Jun 23, 2021
Every week at Narwhal, we post our “Macro Balance Sheet,” a curation of economic data and indicators that we use to inform our understanding of market trends. Below, you’ll find commentary on the takeaway points of the week, followed by definitions for each of the indicators that we use. If you have questions on the interpretation of this data please reach out to Luke Burton ([email protected]) for more information.
Macro Balance Sheet - Week of June 14th, 2021
The biggest things we are currently watching are interest rates and expectations on inflation. 5-year Fed Inflation Break-evens are down to 2.34, which is closer to in-line with what the Fed is hoping to see. It has begun to fall after a period of rising over the past year.
We have not received a lot of new economic data since last week, so there is not much that has changed since the last report. That being said, we continue to give a lot of attention to monitoring interest rates, and the big thing we are seeing there is a tightening in spreads. We see that people are reaching for yield based on the fact that people are buying longer-dated treasuries. The Yield Curve between 2s and 10s is tightening. We are seeing that the 30-year bond rate is trending down as it hit very low levels earlier this week even while the short end of the curve remains stable.
We are also seeing people continuing to be willing to take on more credit risk. Part of this is just because inflation is becoming less of a tail risk, and also because credit quality is improving as we come out of the recession, but we are seeing those spreads tighten.
On the municipal bonds side, too, we are seeing spreads tighten a bit and they will continue to tighten as people are spending more on municipal bonds to avoid the tax increases that may come in the future.
Finally, we are keeping an eye on oil prices, and that is probably the biggest thing we are watching right now in addition to interest rates. They are continuing to break out to the upside, and we can see that on the 3-month trend. On a day-to-day basis, we are continuing to see oil prices go up, and that is something to keep an eye on as well.
Weekly Jobless Claims
Weekly jobless claims are a statistic reported by the U.S. Department of Labor that counts the number of people filing to receive unemployment insurance benefits. Jobless claims are an important leading indicator on the state of the employment situation and the health of the economy.
The official unemployment rate is known as U3. It defines unemployed people as those who are willing and available to work, and who have actively sought work within the past four weeks.
The labor force participation rate measures an economy’s active workforce. It is calculated by dividing the sum of all workers who are employed or actively seeking employment by the total noninstitutionalized, civilian working-age population.
ISM Employment (Services)
The ISM Services Index (or the ISM Non-Manufacturing Index) is an economic index based on surveys of more than 400 services firms’ purchasing and supply executives. As a part of the ISM Report on Business, the ISM Services index measures the level of business activity for the overall economy related to the services sector. A value greater than 50 indicates economic growth in the sector, and a value less than 50 represents economic contraction.
ISM Employment (Manufacturing)
The ISM Manufacturing Index (or the purchasing managers’ index) is a monthly indicator of U.S. economic activity based on a survey of purchasing managers at more than 300 manufacturing firms. As a part of the ISM Report on Business, the ISM Manufacturing Index measures the level of business activity for the overall economy related to the manufacturing sector. A value greater than 50 indicates economic growth in the sector, and a value less than 50 represents economic contraction.
JOLTS Job Openings
The job openings and labor turnover survey (JOLTS) is a survey done by the United States Bureau of Labor Statistics within the Department of Labor to help measure job vacancies. A job vacancy is considered to be a position that is available, that starts within 30 days, and that the company is actively seeking to fill with a candidate outside the organization.DEFINITIONS: CONSUMER SPENDING
Monthly Retail Sales
Retail sales tracks consumer demand for finished goods, including sales from all foodservice and retail stores, by measuring the purchases of durable and non-durable goods over a defined period of time. Data on retail sales is compiled monthly by the U.S. Bureau of the Census.
Visa Credit Card Spending (Y/y)
The Visa Credit Card Spending Y/y ratio measures the current value of the amount of money that consumers are spending with Visa credit cards against the same value from the previous year.
Visa Debit Card Spending (Y/y)
The Visa Debit Card Spending Y/y ratio measures the current value of the amount of money that consumers are spending with Visa debit cards against the same value from the previous year.
TSA Screenings (Y/y)
The TSA Screenings Y/y ratio measures the current value of the number of air travelers being screened by TSA against the same value from the previous year. This value can be used as an indicator of how frequently people are traveling.DEFINITIONS: INVESTMENT
CFO Duke US Optimism Level
The CFO Duke US Optimism Level is the average level of optimism of CFOs toward US economic prospects measured on a scale of 0-100 based on a survey conducted by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.
CEO Capital Spending Optimism
The CEO Business Roundtable US Capital Spending Optimism Subindex indicates the average level of optimism that CEOs have toward US capital expenditures as measured on a scale from -50 to 150 where readings at 50 or above indicate expected expansion in capital spending, and readings below 50 indicate expected contraction.
The CEO Confidence Index value is a rating from 1-10 based on a survey of CEOs’ expectations for overall business conditions. It captures an accurate assessment of how confident CEOs are in the economy and prospects for business over the coming year.
Redfin Pending Home Sales (Y/y)
The Redfin Pending Home Sales Y/y value represents the number of pending offers that have been made on homes compared to the same value from the previous year. This value is conveyed as a percentage and is used to measure market activity in the housing sector.
Redfin Price/List Ratio
The Redfin Price/List Ratio is the sale price of the home divided by the list price of the home. This value is useful for buyers and sellers when negotiating pricing.DEFINITIONS: INFLATION
CPI all-in (Y/y)
Consumer Price Index Y/y demonstrates changes in average prices for a consumer basket of goods and services in the specified month compared to the same month of the previous year. The index shows how prices change from the consumer perspective.
The core price index is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends.
Fed 5 Year Inflation Break-evens
The breakeven inflation rate represents a measure of expected inflation derived from 5-Year Treasury Constant Maturity Securities and 5-Year Treasury Inflation-Indexed Constant Maturity Securities. The latest value implies what market participants expect inflation to be in the next 5 years, on average.
ISM Prices (Services)
The ISM Services Prices Paid (or the ISM Non-Manufacturing Prices Paid) Index reflects changes in prices paid by companies to suppliers in the process of preparing services. The growth of intermediate prices in the service sector can serve as a leading inflation indicator: producers must pay more to suppliers; thus, the price of the final product is likely to grow.
ISM Prices (Manufacturing)
The ISM Manufacturing Prices Paid Index reflects a change in prices paid by industry representatives for the products or services they receive. Index growth can serve as a leading inflation indicator: producers must pay more to suppliers; thus, the price of the final product is likely to grow.
The Commodity Research Bureau (CRB) Index acts as a representative indicator of today’s global commodity markets. It measures the aggregated price direction of various commodity sectors.
The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.’s most significant trading partners. The index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies.DEFINITIONS: EQUITIES
BofA Bull/Bear Indicator
The Bank of America Bull/Bear Indicator describes the opinion of analysts about where the market is trending on a scale from 1-10, with values less than 5 indicating a perceived bear market and values greater than 5 indicating a perceived bull market.
The Cboe Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 index (SPX). Volatility is often seen as a means to gauge market sentiment, and in particular the degree of fear among market participants.
As a measurement for potential investment risk in financial markets, the SKEW Index can be used as a proxy for investor sentiment and volatility.
CS Fear Barometer Index
The Credit Suisse Fear Barometer Index (CSFB) is a measure of the three-month skew in the S&P 500. A high CSFB reading signals high-cost protection relative to upside calls.DEFINITIONS: INTEREST RATES
Fed Funds Rate
The federal funds rate is the target interest rate set by the Federal Open Market Committee (FOMC) at which commercial banks borrow and lend their excess reserves to each other overnight. The federal funds rate can influence short-term rates on consumer loans and credit cards as well as impact the stock market.
2-Year Note Rate
The 2-Year Note Rate is the yield received for investing in a US government-issued treasury security that has a maturity of 2 years.
10-Year Note Rate
The 10-Year Note Rate is the yield received for investing in a US government-issued treasury security that has a maturity of 10 years.
30-Year Bond Rate
The 30-Year Bond Rate is the yield received for investing in a US government-issued bond that has a maturity of 30 years.
Yield Curve 2s/10s
The 2s/10s yield curve represents the difference between the 10-year US Treasury Note rate and the 2-year US Treasury Note rate. The 2s/10s curve is commonly used to forecast what Treasury Note rates may look like in the future.
30-Year Mortgage Rate
The 30 Year Mortgage Rate is the fixed interest rate that US home-buyers would pay if they were to take out a loan lasting 30 years.
10-Year German Bund
The 10-Year German Bund Rate is the yield received for investing in a German government-issued bond that has a maturity of 10 years.DEFINITIONS: CREDIT RISK
A Credit Spread
This data represents the Option-Adjusted Spread (OAS) of the ICE BofA Single-A US Corporate Index, tracking the performance of US dollar-denominated investment grade rated corporate debt publicly issued in the US domestic market. This subset includes all securities with a given investment grade rating of A.
BBB Credit Spread
This data represents the Option-Adjusted Spread (OAS) of the ICE BofA BBB US Corporate Index, tracking the performance of US dollar-denominated investment grade rated corporate debt publicly issued in the US domestic market. This subset includes all securities with a given investment grade rating BBB.
Junk Credit Spread
This data represents the ICE BofA US High Yield Index value, which tracks the performance of US dollar-denominated below investment grade rated corporate debt publicly issued in the US domestic market.
Muni/Treasury Ratio (10yr)
The Muni/Treasury ratio is a formula used to compare the rates of municipal bonds with U.S. Treasuries (with 10-year maturities) to help an investor decide which one represents a better investment. It uses indices from the Thomson-Reuters Municipal Market Data to evaluate ad compare the bonds' performance.
Muni/Treasury Ratio (30yr)
The muni-Treasury ratio is a formula used to compare the rates of municipal bonds with U.S. Treasuries (with 30-year maturities) to help an investor decide which one represents a better investment. It uses indices from the Thomson-Reuters Municipal Market Data to evaluate and compare the bonds' performance.
US Credit Card Delinquencies 30+
Credit card delinquency rates, as measured by the Federal Reserve Bank of New York for accounts that are 30 days or more late in making payments.DEFINITIONS: COMMODITIES
WTI Oil Price
The price per barrel of West Texas Intermediate (WTI) crude oil. WTI is the main oil benchmark for North America as it is sourced from the United States, primarily from Texas.
Brent Oil Price
The price per barrel of Brent blend, the second internationally recognized type of crude oil that is used as a benchmark for prices of crude oil. Brent blend is more than half of the crude oil traded internationally.
Natural Gas 12-month Strip Price
The price of a futures strip contract that is used to lock in a specific price for natural gas futures for a year (12 months). This is used as an indication of the direction of natural gas prices.
The price of gold has traditionally been seen as an indication of inflation, as gold functions as a good store of value (hedge) against a declining currency.
The price of copper is a good barometer for the overall strength of the global economy. Because of infrastructure demands, emerging markets are a key driver of copper prices.DEFINITIONS: LOGISTICS
FTR Active Truck Utilization
FTR Active Truck Utilization is a measurement of the tightness of trucking capacity. It measures the number of trucks needed by the market to move the current level of freight and compares that figure to the number of active trucks (in service, manned, and ready to run) that are available.
FTR Truck Loadings Index
FTR Truck Loadings Index is an estimate of total truckloads being moved in the U.S. This provides an estimate of the number of goods being transported by trucks.
Truck Rates less Fuel Surcharge Y/y
Truck Rates less Fuel Surcharge Y/y measures the current average cost of shipping freight using trucks while excluding the cost of fuel and comparing it to the same data point from the previous year. Omitting fuel in this case helps eliminate changes in shipping costs that are solely related to increasing fuel prices.
Baltic Dry Index
The Baltic Dry Index (BDI) measures the cost of shipping raw materials, such as iron, coal, cement, etc., around the world. The Baltic Dry Index is a leading indicator that provides a clear view of the global demand for commodities and raw materials.Sources:
investopedia.com, Bloomberg Terminal, forexformation.com, www.fuqua.duke.edu, www.businessroundtable.org, www.redfin.com, www.mql5.com, www.bea.gov, www.fred.stlouisfed.org, BofA Global Research, www.ycharts.com, merrilledge.com, www.nasdaq.com, www.ftrintel.com
Chief Investment Officer, Portfolio Manager
Ben arrived at Narwhal from a small investment firm in Eugene, Oregon, where he cut his teeth investing in individual stocks, bonds and derivatives. He earned the right to use the CFA designation in 2016, holds his Series 65 license and is a certified Financial Risk Manager. Ben received a bachelor’s degree in finance from the University of Washington and a MBA from Emory University's Goizueta Business School. In his free time, he plays competitive tennis, mentors for Mentoring for Leadership and is a frequent contributor to The Investing Podcast.
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