10/13 - Weekly Economic Highlights

The US Treasury market rallied this week in a flight to quality move that resulted from the tragic events in the Middle East along with comments from Federal Reserve Open Market Committee (FOMC) members indicating that monetary policy is sufficiently restrictive, therefore they might be done raising short-term interest rates for now. The bond market also reacted to a few key datapoints concerning inflation and consumer sentiment that were released in this holiday-shortened week.

The Producer Price Index (PPI) for September came in hotter than expected with a 0.5% month-over-month increase but moderated from the previous months’ report. The September Consumer Price Index (CPI) rose 0.4% month-over-month and 3.7% year-over-year, slightly higher than expected. Gains in shelter (especially hotel) and energy (fuel oil, gasoline, and electricity) costs accounted for a large part of the monthly increase. The closely watched “supercore” inflation gauge that excludes the shelter, food and energy components of CPI also increased, up 0.6% in the month and 3.9% versus last year driven by the services sector, such as airfares and healthcare.

The University of Michigan Sentiment Index dropped to 63.0 in October from 68.1 in the prior month, well below the long-run average of 85. One-year inflation expectations jumped from 3.2% to 3.8%, and both current conditions and expectations fell as survey participants expressed concern about the impacts of elevated prices on their personal finances and standard of living.

Longer-term US Treasury yields fell this week, with the 10-year declining from 4.78% to 4.63% while the 2-year Treasury was little-changed at 5.06%, deepening the yield curve inversion between the 2-year and 10-year from 0.30% at the end of last week to about 0.43% as of this writing. Given the numerous headwinds in the market, Chandler recommends a disciplined approach, maintaining investment strategies at or near benchmark duration.

Empire Manufacturing, Retail Sales, Industrial Production, Housing Starts, Federal Reserve Beige Book, Existing Home Sales, Leading Economic Indicators (LEI)

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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.