Market Update: July 23, 2023

Nominal Rates & the Fed

Money market rates and capital market rates are doing marginally well. To the Fed, that provides ample justification for the next planned rate hike during Wednesday’s FOMC Meeting. Currently on FedWatch, the possibility of a rate pause disappeared entirely from the potential predictions. It’s an almost 100% guarantee that the Fed will implement another 25 basis point (bps) rate hike on Wednesday.

Total money market fund assets increased by $4.22 billion: retail increased by $7.21 billion and institutional fell by $2.99 billion. Outflows from the institutional side of money market funds reflect the inflows into bond funds. Much of these funds probably came from capital markets to take shelter, and now are flowing back into those markets again.

The July Jobs report will be released in less than two weeks and Jobs data plays a big role in measuring where we’re at in the recessionary timeline. Phase 1 consisted of rate hikes, but Phase 2 will be determined by jobs and how businesses (and workers) respond. If jobs remain positive, then income should remain level and consumer spending will likely continue. But if jobs take a downturn, then income will follow, and we may see some slowing in consumer spending. This second scenario would create the kind of environment necessary for the Fed to finally start considering rate cuts.


Real Rates, Federal Funds Rate, and TLT

Real rates have all dropped; breakeven rates have all increased.

Federal fund futures (FFF) continue their predictive trend of bottoming out in November, but they also price in at least one rate hike.

TLT, the major long-term bond ETF index, is up 0.43%.


Housing & OAS

The Primary Mortgage Market Survey shows 30-yr. Fixed Rate Mortgages (FRM) are down to 6.78% (down 18 bps from last week) and 15-yr. FRM are at 6.06% (down 24 bps from last week).

  • Mortgage applications are up 1.1%
  • Building permits are down 3.7% (month-over-month)
  • Housing starts are down 8% (month-over-month)
  • Existing home sales down 3.3% (month-over-month)

Home developers are down again this week, after their incredible run since the lows of October 2022. This may indicate a pressure on homebuilders now that rates may be slowing. Lowering rates will likely create competition for homebuilders with the existing home sales, which have remained low among the Fed’s rate hike campaign; and this makes sense because not many homeowners are willing to forfeit their 3% fixed rate mortgage only to jump into a mortgage priced in the high 6% range.


Canada & Japan

Canadian CPI reports released a week ago and came in less than the forecasted amounts:

Canada CPI

This data doesn’t reflect an environment that can tolerate another interest rate hike, so it’s likely the Bank of Canada will hold vs. another rate increase. The Canadian dollar should have weakened, but it didn’t.

Bank of Japan makes their own interest rate determination this Thursday. Japan’s inflation data came in mostly as expected, so no major changes are expected from this rate decision. We might expect further weakness on the Yen.



Freeport-McMoRan, a major mining company, reported earnings this week. During their conference call, their CEO said:

  • Fundamentals in global copper market remain positive
  • Global copper inventories remain remarkably low
  • Current demand for copper is much stronger than current economic data

Given the essential nature of copper in sectors like e-vehicles and housing, the demand for copper is only going to increase. However, the low inventory levels suggest price increases in the future. If anyone is interested in following this particular commodity, Meldrum suggests focusing on the miners rather than the commodity itself because miners have cash flows to offer dividends or buy back shares.


Leading Indicators

Leading Economic Indicators (LEI) provide early indications of where the economy is headed based on significant turning points in the business cycle. The Conference Board Leading Economic Index declined by 0.7% in June following a decline of 0.6% in May. Justyna Zabinska-La Monica, Senior Manager at the Conference Board said, “The US LEI fell again in June, fueled by gloomier consumer expectations, weaker new orders, an increased number of initial claims for unemployment, and a reduction in housing construction… The Leading Index has been in decline for fifteen months—the longest streak of consecutive decreases since 2007-08, during the runup to the Great Recession. Taken together, June’s data suggests economic activity will continue to decelerate in the months ahead. We forecast that the US economy is likely to be in recession from Q3 2023 to Q1 2024. Elevated prices, tighter monetary policy, harder-to-get credit, and reduced government spending are poised to dampen economic growth further.”


This newsletter is a synopsis of a continual series of updates by a market analyst Mark Meldrum. Mark Meldrum is a CFA that provides weekly updates on the market, but they tend to be an hour long. Here is a synopsis of his video found here.


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