5/30/16-6/3/16 Charts of the Week

After weeks of no significant news or economic reports, June 3rd provided a brief shock to financial markets following the release of the much anticipated Employment Situation report. We’ll get to that in just a moment, but first, there were a couple other interesting articles from last week that we wanted to share with our followers.

First, CNBC commented on a report released by Societe Generale describing various “Black Swan” events that could lead to declines in global financial markets. “Black Swans” are events that are typically unpredictable and can cause significant volatility in the global economy, stock markets, etc. These events included repricing of Federal Reserve expectations, the Chinese economy suffering a “hard landing,” and more. The article is well worth the read and we encourage readers to give it a look and some thought.

black swan

The second chart details the amount of US Treasury debt held by oil exporting nations since the mid 1970’s. While this sounds like a rather mundane topic, it certainly has relevance.

Bloomberg published an article that followed years of research and Freedom of Information Act requests about the relationship between the United States and Saudi Arabia from the mid 1970’s to present. For those that have not studied that era or lived through it, the 1970’s was rough for the US economy. Inflation was high, oil prices were through the roof, and economic growth was suffering.

According to Bloomberg’s research, it was at this time that the US government struck a deal with the Saudi government to buy US Treasury debt with their new found wealth, as US government bonds were perceived as the safest investment that one could buy. That agreement has been in place for some 40 years, but with oil prices cut in half in just the last year and revenues for oil exporting nations declining, there have been concerns that the Saudi government may be inclined to sell US Treasuries. If that happened, bond markets would surely be in for a shock, and bond prices would likely begin to fall.

oil exporter treasuries

The biggest news last week came from the Employment Situation report we mentioned earlier. The previous non-farm payroll report was revised down by 37,000, and the current report showed just 38,000 new jobs added, in stark contrast to the 158,000 that was expected. This weakness was interpreted by the markets as enough incentive for the Fed to kick the rate hike can down the road once again, which resulted in the US Dollar falling sharply…

dxy

The spot price of gold bullion revaluing significantly higher…

kitco

and the yield on 10 Year Treasury debt dropping…

US 10 Year

Treece Investments President Dock Treece has said many times that he believes the Fed will sing a hawkish tune all the way up until the FOMC meeting then decline to raise rates. We expect maybe 1 rate hike this year, if that, but the economy (outside of housing sales and auto sales) needs to improve significantly before that happens.

If you have questions on how a Fed rate hike may impact your portfolio, or the services that we can provide to personal investment accounts, IRAs and 401k solutions for businesses, feel free to reach out to us through our Contact Us page, consultations are free of charge.

 

Happy trading!

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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