After reviewing a mostly down market week of April 17-21, except for bank loans, DoubleLine Portfolio Managers Jeffrey Mayberry and Samuel Lau take a look at the Federal Reserve’s Overnight Reverse Repo Facility* at the behest of a listener (11:37), specifically, how does operating the facility benefit the Fed. Sam lays out how the facility supports the Fed’s monetary policy and how the facility works to maintain the range of the Fed’s effective federal funds rate. Sam also looks at whether the Fed could discontinue the facility, which he says right now would run counter to the Fed’s goals (23:33).

In their rundown of the week (2:29), Jeff and Sam report on a flat S&P 500, and a down week for fixed income (3:36), commodities (5:08) and Bitcoin (7:09). Over in Macro Land (7:25), they look at jobless claims, LEI data that says we are not headed toward a recession but are in one (8:37), and manufacturing and services PMI prints that were both expansionary for the first time since June (9:23) (and the stock market didn’t care). In their roundup of Fedspeak (10:13), officials all pointed to tightening. Next week’s data (30:49) will include home prices, the first GDP estimate, jobless claims and the PCE deflator.

*For more on how the facility operates, check out MMM Ep. 18, “The Purpose of the Fed’s Overnight Reverse Repo Facility”:
https://doubleline.com/markets-insights/mmm-episode-18/

Monday Morning Minutes

MMM Episode 112: Red Week, Recession Metrics and the Overnight Reverse Repo Facility

DoubleLine Portfolio Manager Samuel Lau and Quantitative Analyst Eric Dhall review the market week of April 8-12, for stocks (1:04) and fixed income (5:05). Both asset classes were stung by the April 10’s report of a hotter-than-expected consumer price index in the March, although bonds staged a partial comeback Friday on a safety trade driven by fears of an escalating conflict in the Middle East. Samuel Lau next covers commodities (10:19), which stayed in the green for the week. In the macro discussion for the week (12:29), Eric Dhall takes a look under the hood of the March CPI report. In particular, he notes some troubling data in the services sector, which accelerated from 0.35% month-over-month in February to 4% in March. Sam Lau surveys (26:43) the week’s Fedspeak and the declining probabilities price into the fed funds figures market for more than one rate cut in 2024. Looking ahead to the week of April 15-19 (30:55), Sam and Eric have their sights trained on retail sales (Monday); industrial production, capacity utilization and manufacturing production (Tuesday); the Fed’s Beige Book release (Wednesday); and jobless claims and the LEI (Thursday).

A Market Squeeze on Hotter Inflation, Falling Rate Cut Expectations (E161)

As DoubleLine Portfolio Managers Jeff Mayberry and Samuel Lau note in their survey of markets for the week ended April 19, both equities as tracked by the S&P 500 (0:52) and fixed income as tracked by the Bloomberg US Aggregate Bond Index (3:32) ended in the red while commodities (8:07) continued month-to-date to be a sanctuary of positive returns. In his review of the week’s macro prints and Fedspeak (10:22), Jeff takes issue with the Conference Board “kind of changing the goal posts” with regard to reading its Leading Economic Index. The LEI has been flashing recession ahead since July 2022. Looking ahead to the April 22-26 market week (19:05), the most important macro bogeys on Jeff and Sam’s radar are the advance estimate of 1Q2024 gross domestic product (Wednesday) and the Personal Consumption Expenditure Deflator (Friday).

Red Stocks and Bonds, Green Commodities (E162)

For the week ended April 26, 2024, DoubleLine Portfolio Managers Jeff Mayberry and Samuel Lau review equities (1:00), fixed income (3:25) and commodities (5:52) markets. Then they discuss the week’s macro news (6: 46), including more reports of sticky inflation and slower-than-expected growth as evidenced in the preliminary GDP estimate for 1Q2024. For their Topic of the Week (14:16), Sam and Jeff explain stagflation, concluding that this phenomenon so far is absent, but it behooves investors to be on the lookout for it if growth slows further amid stubborn inflation. Looking ahead to the April 29-May 3 macro calendar (23:48), they will be especially interested in the Treasury quarterly refunding Wednesday, which front runs the Federal Open Market Committee meeting the same day. While markets have priced in the FOMC standing pat on the federal funds rate, Jeff Mayberry will be watching Fed officials’ guidance on a possible tapering of quantitative tightening.

Looking Out for Stagflation, Slower QT and Tsy Refunding Hiccups (E163)

DoubleLine Portfolio Managers Jeff Mayberry and Samuel Lau review stock (0:57), bond (2:46) and commodity (5:40) markets for the week ended May 3, including notable volatility in equities and fixed income in the wake of inflation data, Fedspeak and jobs data. Then Jeff Mayberry walks through the week’s macro news (7:25), including data showing sticky inflation, accelerating house price appreciation and some progress in job openings and unemployed people moving closer toward balance. 

For their Topic of the Week (19:14), Jeff and Sam dissect the policy guidance coming out of the May 1 meeting of the Federal Open Market Committee and Fed Chair Jerome Powell’s news conference, including plans to taper the rate of Fed balance sheet roll-off. The week of May 6-10 offers a relatively light macro schedule (34:17). Among the data points to watch for are the Senior Loan Officer Opinion Survey on Bank Lending Practices (Monday) and, because Fed Chair Jerome Powell uses it, the University of Michigan’s survey of consumers’ inflation expectations (Friday).

Market-Moving Prints, Tapering QT and Powell’s Purple Tie (E164)

DoubleLine Portfolio Manager Samuel Lau and Quant Analyst Eric Dhall kick of their review of the May 6-10 market week combing through a green field of equities. The utilities sector is proving quite the player in 2024 while the leaders of recent previous quarters continue in their new roles as laggards. In fixed income (4:16), it was a mostly flat week for U.S. Treasury yields and the Agg. Commodities delivered for another week with gold continuing to flex (5:59). 

Over in Macro Land (7:11), a light week brought a tighter-for-longer narrative in the latest Senior Loan Officer Opinion Survey, leading Sam and Eric to discuss how different businesses are experiencing the current economy. The bears got some food this week from a spike in initial jobless claims (11:55), and the University of Michigan Consumer Sentiment Index provided some insight into the Wisdom of the Common Person in regard to inflation expectations (12:47). The week’s Fedspeak roundup tracks Fed officials maintaining the message on persistent inflation (16:19). Looking ahead to a week of inflation prints (20:34), including PPI and CPI, Sam and Eric will also be keeping an eye on retail sales, import prices and the LEI. This episode was recorded May 10, 2024, after market close.

Senior Loan Officers: Tighter for Longer (E165)

DoubleLine Portfolio Manager Jeffrey Mayberry and Quant Analyst Eric Dhall recap a green trifecta for equities, fixed income and commodities for the week of May 13-17, powered by the CPI report, the main macro story. The CPI print was loved by the market, which is anxious for any signs that support the Federal Reserve cutting interest rates. Macro Land coverage also includes the NFIB Small Business Optimism Index, the Producer Price Index, weakening retail sales numbers and higher import prices. Next week will be a pretty light week, including the release of Fed minutes for the April-May meeting, global manufacturing and services data, and a durable goods report.

For the Topic of the Week, Jeff & Eric look at the Federal Reserve Bank of Atlanta’s GDPNow print and discuss how it was recently revised higher despite a backdrop of weak economic data*. They discuss the components of the GDPNow print and its calculation, with Jeff & Eric noting that it is normal for the number to fluctuate before settling in.

*For more information on tools used to forecast GDP, check out Episode 14: Recap of the May 3-7, 2021, market week.

CPI Feeds a Green Trifecta (E166)

DoubleLine Portfolio Manager Samuel Lau and Quantitative Eric Dhall review a mixed showing the week ended May 24, 2024, for stocks (1:09), bonds (4:04) and commodities (5:47). Turning to macro news (6:57), they note May 1 FOMC minutes show befuddlement among Fed officials over the degree of restrictiveness that has been achieved by interest rate policy. Over the week, as the yield curve steepened, federal funds futures pricing shifted (14:18), indicating the odds of rate cuts in the remainder of 2024 fell from 1.8 cuts to 1.3. Looking ahead to the abbreviated market week of May 28-31 (15:06), Sam and Eric will be on the lookout for the S&P CoreLogic Case-Shiller house price index prints for the month of March, Conference Board Consumer Sentiment for May, the second estimate of first quarter GDP, personal income and spending, and Core PCE Price Index.

Mixed Markets, Befuddled Fed, Falling Rate-Cut Odds (E167)

DoubleLine Capital Portfolio Managers Jeff Mayberry and Samuel Lau review markets for the week ended May 31, including a rare case of utilities as the leading equities sector year-to-date (1:00), fixed income (7:32) and commodities (9:36). Then they turn to relatively benign readings (10:59) on the week’s macro indicators and an outlook for less than two federal funds rate cuts in 2024. Looking ahead to the week of June 3-7, Jeff and Sam will be on the lookout (17:36) among other macro prints for ISM manufacturing and services surveys for May (Monday), JOLTS job openings for April (Tuesday) and nonfarm payrolls and unemployment for May (Friday).

Market and Macro Roundup for May 28-31 (E168)

DoubleLine Portfolio Manager Jeff Mayberry and Macro Asset Allocation Analyst Mark Kimbrough cover the June 3-7 market week for stocks (0:31), on the way warning about naïve extrapolations of stock-split returns; bonds (2:42); and commodities (4:15), with energy diverging from otherwise weaker commodity prices. Mark Kimbrough turns to busy week for macro news (5:18), including strong payrolls vs. a weaker-than-expected household employment survey. Jeff Mayberry (12:50) reads futures pricing for the federal funds rate and takes note of retirements driving the drop in the labor force participation rate. Then they discuss what to watch out for the week of June 10-14, including a “high-vol day” on Wednesday (15:23) with the release of the May CPI just hours ahead of the Federal Open Market Committee meeting and Fed Chairman Powell’s news conference.

Awaiting a Wobbly Wednesday (E169)

DoubleLine Portfolio Managers Jeffrey Mayberry and Sam Lau cover the markets and macro news for the week of June 10-14, impacted as they were by the Topic of the Week: the June Federal Open Market Committee meeting and press conference by Federal Reserve Chair Jerome H. Powell (11:28). Jeff and Sam review the policy rates, which remained unchanged across the board; look at changes to the Fed’s QT-easing activity; and go through the Summary of Economic Projections (SEP), including the projected number of cuts to the federal funds rate in 2024 (17:37), which was down to one cut after the March SEP projected three. Jeff and Sam then talk about Chair Powell’s press conference, which did not provide a lot to talk about as Chair Powell navigated reporter questions and revealed no change in Fed policy (20:56). They do observe that the Fed’s rhetoric on rate activity leans toward cuts rather than hikes.

In their market review for the week, Jeff and Sam discuss a green equities market (01:09), a fixed income run that had the Bloomberg US Aggregate Bond Index inching into positive territory on the year (3:40) and commodities buoyed by strong WTI crude performance (5:02). In Macro Land, outside of the Fed events, they run down the latest inflation metrics (6:15). Next week (shortened by the June 19 Juneteenth federal holiday) will bring jobless claims, global PMI prints and an LEI update (29:36).

MMM Episode 112: Red Week, Recession Metrics and the Overnight Reverse Repo Facility

Monday Morning Minutes

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