Major stock indices ended the extremely volatile week lower.  The Federal Reserve met and raised short term interest rates by 0.5% to a range of 0.75% to 1.0%.  They also announced that they will begin to unwind their balance sheet of bonds in June.  In the news conference, FED Chairman Powell indicated that the FED would likely raise rates another half point at the June and July meetings.  This sparked a sharp rally Wednesday as the prospects of a 0.75% increase seem to be off the table.  Markets fell sharply the next day as the reality of a prolonged fight against inflation sank in.

The Bank of England rose interest rates for the fourth time with it’s key rate now at 1.0%.

Supply chain woes continue to limit growth and stoke inflation.  China’s strict lockdowns in Shanghai and Beijing hamper their ability to produce goods.  OPEC+, despite raising production targets each month, failed to increase actual production in April due to capacity constraints.  While Iraq increased production substantially, Libya and Nigeria production fell due to disruptions and lack of investment.  The shutdowns in China may have helped ease the demand for oil, but is also limiting the production of goods.  The European Union is moving towards a ban of imports of Russian crude oil within six months.  Two EU countries, Slovakia and Hungary, may be given until the end of 2023.

U.S. Treasury Series I bonds are now paying 9.62% through October.  The bonds have a zero percent base interest rate but are currently paying 9.62% based on the most recent inflation numbers.  That rate changes every six months.  This is a 30 year bond that cannot be redeemed for one year and for the first five years has a three month interest penalty if redeemed.  These can only be purchased through Treasurydirect.com where you can find full details.

Treasury yields rose sharply with the 30-year bond yield at 3.223% and the 10-Year note at 3.130%.  U.S. crude oil rose sharply to $110.59 a barrel and natural gas rose to $8.124 per MMBTUs.  The U.S. dollar index rose to 103.60, the highest against a basket of currencies since 2002.  Gold fell to $1883.10 an ounce.

In the economic numbers:

• IHS Markit is now part of S&P Global which released its monthly purchasing managers indices for April.  Keep in mind that anything over 50 represents expansion and anything under 50 represents contraction:
  • U.S. manufacturing PMI rose from 58.8 to 59.2.
  • U.S. services PMI fell from 58.0 to 55.6.
  • Mexico manufacturing PMI rose from 49.2 to 49.3.
  • Eurozone manufacturing PMI fell from 56.5 to 55.5.
  • Eurozone composite PMI rose from 54.9 to 55.8.
  • Japan manufacturing PMI fell from 54.1 to 53.5.
  • China manufacturing PMI fell from 48.1 to 46.0.
  • China services PMI fell from 42.0 to 36.2.
• The Commerce Department reported:
  • The trade deficit rose 22.3% in March.  The increase in imports was driven by demand for computers, vehicles and oil.

• The Labor Department reported:
  • Both job openings and job quits reached an all-time record in March.
    • Job openings were 11.5MM.
    • Job quits were 4.5MM.
  • The U.S. added 428,000 jobs in April.  The unemployment rate was unchanged at 3.6%.
  • Average hourly earnings rose 0.3% in April and 5.5% from last April.
  • First time claims for unemployment rose to 200,000, up from a revised 181,000 in the prior week. 
  • The 4-week moving average of claims, designed to smooth out volatility, rose to 188,000.
  • 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 was unchanged at 11.9MM BPD.
  • Natural gas storage rose 77BN cubic feet and is below the 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs rose 5 to 557.  The number of active natural gas rigs rose 2 to 146.
• Factset reported with 87% of S&P 500 companies reporting earnings, the weighted average earnings growth rate was 9.1%. 

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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.