The Asset Guidance Group Monday Outlook for the Week Ahead Starting August 22, 2022

SaudiAramco
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Golden Bear
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U.S. Economic News:

The number of Americans filing for first-time unemployment benefits fell by just 2,000 last week to 250,000, indicating layoffs remain near historically low levels and the labor market remains robust.  Economists had expected new claims to total 260,000.  Most companies are still reporting difficulty finding enough skilled eligible workers to fill open positions.  Meanwhile, continuing claims, which counts the number of people already receiving benefits ticked up by 7,000 to 1.44 million.  That number remains near a 50-year low.  Economic adviser Stuart Hoffman of PNC Financial Services summed up the report succinctly writing, “The labor market remains in good shape.  However, the rise in initial claims since April is a cool breeze blowing at the hot labor market this summer.”

The National Association of Realtors (NAR) reported sales of existing homes fell for a sixth consecutive month in July, its weakest level of sales since May 2020.  Excluding the pandemic, the level of sales activity was its lowest since November 2015.  Compared with the same time last year, sales were down 20.2%.  As expected, prices moderated as well.  The median price of an existing home fell to $403,800.  Meanwhile, there’s currently a 3.3-month supply of homes available on the market.  Analysts generally consider a 6-month supply of homes a “balanced” housing market.  Sales declined across all regions of the country, but the West saw a “dramatic decline” in sales from a year ago of 30%.

Confidence among the nation’s homebuilders continued to pull back in August, its eighth consecutive month of declines.  The National Association of Home Builders (NAHB) reported its Home Builder Confidence Index fell to 49 this month.  Economists had expected a reading of 54.  The current reading is the first time since May of 2020 that the index fell below its break-even measure of 50.  At the same time last year, the index stood at 75.  All 3 gauges that make up the headline reading fell.  Current sales conditions fell by 7 points, while the component that tracks buyer traffic pulled back 5 points to 32—its lowest level since 2014 (outside of the pandemic).  The gauge that assesses sales expectations for the next six months fell by 2 points.  All regions posted a drop in builder confidence, with the West and Northeast leading the pack with 11-point and 9-point declines, respectively.  “Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” NAHB’s chief economist, Robert Dietz, said in a statement.

The number of new homes under construction fell -9.6% in July to 1.45 million–their lowest level since early 2021, the Commerce Department reported.  Economists had expected housing starts to drop to a 1.52 million rate.  On an annual basis, total housing starts fell -8.1% from this time last year.  Meanwhile, building permits, which analysts use as a guide for future building activity, fell 1.3% to 1.67 million.  This reading exceeded the consensus forecast of a 1.63 million decline.

Sales at U.S. retailers fell in July, but it wasn’t necessarily a negative for the U.S. economy.  Sales were down largely due to cheaper gasoline and fewer purchases of new cars and trucks.  Sales were stronger in other areas of the economy, a good sign that should help ease recession worries.  If auto and gasoline sales are set aside, sales actually rose a solid 0.7% in July.  Internet sales surged 2.7% helped by Amazon Prime Day.  Inflation did not play as big a role as in previous months.  The cost of living remained unchanged in July for the first time since May 2020, just two months after the start of the coronavirus pandemic.  Michael Pearce, senior U.S. economist at Capital Economics stated, “While overall retail sales were unchanged in July, the details were far more encouraging.”

Minutes from the Federal Reserve’s last meeting released this week showed the Fed plans to continue raising interest rates in to so-called “restrictive territory” to cool inflation and anchor consumers’ inflation expectations.  Then it hopes to take a break.  Central bankers remain alarmed over persistently high inflation and a “very tight” labor market, the minutes show.  As such, they anticipate having to raise the target range for the short-term interest rates beyond the “neutral” rate and toward a restrictive policy stance.  July’s 0.75 percentage point rate hike brought the federal-funds rate to a range of 2.25% to 2.5%.  Fed members also suggested that the pace of rate hikes and balance sheet shrinkage would be data dependent and that it likely would become appropriate at some point to slow the pace of tightening to assess the impact of policy changes on bringing down inflation. [1]

Random Thought/Image of the Week

If you’ve been wondering where all the extra money you’ve been spending to fill up your gas tank has been going, there’s a good bet at least some of it made it to Saudi Arabia’s energy behemoth Saudi Aramco.  Saudi Aramco isn’t just big, it’s huge.  It announced an eye-watering $48.4 billion in net income in the second quarter alone.  That’s 2.5 times Apple’s $19.4 billion, and exceeded the sum total of Apple, Microsoft, Meta/Facebook and Tesla combined! (Chart from chartr.co).

The Week Ahead

The Fed’s annual economic policy symposium starts Thursday in Jackson Hole.
Chair Powell is scheduled to speak Friday morning, which is also when another
inflation update arrives with the monthly Core PCE Price Index. Investors will be
looking for any additional clues as to the trajectory of future rate increases and
the Fed’s quantitative tightening efforts. August’s global flash PMIs will also be
in focus this week, with Tuesday’s figures offering updates on how weakening
demand and high inflation are impacting the manufacturing and services
sectors. The busy U.S. calendar also includes new and pending home sales,
durable goods orders, and personal income and spending numbers. Revised
accounts of Q2 GDP and consumer sentiment are not expected to deviate much
from initial readings. Overseas, business and consumer sentiment are on the
European docket, along with minutes from the last ECB meeting.  [2]

Chart of the Week: Golden Bear?

The previous three weeks were positive for gold futures (/GC), but this week everything  changed and might be  indicating pain for longs. Focusing on the long-term, with weekly candlesticks and a 50-week moving average, last
week’s price action is what often happens when it reaches a confluence of resistance levels. Notice how prior
support and the moving average converged this week, and price was firmly rejected. If gold continues to move lower, the next potential
support levels are near $1,675 and then all the way down to $1,450. The momentum may be building on the bearish side.

Click on the Chart to Enlarge. [3]

Sources: [1] Asset Guidance Group analysis, www.stockcharts.com; All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; [2] Data & chart from thehustle.com; [3] tdainstitutional.com; [4] stockcharts.com

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

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