The Weekly Wrap: August 29, 2022

Week in Review

Equities entered Friday morning relatively flat for the week, but then took a slide during Friday’s session. The S&P 500 index, Nasdaq Composite, and the Dow Jones Industrial Average all declined more than 4%. US Treasury yields rose for the fourth straight week, with the 10-year rate rising above 3% for the first time since July 21. The Dollar index rose again, closing at a new high for the year and the highest since 2002. Gold fell 0.5%, while crude oil reversed last week’s losses, gaining 2.5%. Bitcoin declined 5.2%.

Jerome Powell’s highly anticipated Jackson Hole speech was one of the shortest ever by a Federal Reserve Chairman. Powell used the time to reiterate that bringing inflation down to the Fed’s 2% target remains his highest priority. He acknowledged that rate hikes will cause some economic pain but committed to dampening demand. Powell repeated the size of September’s impending rate hike will be data dependent, but he warned against the risks of loosening policy to early and pushed back against markets’ pricing in of a rate cut in 2023.

Monitoring Macroeconomics

GDP has fallen for two consecutive quarters, satisfying a widely used rule of thumb for defining recessions, but we still don’t have confirmation of the downturn from the NBER, the nation’s official arbiter of recessions. Notably, 2Q GDP was revised significantly higher on the back of strong consumer spending.

Measures of inflation remain well above the Federal Reserve’s 2% target, but both CPI and PCE decelerated in the most recent month. Unemployment ticked to a new cycle low, despite recession fears, and consumer spending, measured by retail sales, remains robust.

What’s Ahead

We’ve got lots of jobs data this week, which will be in focus even more than normal as the Fed watches for signs of a slowing labor market. Job openings for July are released on Tuesday, ADP’s new employment report comes out on Wednesday, and second quarter unit labor costs and productivity come out on Thursday. It culminates with the BLS payrolls report on Friday morning. We’ll also get updates on home prices and consumer confidence (Tuesday) and the manufacturing sector with the release of PMI survey results (Thursday). Several FOMC members are slated to speak as well.

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