Economic data calendar
- June 26: Dallas Fed manufacturing index.
- June 27: Durable goods; FHFA house price index; S&P CoreLogic Case-Shiller home prices; new home sales; Conference Board consumer confidence; Richmond Fed manufacturing index and business conditions; Dallas Fed services activity.
- June 28: MBA mortgage applications; wholesale inventories; advance goods trade balance; retail inventories.
- June 29: Weekly jobless claims; gross domestic product report; pending home sales.
- June 30: Personal income and spending report, including PCE; MNI Chicago PMI; University of Michigan sentiment and inflation expectations.
There is a lot to watch out for here. Many of these announcements could move the markets, both bonds and equities, and some significantly. Moreover, the yield curve remains out of whack. The highest yield on the curve is now the six-month Bill at 5.39%. This is 165 basis points higher than the 10-year note, which closed on Friday at 3.74%.
In normal times, this would be an indication of a recession to come. I am not ruling out this possibility yet as the Fed steams on with two more likely rises in rates, which is impacting corporate borrowing in a significant manner. It is also having a major impact on any type of adjustable-rate loans which head higher with each new move made by the Fed.
I also point out that every corporate bond that matures, and has to be refinanced, will have a higher coupon than before – which will, in many cases, negatively impact both revenues and profits of many companies. In some cases, such as in high yield debt, it could even cause some bankruptcies as the corporation just cannot afford the higher yield. Consequently, in my view, there are substantial risks now in the lower grades of debt which should not be ignored.
All of this is the flip side to the Fed’s battle with inflation, which could have a major impact on the economy as borrowing costs head ever higher. This is the case across the board, and it is already having a major impact on the real estate market as rates grind ever higher while occupancy rates for buildings continue to be in the danger zone. The world has changed for work, and the economics of work have changed accordingly.
I am also expecting a good amount of volatility this week and in the weeks ahead. This will come not just from the economic reports but from the public appearances of the members of the Fed, as well as any new economic plans emanating from Congress. The debt ceiling issue may be resolved, but America’s debt to Gross Domestic Product (GDP) problem certainly is not resolved by any stretch of anyone’s imagination. Apart from that, we have the issues in Russia that could play out in ways that are unimaginable, at present, that could not only affect the world’s political standing but scare the markets as that story continues to unfold.
I continue to think that “income” is the best answer for some stability these days, as “plays for appreciation” have become a riskier gambit. Artificial Intelligence (AI) has been on a tear, but new regulations from Congress could change this sector dramatically. This is another sector where I see a great deal of volatility ahead.
Caution continues to be the byword of my faith, and I am sticking to that religiously.
Original Source: Author
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