The Federal Reserve met and raised the FED funds rate by 0.75%, the biggest increase since 1994.  The federal-funds rate is now between 1.5% and 1.75%.  All major indices ended the volatile week lower for the worst drop since March of 2020.

The European Central Bank held an emergency meeting to create a new tool to prevent fragmentation of the European Union.  The tool is intended to help the most indebted countries with borrowing costs as the ECB raises interest rates in general.  For example in Italy, 10-year government bond yields went above 4% early this week.  Specifically, when the ECB starts shrinking its balance sheet it may continue to reinvest the proceeds from maturing bonds in highly indebted countries to limit their interest costs.

The Bank of England met and raised short term rates by 0.25%, a more cautious trajectory than the U.S. Federal Reserve.  The U.K. key interest rate is now at 1.25%.

Japan’s Central Bank met and kept its key interest rate near zero citing a lower inflation rate in Japan of 2.5% in April from a year earlier.  Japan is also continuing to keep its 10-year government bond near 0.25%.  The ultra-low interest rates in Japan has weakened the Yen relative to other currencies.

China put Beijing back in lockdown after a cluster of Covid infections renewing fears of supply chain disruptions from China.

U.S. energy exports continue to climb due to low inventories and high prices worldwide.  According to the commodity intelligence firm, Kpler, exports of oil, diesel and jet fuel by ship have increased 32% in March, April and May from a year ago and is 11% higher from 2019.  Exports of natural gas including pipelines and LNG were up 22% in the same period.  Natural gas exports will be less in coming months due to an explosion at a Freeport LNG export terminal on June 8^th that is not expected to be operating again until late this year.

Treasury yields rose with the 30-year bond yield at 3.292% and the 10-Year note at 3.236%.  Mortgage rates rose with the 30-year mortgage rate ending at 6.02%.  U.S. crude oil rose to $110.48 a barrel and natural gas fell to $7.005 per MMBTUs.  The U.S. dollar index rose to 104.65.  Gold fell to $1841.60 an ounce.

In the economic numbers:

• China announced:
  • Industrial production in May rose only 0.7% from a year ago. 
  • Fixed asset investment rose 6.2% from a year ago.
  • Retail sales fell 6.7% from a year ago.
• The Federal Reserve reported that industrial output rose 0.2% in May, down sharply from a revised 1.4% gain in April.
  • Manufacturing output dropped 0.1%.
  • Mining output, including oil and gas rose 1.3%.
  • Utility output rose 1.0%.
• The Commerce Department reported:
  • Retail sales fell 0.3% in May, the first drop in five months.  
    • The drop was mainly due to a drop in new car sales as high prices, higher interest rates and low inventories hurt sales.
    • Excluding autos, retail sales rose 0.5%.
    • Excluding gasoline sales retail sales fell 0.7%.
    • Retail sales are not adjusted for inflation.
  • Housing starts fell 14.4% in May, the biggest drop in over a year.
    • Single-family starts fell 9.2%.
    • Multi-family starts fell 23.7%.
    • Building permits, an indicator of future starts fell 7%.
    • Housing completions rose 9.1% in May.
    • Despite the decrease in starts, builders still have a large backlog of homes to complete.

• The Labor Department reported:
  • The producer-price index rose 0.8% in May and 10.8% from a year ago.
    • The 0.8% rise was double the 0.4% in April.
    • Excluding volatile food, energy and trade, core producer prices rose 0.5% in May, up from 0.4% in April and up 6.8% from a year earlier.
  • Seasonally adjusted first time claims for unemployment fell to 229,000, down from a revised 232,000 in the prior week. 
  • The 4-week moving average of claims, designed to smooth out volatility, rose to 218,500.
  • 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 11.9MM BPD to 12.0MM BPD.
  • Natural gas storage rose 92BN cubic feet and is below the 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs rose 4 to 584.  The number of active natural gas rose 3 to 154.

Please call us if you have any questions.

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.