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Compass Financial Advisors

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US Economy and Credit Markets Ended May 11, 2018

 Last week began with Treasury yields climbing higher as oil prices rallied above $70 a barrel for the first time since 2014. After President Trump withdrew the U.S. from the Iran nuclear deal, the prospect of new sanctions on oil exports led to concerns that the potentially reduced supply could intensify inflationary pressures and cause the Fed to hike rates more aggressively. On Wednesday, April PPI data came in below consensus, however the benchmark Treasury 10-yr note still closed above 3%. CPI data was released on Thursday and also showed softening prices in April, nudging down longer-dated Treasury yields. The consensus forecast was for a 0.3% increase; however, CPI rose only 0.2%. Average hourly earnings were unchanged in April and prices declined for new and used vehicles. Although producer and consumer prices were more muted than forecast, they are still rising at a healthy pace and the labor market continues to strengthen.  The Bloomberg implied probability of four rate hikes this year continues to increase and the 2-yr Treasury note yield is now above 2.5%, a level not seen since August of 2008. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: May Empire Manufacturing (15.0, 15.8), April Advance Retail Sales MoM (0.3%, 0.6%); Wednesday: May 11 MBA Mortgage Applications (N/A, -0.4%), April Housing Starts (1310k, 1319k), April Industrial Production MoM (0.6%, 0.5%); Thursday: May 12 Initial Jobless Claims (215k, 211k), April Leading Index (0.4%, 0.3%).

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Latest Market News

 Stocks fell for the week as investors grappled with higher bond yields, political risks around the globe, trade tensions and higher energy prices. The real estate and utilities sectors, which tend to be bond proxies due to their high dividend yields, lost over 2% for the week. By contrast, the materials and energy sectors posted the biggest gains as investors are starting to price in higher inflation expectations. In economic news, retail sales rose 0.3% in April, in-line with forecasts, as higher paychecks from tax-cuts offset rising fuel costs. In stock news, both Walmart Inc.

 Treasury prices dropped moderately over the course of the week on strong economic data and speculation that both the Federal Reserve and European Central Bank may raise interest rates more quickly than previously expected. On Tuesday, April Advance Retail Sales were solid while March sales figures were revised to 0.8%, and May Empire Manufacturing was higher than expected, causing a risk-on environment which led to a significant drop in Treasury prices. It was also reported on Tuesday that the U.S.

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Securities offered through Harbour Investments, Inc.,
member FINRA/SIPC. http://www.finra.org/
http://www.sipc.org/about-sipc

Investment Advisory Services offered through
Compass Financial Advisors, LLC,
a registered Advisor. 
Compass Financial Advisors, LLC &
Harbour Investments, Inc.
are separate entities.

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