It was a wild week in the markets with a huge rally the day before the FED announcement which was followed by three sharp down days on recession fears.  The FED increased the FED funds rate 0.5% to a range of 4.25% to 4.5%.  FED chair Powell endorsed the idea of smaller hikes going forward but said it has not been decided to do a 0.25% hike in the next meeting ended February 1^st.  The FED projected the peak rate between 5.0% and 5.5%.  This was up from the 4.6% peak forecast in September.

Business inventories increased due to improved supply chains and a shift in spending from goods to services while retail sales fell sharply in November.

The Eurozone, the U.K. Switzerland and Mexico central banks all raised their benchmark interest rate 0.5%. 

• The ECB said it would continue to raise rates from it’s now 2.0% level and would reduce it’s balance sheet by €15BN per month beginning in March.
• The Bank of England’s benchmark rate is now 3.5%. The BOE stated that it believed the U.K. was already in a recession that would last for a “prolonged period”.  Two of the nine members voted not to increase rates at this meeting.
• Mexico’s benchmark rate is now 10.5%.

China has pivoted away from zero covid and is expected eventually return to growth.  However, the rapid increase in infections will likely hurt China’s economy in the next few months.  While the rest of the world is trying to slow the economy to fight inflation, we will likely see stimulus in China.

Treasury bond yields fell with the 30-year bond at 3.545% and the 10-Year note at 3.489%.  30-year mortgage rates fell to 6.31%.  Crude oil rose to $74.50 a barrel and natural gas rose to $6.61 per MMBTUs.  The U.S. dollar index fell to 104.84 and gold fell to $1803 an ounce.

• The Commerce Department reported:
  • Retail sales fell 0.6% in November.
    • This follows a 1.3% increase in October.
    • Excluding autos, retail sales fell 0.2%.
    • Typical holiday items such as electronics, sporting goods and clothing fell.
    • Groceries, restaurants and healthcare spending rose.
    • Retail sales are not adjusted for inflation.
  • Business inventories rose 0.3% in October, following a 0.2% increase in September.
    • From a year earlier, business inventories have risen 16.5%.
    • The retail sector of business inventories fell 0.2%.
    • Motor vehicle inventories rose 0.5% following a 2.4% increase in September.
    • Wholesale inventories rose 0.5%.
• The Federal Reserve reported that total industrial production fell 0.2% in November.
  • Manufacturing fell 0.6% following a revised 0.3% gain in October.  This was the first decline since the beginning of the pandemic.
  • Utility production gained 3.6%.
  • Oil and gas drilling fell 0.7%.
• The Treasury reported that the monthly federal deficit hit a record $249BN last month.  Spending rose while tax revenue fell for the month.
• The Labor Department reported:
  • The consumer-price index rose only 0.1% in November and 7.1% from last November.
    • This was the slowest year over year pace since December 2021 and since inflation peaked at 9.1% in June.
    • Core CPI, excluding volatile food and energy, rose 0.2, down from 0.3% in October and rose 6.0% from a year earlier.
    • Energy prices fell 1.6% in November while food prices surged 0.5%.
    • Prices for used cars, car rentals and airfares fell.
  • Seasonally adjusted first-time claims for unemployment were 211,000, down from a revised 231,000 in the prior week.

• • • The 4-week moving average of claims, designed to smooth out volatility, was 227,250 down from a revised 230,250 in the prior week.
    • 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 fell from 12.2MM BPD to 12.1MM BPD.
  • Natural gas storage fell 50BN cubic feet and is about at 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs fell 5 to 620.  The number of active natural gas rigs rose 1 to 154.

Please call us if you have any questions.

Thank you,

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.