (June)
- Tuesday, June 30 – PCE
Leading central bankers will be present at an ECB session on Wednesday in Portugal. At 3:30 pm on that day, a conversation will include Jerome Powell, Andrew Baley, and Christine Lagarde. German inflation for June will be released on Wednesday, while the US consumer confidence index will be released on Tuesday (to see how the ECB will be eating us up in the coming weeks). We’ll be examining PCE inflation in the US on Thursday, a metric that the Fed constantly monitors to guide its monetary policy.
S&P 500 SECTORS
Tip: Use this section to know various sectors’ performance, and weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.
WEEKLY MACRO: Markets Try to Bounce Back Despite Recession & Inflation Fears.
The major indexes are attempting to recover from last Friday’s loss despite the current recession worries that have damaged the financial markets, as the bond market has significantly eased and oil prices have fallen. Investors’ reaction to the central banks’ recent monetary tightening has been positive with the market pricing in the increased rates. However, with the start of the second-quarter results season, volatility is anticipated to persist.
The stock market and major indexes improvement should continue during the week. However, analysts raise concerns that as the inflation levels rise, the high prices seem embedded into the economy.
We are going to see a huge surge this week in inflation (and the concern for inflation) as Americans celebrate the Fourth of July. The 4th is one of the top weekends for spending. Americans will be paying record levels for gas and food. Biden and the Democrats will likely be held responsible.
Gundlach: High inflation will continue
Jeff Gundlach of DoubleLine thinks that the Federal Reserve’s predictions for inflation are too high. “The concept that the inflation rate is about to decline to anything near to the 2 percent threshold is simply out of the question because it is currently so high. Due to the fact that commodity prices, notable energy, have risen even further, our model at DoubleLine anticipates inflation to remain within the current 8-handle range for a few more months, and possibly even print a little higher.
Thus, inflation may be in the high sixes by the year’s end. According to Gundlach, if Powell wants to have any chance of restoring the trust of his word and the Fed, which is currently “shaky,” he must “paint or get off the ladder.” According to Gundlach, “it’s highly likely that we see some form of a blow-up” in the economy. “The next recession will cause the value of the dollar to fall very significantly… When a recession hits, I believe the Fed will quickly cut interest rates to zero, and that will be when the dollar will turn around, according to Gundlach.
The environment has not changed, but certain worries about a potential impending recession appear to have partially been factored into some of the stock market prices. The Fed’s aggressive 75 basis point increase definitely had a role in this, but it remains unknown if the increase was soon enough.
During past recessions and depressions, inflation came in waves and was not a single event. Historically, the Fed has not had a good record of a “soft landing” after raising rates. Additionally, there are signs that once the Fed starts lowering interest rates, the dollar’s gain in terms of the purchasing power of the world may reverse.
I doubt that inflation or the economy has reached its worst point yet. Several major investors and businessmen, such as Elon Musk, noticed the economy’s improvement, but they predict that the world should anticipate the worst. My bet is on the seasoned businessmen versus government economists.
More disturbing are the increasing predictions about the economy including stagflation, which is every financial investor’s worst nightmare. Economy stagflation occurs when the economy presents a stagnant demand and features high levels of unemployment.
The last stagflation occurred in 1970, and its impact became every stakeholder’s worst nightmare, and the fear translated it as the death pill of the economy. During this time the stock market went sideways and Americans faced record inflation. The dollar lost a huge amount of its value and households needed two incomes to survive.
8.4 million Americans, or roughly 15% of all renters, are overdue on their rent and at risk of eviction because there is no federal eviction moratorium in effect. The latest statistics were part of a household survey performed by the Census Bureau between June 1 and June 13 and were first published by Bloomberg.
Investors who hold REITS or real estate stocks should look at their portfolios to see how much risk they have in apartments. Evictions could start as early as the fall with reports coming in occupancy rates in November.
The yield on the US 10YR dropped further and eventually came back to 3.10 percent, but is still bullish. To put it another way, investors think the Fed won’t need to hike rates as much as they anticipated 10 days ago. A positive reading indicates that the central bank is succeeding in its fight against inflation.
A more pessimistic view would be that the Fed will have to let off the gas anyhow due to the impending recession. The 5-year yield is still somewhat higher than the 10-year, making traders more anxious. Although it is in a slight comeback at the conclusion of the week, the German Bund has dropped to 1.48 percent in Europe from last week. In Germany, the margin between the Italian signature and the French OAT is 200 points wider at 3.48 percent.
Decentralized finance (DeFi) firm Truflation is based on the same calculation method as the CPI but is different in that it uses real “price data” versus the government’s survey data. It uses current real-market prices data from Zillow, Penn State, and Nielsen to measure and report inflation changes each day.
Oil prices are still declining and are in their second week of decline as a result of macroeconomic headwinds. Fears are increasing as a result of Fed policy, which may cause a recession in order to control inflation. The International Energy Agency anticipates that the tightness in the near-term energy market, brought on by Russia’s declining production, will worsen. Prices have decreased, with US WTI light crude at USD 108 per barrel and North Sea Brent at USD 113 per barrel.
The industrial metals market is experiencing yet another short-term downward trend, which is impacted by worries about the demand for basic metals. Compared to its peak of USD 10,700 in March 2022, copper is currently trading at about USD 8,500 per ton. Zinc is impacted by this price decline, although LME figures show that inventories have once again shrunk, indicating that the industry is still tight. Fears of a recession have prevented gold from exacting payback in the world of precious metals. Positive real rates in the bond markets continue to put pressure on the price of the gold, weighing it down without providing any yields.
Bitcoin, on the other hand, is currently trading at roughly $21,000 and is almost even for the week. The digital currency has lost almost 35% of its value since the beginning of June. Before they see bitcoin’s downward trend reverse, crypto-investors may still be in for a scare in a macroeconomic environment that is still hostile for risky assets. That being said, it may be a good point for SUPPORT and time to buy if you can stomach the risk.