Major stock indices ended the week lower, unable to sustain last week’s rally.  For the first half of 2022 the S&P 500 saw its worst half year drop since 1970.  The rate of growth in June, as measured by the IHS Markit PMI indices, fell in the U.S., the Eurozone and Japan.  While this slowing of growth likely will impact corporate earnings growth, it, also coupled with the stronger dollar, should help bring down inflation.  China went from contraction to growth in May as covid lockdowns were eased in parts of the country.  Canada ‘s growth accelerated, benefiting from strong energy demand.

Russia defaulted on its sovereign debt for the first time since 1918, mainly due to sanctions.  However, this is not expected to have much effect on the world economy. 

A report commissioned by OPEC showed that OPEC+ production is about 3MM barrels per day less than its target.  The miss is mainly due to Russia, Nigeria and Angola.  Libya’s oil production has fallen around 85% due to infighting.  The OPEC+ production target has been increased about 432,000 barrels per day, each month coming out of the pandemic and is planned to increase by 648,000 BPD in July and August.  Currently, Saudi Arabia and the UAE are the only OPEC+ members with spare capacity.  Iran and Venezuela are mostly offline due to sanctions.  Negotiators met this week with Iran for the first time since March in an attempt to revive the 2015 agreement to limit uranium enrichment in exchange for sanctions relief.  The State Department said Iran “raised issues wholly unrelated to the JCPOA and apparently is not ready to make a fundamental decision on whether it wants to revive the deal or bury it.”  Iran has expressed an interest in further meetings.

Treasury yields fell with the 30-year bond yield at 3.122% and the 10-Year note at 2.899%.  Mortgage rates fell with the 30-year mortgage rate ending at 5.81%.  U.S. crude oil rose to $108.44 a barrel and natural gas fell to $5.561 per MMBTUs.  The U.S. dollar index rose to 105.40.  Gold fell to $1799.90 an ounce.

In the economic numbers:

• Eurozone inflation hit 8.6% in the 12 months ending in June. 
• IHS Markit began releasing its manufacturing purchasing manager’s indices for June.  Keep in mind that anything over 50 represents expansion and under 50 represents contraction.
  • Canada’s PMI rose from 56.2 to 56.8.
  • China’s PMI rose from 48.1 in May to 51.7.
  • Eurozone’s PMI fell from 54.6 to 52.1.
  • Japan’s PMI fell from 53.2 to 52.7.
  • US’s PMI fell from 57.0 to 52.7.
• The  Commerce Department reported:
  • Durable goods orders rose 0.7% in the month of May, beating forecasts.
    • Non-defense capital goods, excluding aircraft rose 0.5%.  
  • Lowered the measure of personal spending growth in the first quarter from 3.1% to 1.8%.
  • The third estimate of Q1 gross domestic product was revised down to a 1.6% decline. 
    • Durable goods spending was revised down to 0.3% decline.
    • Non-durable goods spending was revised down to 3.7% decline.
  • In the month of May, seasonally adjusted consumer spending grew 0.2%. 
    • April’s consumer spending was revised down from 0.9% to 0.6% growth. 
  • Personal incomes rose 0.5% in May.  Adjusted for inflation personal incomes fell 0.1%.
  • The personal consumption expenditure price index rose 0.6% in the month of May and 6.3% from last May.
    • Core prices, excluding food and energy, rose 0.3% in May and 4.7% from a year earlier.
    • Goods prices rose 9.6%.
    • Services prices rose 4.7%.
  • The savings rate in May rose to 5.4% after a big drop in April.
• The S&P CoreLogic Case-Shiller Index, measure of home prices rose 20.4% in April from a year earlier, down from 20.6% year over year in March.
• The Labor Department reported:
  • Seasonally adjusted first time claims for unemployment fell to 231,000, down from a revised 233,000 in the prior week. 
  • The 4-week moving average of claims, designed to smooth out volatility, rose to 231,750.
  • For the full unemployment report go here:  https://www.dol.gov/ui/data.pdf .
• The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf .  Also, the EIA reported in the prior week:
  • Field production of crude oil rose from 12.1MM BPD to 12.2MM BPD.
  • Natural gas storage rose 82BN cubic feet and is below the 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs rose 1 to 595.  The number of active natural gas rigs fell 4 to 153.

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Loren C. Rex, CFP^®, MA                                                                     Erik A Smith, AIF®

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 These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.