6/9 - Weekly Economic Highlights

Markets breathed a collective sigh of relief this week following the passing and signing of the Fiscal Responsibility Act of 2023, which effectively suspends the federal debt ceiling through January 1, 2025 and averted a potentially catastrophic US government default.

On Sunday OPEC+ announced plans to extend previous crude oil production cuts through 2024, and that Saudi Arabia will voluntarily reduce its individual output by an additional 1 million barrels per day in July. The Saudi reduction could possibly extend into future months to support oil prices given their outlook for slower global growth.

The S&P Global US Services Purchasing Managers’ Index (PMI) came in at 54.9 for May, which was slightly lower than expected but was the fourth consecutive month of expansion and the highest level in over a year. The Institute for Supply Management (ISM) Services Index fell to 50.3 in May from 51.9 in the prior month, indicating that demand for services is slowing down which could cause inflation to ease. The index remains slightly above 50 in expansionary territory.

Initial jobless claims for the week ended June 10 came in unexpectedly high at 261,000, exceeding consensus estimates calling for 235,000. The jobless claims number is historically volatile and could have been impacted by the shortened Memorial Day week and the Hollywood writers’ strike. Sustained jobless claims over 250,000 can be indicative of labor market weakness and higher unemployment, and could be supportive of a Fed pause at their June 13-14 meeting. Although the bond market has one more 0.25% rate hike mostly priced in for one of the next two upcoming meetings, Chandler’s view is that the Fed is close to pausing rate hikes. The market will be watching for next weeks’ initial jobless claims report, along with CPI inflation, the FOMC meeting, and advance retail sales.

The bond market was choppy but US Treasury yields generally trended higher with light economic data. The 2-year US Treasury yield increased by about 8 basis points to 4.58%, the 5-year Treasury yield rose about 6 basis points to 3.90%, and the 10-year advanced about 4 basis points to 3.73% as of this writing. The yield curve inversion increased, with the spread between 10-year and 2-year treasuries dropping to -85 basis points. A yield curve inversion is a leading indicator that the risk of recession has increased.

Next Week:

Consumer Price Index (CPI), Producer Price Index (PPI), Federal Open Market Committee (FOMC) Meeting, Advance Retail Sales, Empire Manufacturing, Philadelphia Fed Business Outlook, University of Michigan Sentiment Index

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© 2023 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.