Economy

How Much Do Supply and Demand Drive Inflation? August 24, 2022

Posted by Steven Vannelli, CFA in Economy

This is the name of a recent research piece from the San Francisco Federal Reserve written by Adam Shapiro. The paper attempts to separate supply and demand factors to evaluate which is causing the elevated rate of inflation. The paper concludes that supply factors are…

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The Deus ex Machina Scenario August 19, 2022

Posted by Steven Vannelli, CFA in Economy, Markets, News

Given all the confusion in the world around COVID, supply chains, inflation dynamics and war, there are lots of potential externalities that could resolve themselves unexpectedly. We call this the Deus ex Machina scenario. Our analysis follows in our Mid-Quarter Update. Prefer to download this presentation…

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Chinese Devaluation Seems Likely August 16, 2022

Posted by Steven Vannelli, CFA in Economy

Over the weekend, we got a slew of data showing a generally weak economy. Below are the actual data compared with the expectations from Bloomberg. Of course, the headline grabber was the -31.4% drop in residential property sales, but across the board, from industrial production…

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Is the Japanese Yen’s Decline Over? July 26, 2022

Posted by Steven Vannelli, CFA in Economy, Markets

Since the COVID low in US Treasury rates and subsequent rise, the Japanese Yen has tracked the yield differential between the US and Japan. With the Federal Reserve having embarked on a rate hiking cycle, the monetary policy divergence between the US and Japan has…

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Cracking and Pivoting June 22, 2022

Posted by Steven Vannelli, CFA in Economy, News

The President today asked Congress for a gasoline tax holiday to alleviate the cost of gasoline and diesel in the country. This is not the solution. With the exception of a 200,000 barrel/day refinery in Garyville, Louisiana, built by Marathon Petroleum in July 2020, there…

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Divergences in the Energy Patch June 07, 2022

Posted by Steven Vannelli, CFA in Economy, Markets

Crude oil and energy equities have been on a tear for the last two years. But now we are seeing some divergences between oil prices and other related variables. First, as everyone knows, oil prices have been the main driver of rising bond yields this…

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An Inflection Point in the Labor Market? May 26, 2022

Posted by Steven Vannelli, CFA in Economy, News

As everyone knows, the labor market has been quite strong, with expectations for the unemployment rate to fall further next week. Much has been made of the relationship between job openings and unemployed people that are in the labor force. The ratio of job openings…

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Inflation, Growth, China and Financial Markets May 19, 2022

Posted by Steven Vannelli, CFA in Economy, Markets

All year inflation has been the narrative driving markets. Since December 2021, once the Bloomberg Commodity Index (BCOM) took off, rates have risen in tandem. But, interestingly enough the BCOM has been flat since peaking on March 8, 2022. Every day we seem to be…

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The Chinese Devaluation Continues May 11, 2022

Posted by Steven Vannelli, CFA in Economy, Markets

Just today, as US inflation came in a touch hotter than expected, the Chinese Yuan is pulling lower, testing the lows of May 9, 2022. The five-day rate of change is fairly extreme by anything we’ve seen over the last few years. The last time…

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Thoughts on Fed Meeting and Rest of Year May 04, 2022

Posted by Steven Vannelli, CFA in Economy, Markets, News

Today the Federal Open Market Committee raised the fed funds rate (upper bound) to 1% from 50bps. The most surprising element of the press conference was the Chairman dismissing that the committee is not “actively” considering a 75bps hike right now. This sent algos into…

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Navigating a Minefield April 12, 2022

Posted by Steven Vannelli, CFA in Economy, Markets, Portfolio Management

In this quarter’s strategy report, Navigating a Minefield, we discuss the following: -The Fed is tightening into a growth slowdown. Unlike in 2015, the Fed has just lifted off while the ISM Manufacturing is contracting and real GDP estimates for 2022 are steadily falling. If…

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China’s Potential to Alleviate Global Inflation April 07, 2022

Posted by Steven Vannelli, CFA in Economy

For a confluence of reasons ranging from COVID to property sector problems, China has been experiencing slower growth. Many cross-asset relationships suggest that a devaluation in China could help spur growth. Whether this will happen is another story, but if the Chinese Yuan began a…

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Is Powell’s Confidence Shared by the Rest of the FOMC? March 17, 2022

Posted by Steven Vannelli, CFA in Economy

While many commentators scratched their heads at the Fed’s latest summary of economic projections (SEP), the market took its cue from Chairman Powell’s suggestion the US economy can withstand a barrage of rate increases this year without negatively impacting growth. In addition to the SEP,…

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Is Inflation on the Cusp of Coming Down? February 09, 2022

Posted by Steven Vannelli, CFA in Economy, Markets

Tomorrow we get the consumer price index year-over-year for January, with expectations for 7.25%. This would take the CPI to a new high for the cycle, rising from 7% year-over-year from December. We would like to see the print undershoot and offer several reasons why…

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