Monday Morning Minutes

After their review of markets (1:08), DoubleLine Portfolio Managers Jeff Mayberry and Samuel Lau discuss a seeming disconnect (6:49) between falling bond yields and rising stocks amid market-roiling bank news the week of March 13-17. In their review of the week’s macro news (9:28), Jeff notes inflation remains high, taking together the February consumer and producer price indexes. For their Topic of the Week (18:08), Jeff and Sam again look at the historical record of yield curve inversions as leading indicators of recessions. In particular, they analyze the lead times between the start of past inversions, their maximums and, post inversion, de-inversions versus the onset of recessions. Among upcoming macro developments (29:22), Jeff and Sam of course will be watching the Federal Reserve’s rate decision on Wednesday March 22 and guidance coming out of the Federal Open Market Committee and from Fed Chair Jerome Powell’s news conference. For more background on the yield curve, other leading indicators and recession dating, Jeff and Sam suggest listening to the following Monday Morning Minutes episodes in chronological order: Yield Curve: Episode 11, 4/16/21, Real and Nominal Yield Curve & Steepness - https://doubleline.com/markets-insights/mmm-recap-of-the-april-12-16-market-week/ Episode 52, 2/11/22, Yield Curve and Recessions - https://doubleline.com/markets-insights/mmm-episode-52/ Episode 59, 4/1/22, Real YC, Recession Indicator- https://doubleline.com/markets-insights/mmm-episode-59/ Episode 97, 1/6/23, 3mo 10y - It's Different This Time - https://doubleline.com/markets-insights/mmm-episode-97/ Other Recession Indicators: Episode 82, 9/7/22, Recession Indicators - https://doubleline.com/markets-insights/mmm-episode-82/ Episode 88, 10/21/22, NBER and Recessions - https://doubleline.com/markets-insights/mmm-episode-88/ Episode 98, 1/13/23, Recession Indicator Update - https://doubleline.com/markets-insights/mmm-episode-98/

Jeff Mayberry and Samuel Lau survey the March 6-10 week’s losses in stocks (2:01), risky credit (5:03) and commodities (5:26) and rallies in high-grade fixed income, as well as the week’s macro news (6:30). Then in the wake of two bank failures during the week, they explore the history of bank runs (12:21) and the takeover and disposition of failed insured institutions by the Federal Deposit Insurance Corp. Looking ahead to March 13-17 (33:54), Jeff and Sam will be on the lookout of the February Consumer Price Index (Tuesday), Producer Price Index and retail sales (both Wednesday) and the University of Michigan 5-10-year inflation expectations survey (Friday).

DoubleLine Portfolio Manager Jeff Mayberry and guest host Quantitative Analyst Eric Dhall March 3, 2023, examine the month of February, which reversed the January gains for stocks (2:17) and for bonds (4:35). Seeing a possible silver lining, Eric Dhall notes the volatility in bonds “is giving investors another opportunity” to lock in portfolio holdings at “these higher rate levels.” They next review macro news (9:25) for the week ended March 3, including evidence of the pressure of higher interest rates on the housing market and the message from fed funds future pricing regarding the expected peak rate in the fed funds. For the Topic of the Week (18:58), Jeff and Eric explain the construction and function of diffusion indexes, in particular, the PMI manufacturing and services surveys, and those surveys’ effectiveness in measuring economic strength and weakness. Looking ahead to the week of March 6-10 (29:01), they will be looking out for the JOLTS jobs survey (Wednesday March 8), initial jobless claims (Thursday) and nonfarm payrolls and labor force participation rate (Friday).

After reviewing a red week ended Feb. 24, 2023, for stocks (1:57), bonds (3:11) and commodities (4:39) and the week’s macro news (7:04), Jeff Mayberry and Samuel Lau look under the hood (15:07) at “Super Core Inflation,” Fed Chair Jerome Powell’s metric du jour for gauging consumer price inflation and presumably setting the federal funds interest rate. This metric tracks the subset consumer services prices remaining after stripping out housing. What’s left represents only about a quarter of the headline Consumer Price Index. Sam Lau opines that amounts to “a pretty small chunk of the inflation basket to guide monetary policy.” Giving the Fed the benefit of the doubt, Jeff Mayberry notes the central bankers have developed narratives around disinflation in goods prices and an outlook for cooling housing costs, but they have no disinflation for services ex-housing. Then Jeff and Sam list the macro news due the week of Feb. 27-March 3 (28:25). These include durable goods and the S&P CoreLogic Case-Shiller house price indices (Monday), consumer confidence (Wednesday), a Neel Kashkari speech and ISM manufacturing (Wednesday), a Christopher Waller speech (Thursday) and ISM services (Friday).

Jeff Mayberry and Samuel Lau review a red Feb. 13-17 week for stocks (1:55), bonds (3:28) and commodities (6:01) as well as the week’s macro news (6:01), including signs of slowing CPI disinflation and PPI prints well above expectations that jolted markets. Then for their Topic of the Week, Jeff and Sam investigate (15:26) congressionally mandated sales of crude oil from the Strategic Petroleum Reserve (SPR). A U.S. Department of Energy news release on Feb. 13 announced a forthcoming 26-million-barrel sale from the SPR. The communiqué stirred up a degree of angst in the commodity markets, although Sam and Jeff that explain the sale had already been voted by Congress. Looking ahead to the abbreviated market week of Feb. 21-24 (31:46), the Monday Morning Minutes hosts have on their radar the S&P Global manufacturing and services PMI surveys (due Tuesday), release of the minutes of the Feb. 1 meeting of the Federal Open Market Meeting (Wednesday), personal spending (Thursday) and the Personal Consumption Expenditure deflator (Friday).

After reviewing the very red markets week of Feb. 6-10, DoubleLine’s Jeff Mayberry and Sam Lau discuss changes to the U.S. Bureau of Labor Statistics’ methodology in calculating the Consumer Price Index (CPI) as The Topic of the Week (13:05). The first of two changes that will be in place for January’s print (coming out on Valentine’s Day this Tuesday) concerns a shift from using two years of data points to only one year of data points to compute CPI. Jeff notes this will mean a reliance on faster-moving data points, and he adds this change will mean that the first COVID-19 year of 2020 will be excluded from 2023 CPI prints. Both Jeff and Sam look forward to seeing how this change will be adapted into bullish and bearish readings of Tuesday’s CPI print. The second change concerns seasonality factor adjustments (20:03), which means that CPI prints from the first part of 2022 are now lower, and prints from the latter part of the year are higher. January’s positive performance was reversed in the first full week of February with red pretty much across the board (2:25). It was a light week in Macro Land (7:48), with jobless claims higher than expected, and University of Michigan inflation expectations flat. On the Fed front (9:05), Chair Jerome H. Powell offered some insight into the FOMC process in a sit-down interview, and two governors pushed a rates-higher-for-longer message. In addition to CPI, next week’s data prints will include producer prices and the Leading Economic Index (23:51). This episode was recorded after market close on Feb. 10, 2023. Go Rihanna!

DoubleLine Portfolio Manager Jeff Mayberry is joined on Monday Morning Minutes by Quantitative Analyst Eric Dhall to recap the market week of Jan. 30-Feb. 3 as well as January performance. But most important, the two break down the Federal Open Market Committee meeting and Fed Chair Jerome H. Powell’s press conference as the Topic of the Week (16:16). The hike of 25 bps didn’t impact the markets too much, note Jeff and Eric, who speculate that Powell’s dovish demeanor might have stoked optimism in contrast to a hawkish tone more apparent in the transcript of his speech. The two also run through Powell’s Q&A (19:47), with topics including how the Fed interprets financial conditions, the state of the disinflationary process, “super-core” inflation and housing services, and stop-and-go rate hikes. QT was actually brought up in a question about the debt ceiling, with Powell’s deft dodge of the subject drawing praise from Jeff (26:30). In their market coverage, Jeff and Eric run down a pretty volatile week that followed a pretty good January (1:45). In Macro Land (6:30), a rich week of data included negative housing and manufacturing prints alongside historically healthy labor market numbers, which could further complicate Fed moves in its inflation fight. Looking ahead (28:51), next week will be light on data, but a sit-down with Bloomberg News will provide Powell a chance to rewrite (if necessary) his FOMC remarks.

In addition to recapping market events for the week of Jan. 23-27, DoubleLine’s Jeff Mayberry and Sam Lau mark the 100th episode of Monday Morning Minutes expressing much gratitude to the listeners as well as the firm’s staff and resources that make the podcast possible (14:28). Jeff and Sam share some of their favorite Topics of the Week, including such diverse subjects as the Fed’s overnight reverse repo facility, preferred securities, the supplementary leverage ratio and the hosts’ favorite books. Many of the topics remain particularly pertinent to today’s market environment. For the market week, “the worst shall be first” continued to hold true in the first month of 2023, as consumer discretionary and consumer services, big laggards in 2022, have been strong performers in the equities sector (02:01). In fixed income (4:18), Treasuries were up across the curve while the worst-to-first baton was carried by emerging markets and investment grade corporate credit. Commodities were down for the week (7:23), gold was flat (8:19), and Bitcoin was basically flat for the week but way up on the year (8:36). Over in Macroland (9:15), Jeff and Sam review an LEI print that points to recession, contractionary PMI numbers (9:53) and PCE data that should make the Fed happy (12:06). Next week (32:27) will bring reports on home price appreciation and the labor market in addition to another FOMC press conference from Fed Chair Jerome H. Powell, which Jeff and Sam will break down in detail. Thanks again for supporting MMM through its first 100 episodes!

Jeff Mayberry and Samuel Lau review stocks (2:39), fixed income (5:09), commodities (7:14), macro news (8:54) and Fedspeak (11:42) for the week ended Jan. 20, 2023. Then for their Topic of the Week (16:15), they explore the measurement of food prices, including significant divergences between international and U.S. metrics measuring the cost of food. In their preview of economic data prints for the week of Jan. 23-27 (32:38), Jeff and Sam say they will be watching for the Leading Economic Index on Monday; the S&P Global manufacturing and services PMIs, Tuesday; fourth quarter U.S. GDP, Thursday; and especially the Federal Reserve’s favorite inflation gauge, the PCE Core Deflator, Friday.

After scoring a largely up week for stocks, fixed income, commodities and even Bitcoin, Jeff Mayberry and Samuel Lau, finding little in the way of market-moving news for Jan. 9-13, review a raft of inflation gauges (7:23), after the December CPI earlier in the week met expectations. Then they update their favorite recession indicators (14:47), which have worsened since their last review of these in September. Looking ahead to the holiday-abbreviated week of Jan. 17-20 (26:18), Jeff and Sam cast their gaze on retail sales, the December PPI and the Fed’s beige book release, due Wednesday; jobless claims, due Thursday; and scheduled Fedspeak events.