2/25- Weekly Economic Highlights

The reality and human tragedy of the Russian invasion into Ukraine increased volatility in the financial market this week.  The onset of the invasion rattled financial markets on Thursday.  Global stock markets were soft in the days leading up to the invasion but rallied late Thursday and into Friday as the initial shock receded.  The yield on the 10-year US Treasury note fell to 1.84% intra- day on Thursday but was yielding 1.99% this morning, up 0.06% as flight to quality assets faded in financial markets.  Energy prices surged to levels not seen since 2014.  U.S. crude oil futures reached $100.54 a barrel intra-day on supply worries related to the conflict but fell to $91.99 this morning.  Russia is a major exporter of crude oil and natural gas and is a member of the Organization of the Petroleum Exporting Countries Plus (OPEC+), an organization consisting of the 13 OPEC members and 10 of the world's major non-OPEC oil-exporting nations that aim to regulate the supply and price of oil on the world market.

U.S. economic data had an overall positive tone for the week.  The housing market remains strong as the S&P CoreLogic Case-Shiller 20-City Composite City Home Price index rose 18.6% year-over-year in December which was the fifth-highest reading in history going back to January 1988.  Among the 20 cities surveyed, Phoenix, Tampa, Miami reported the highest year-over-year price changes.  January U.S. new home sales came in at an 801,000 annualized pace with a strong upward revision in December to an 839,000 annualized pace.  Other economic data that were reported better than expectations were: the Chicago Federal Reserve National Activity Index, personal income and spending, durable goods orders, and the Kansas City Federal Reserve Manufacturing Activity Index.

U.S. consumer confidence fell in February to the lowest since September as the Conference Board’s index decreased to 110.5.  The University of Michigan consumer sentiment index fell to 62.8 in February versus 67.2 for the prior month.  Both surveys point toward continued consumer concerns over inflation.

Recent inflation gauges were in line with expectations but remain elevated.  The Personal Consumption Expenditures (PCE) deflator advanced 0.6% and 0.5% for the month, and 6.1% and 5.2% on a year-over-year basis respectively for January on a headline and core basis.  The current inflation rate still exceeds the Fed’s 2% inflation target placing pressure on the Fed to reduce its monetary accommodation to help tamp down inflation.

The Russian invasion of Ukraine is a human tragedy and was shocking to financial markets. Looking forward, market participants are likely to focus on the impact of the invasion on the global economy as the situation continues to develop.  In the near-term, we expect financial market volatility to remain elevated with heightened geopolitical risk, persistent inflation, and the Fed's pivot to less accommodative monetary policy.

Next Week:

MNI Chicago Business Barometer, Dallas Federal Reserve Manufacturing Activity Index, ISM Manufacturing Index, U.S. Federal Reserve Beige Book, ADP Employment Report, BLS Employment Report

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© 2022 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates. The S&P Corelogic Case-Shiller home price index tracks monthly changes in the value of the residential real estate in 20 metropolitan regions across the nation.