Signs of economic expansion emerge while Powell holds steady
Jobless claims and supply chains show signs of economic expansion while Powell holds steady.
Initial jobless claims released last week came in at their lowest level of the pandemic, falling to 684,000 from 781,000 the week prior. This resulted in a four-week average jobless claims number of 736,000, also a pandemic low. Household savings totaled $3.9 trillion at the start of 2021, up from $1.4 trillion in February 2020. This, alongside an updated vaccination goal from the Biden administration of 200 million shots within the first 100 days in office, continued to support the narrative that America is in the early stages of an economic expansion cycle.
Federal Reserve Chairman, Jerome Powell, last week commented on that sentiment while giving Senate testimony stating, “It seems that rates have responded to news about vaccination and ultimately about growth, and that has been an orderly process.” Mr. Powell also said he “would be concerned if it were not an orderly process or if conditions were to tighten to the point where they might threaten our recovery.” But he reiterated the view that recent increases have come from “extraordinarily low levels…back up toward a level that we’re more likely to see.”
This statement continues to echo the overall sentiment from the Fed that while the economy is poised for a strong recovery, reinvigorating the labor market will take time.
Certain areas of the economy have begun feeling the strain of increasing consumer demand, with manufacturers reporting lengthening delivery times for raw materials and an increase in input prices. This resulted in output rising at the slowest pace in five months, while new orders rose at their fastest pace in almost seven years. The key question on consumers’ minds is if this supply squeeze will trigger enough price pressure to prompt Fed action. Currently, the Fed has stated its intention is to hold short-term interest rates at the current levels through 2023 while Treasury yields continue an upward trend. The steepening of the yield curve, along with volatility in long-term rates, is prompting many corporates to evaluate pre-issuance hedging alternatives.
(Related insight: Register for the webinar, “Pre-issuance Hedging: Practitioners Share Insights on Why and How”)
Although efforts to free the container ship are progressing, the Suez Canal remains closed, with shipping experts warning the channel could remain blocked for days. Almost 10% of total seaborne oil trade and 8% of global liquefied natural gas (LNG) trade passes through the Suez Canal, according to data from the U.S. Energy Information Administration. Oil futures rose temporarily on news of the blockage, following prior losses earlier last week from concerns over rising European COVID-19 cases.
(Related insight: Read, “Using commodity collars to manage market volatility”)
The U.S. Bureau of Labor Statistics will release nonfarm payrolls on Friday, with many Americans expecting to receive another round of stimulus payments. Market participants will continue monitoring the economic recovery for signs of excess inflation while keeping an eye on Fed activity.
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.21-0089
Our featured insights
Intro to Hedge Accounting
Although complex, hedge accounting can be a very favorable accounting treatment for corporations considering hedging. During this session, our in-house hedge accounting experts will guide you through the basics of hedge accounting.
Intro to Hedging
Financial risk permeates through every corporation. Therefore, learning to identify, assess, and mitigate risk across various asset classes is crucial. In this session, explore how financial derivatives reduce risk and strengthen your hedging vocabulary.
Markets react to debt ceiling uncertainty, cooling home prices
U.S. markets ended last week on a turbulent note as Jerome Powell curbed rate expectations during a D.C. conference and debt ceiling talks abruptly halted. World leaders held the 49th G7 Summit as they shape potential international policy in relation to Russia and China. Median existing home...
- Post Date
- May 22, 2023
Inflation making its way down, markets remain opposed to Fed on future of rates
Inflation reached two-year lows in April, encouraging markets to maintain their stance that rate cuts are coming soon. Meanwhile, Fed officials have kept their options open on the path forward for rates for the rest of the year.
- Post Date
- May 15, 2023
Fed hikes rates while labor market surprises
On Wednesday, members of the FOMC unanimously raised the federal funds rate by 25 basis points to a target range of 5.00% - 5.25%. The labor market grabbed headlines with higher-than expected nonfarm and private payrolls, while recession fears weigh heavily on oil prices.
- Post Date
- May 8, 2023
Economic downturn lingers as data gives final signal for another Fed rate hike
Recent data shows a slowdown in the economy that will likely grow more evident in the next quarter. The cumulative effects of monetary tightening, dwindling business investment, a decline in consumer spending, tightening credit conditions, a looming debt ceiling, and a slowing labor market, only...
- Post Date
- May 1, 2023
U.S. credit default swaps hit highs as Tax Day passes
Tax collections could cause Janet Yellen to give a sooner-than-expected X-date, causing volatility in the T-bill market. China's GDP comes in higher than expected and European inflation remains high.
- Post Date
- Apr 24, 2023