Jun 16, 2021

Weekly Macro Balance Sheet

Weekly Macro Balance Sheet

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

On the employment side, weekly jobless claims are declining rapidly which is a good sign for the health of businesses because people are not being fired as much as they have been over the past few months. However, though the unemployment rate continues to decline, that decline remains slow compared to what we saw last year. The increase in labor force participation rate is encouraging, although it, too, is increasing at a slow pace. Ultimately, the first and last data points (Weekly Jobless Claims and JOLTS Job Openings, respectively) provide a fairly comprehensive overview of the employment sector. We see that jobless claims are decreasing, which tells us that less people are being fired on a weekly basis, and we see that job openings are increasing, which means that companies are finding it harder to find employees. Therefore, we see demand for labor is rising, which should help elevate employment and wages.

On the consumer spending side, there has been a lot of activity recently. In the past few weeks, there has been a slight decline in consumer spending, which is likely because the previous numbers were unusually high, so these numbers are not worth considering too heavily.

For investing, the numbers are encouraging overall. The increase in pending home sales has begun to decline; however, the price/list ratio continues to be high and accelerating rapidly, indicating that demand for homes continues to be at an all-time high, and, therefore, it can be implied that the supply of homes is still very weak. This weak supply is likely a result of lumber prices continuing to be high, which has halted the building of new houses. Capital spending optimism is also high, which is encouraging because it indicates that people are eager to invest in their own businesses. This combined with the CEO confidence and CFO Optimism also being high provides a favorable outlook for US investing futures.

Inflation, as we all know, continues to accelerate upward. All data points in the report are indicative of this rapid increase, except perhaps ISM prices on the manufacturing side, where inflation is accelerating slower than in other areas. This is not something to read into much for now, but rather something to keep an eye on in the future. The weakening US dollar is likely responsible for why inflation is increasing so rapidly; however, it is interesting to note that the market indicator for inflation (Fed 5-year inflation break-evens) is not increasing as rapidly compared to other indicators, and it may even begin to decline in the coming weeks. This also is worth keeping an eye on because it may be the most important indicator of inflation moving forward as the direction in which it continues to go will determine if the Fed will decide to raise interest rates or continue to keep them low.

In terms of equities, the Bull/Bear indicator has fallen over the past few months, which means that market sentiment is not particularly strong, even though equities continue to be high. This could indicate that there is pent-up demand for equities if we continue to see good news in the area.

Perhaps the biggest indicator of interest rates to watch is the Yield Curve 2s/10s, which is now has begun to decline slightly over the past three months as inflation expectations continue to climb. Interestingly, however, 30-year mortgage rates have remained steady, the German 10-year bund is still negative, and short-term interest rates are exceedingly low. Again, like inflation, this will be interesting to continue to watch, especially within the context of the Fed 5-year inflation break-evens.

People remain willing to take on significant credit risk due to the large supply of cash in the economy. US credit card delinquencies are very low, indicating that people paying back debt rapidly and not taking out much debt on their credit cards. Corporate bond spreads are low because they don't have high balances of debt.

On the commodities side, there are signs of continued inflation, particularly in oil prices and natural gas prices. Gold prices also continue to increase, and copper prices are fairly strong as well.

On the logistics side, trucks are continuing to be heavily utilized at capacity, and even though the Truck Loading Index has begun to decline slightly, it remains considerably high. Thus, truck rates continue to be high despite high oil prices, which should be interesting to watch within the context of supermarket prices.


DEFINITIONS: EMPLOYMENT

Weekly Jobless Claims

Unemployment Rate

Participation Rate

ISM Employment (Services)

ISM Employment (Manufacturing)

JOLTS Job Openings

DEFINITIONS: CONSUMER SPENDING

Monthly Retail Sales

Visa Credit Card Spending (Y/y)

Visa Debit Card Spending (Y/y)

TSA Screenings (Y/y)

DEFINITIONS: INVESTMENT

CFO Duke US Optimism Level

CEO Capital Spending Optimism

CEO Confidence

Redfin Pending Home Sales (Y/y)

Redfin Price/List Ratio

DEFINITIONS: INFLATION

CPI all-in (Y/y)

Core PCE

Fed 5 Year Inflation Break-evens

ISM Prices (Services)

ISM Prices (Manufacturing)

CRB Index

USD Index

DEFINITIONS: EQUITIES

BofA Bull/Bear Indicator

VIX

SKEW Index

CS Fear Barometer Index

DEFINITIONS: INTEREST RATES

Fed Funds Rate

2-Year Note Rate

10-Year Note Rate

30-Year Bond Rate

Yield Curve 2s/10s

30-Year Mortgage Rate

10-Year German Bund

DEFINITIONS: CREDIT RISK

A Credit Spread

BBB Credit Spread

Junk Credit Spread

Muni/Treasury Ratio (10yr)

Muni/Treasury Ratio (30yr)

US Credit Card Delinquencies 30+

DEFINITIONS: COMMODITIES

WTI Oil Price

Brent Oil Price

Natural Gas 12-month Strip Price

Gold Price

Copper Price

DEFINITIONS: LOGISTICS

FTR Active Truck Utilization

FTR Truck Loadings Index

Truck Rates less Fuel Surcharge Y/y

Baltic Dry Index

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

Benjamin Nye, CFA, FRM

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. 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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