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By Scott McIntyre
Co-Head of Investment Management
HilltopSecurities Asset Management
Producer prices reaccelerated in August, following two months of easing pressure. Although an expected rebound in energy prices drove the headline increase, several transportation-related components indicated energy costs were bleeding into the core. The details of this morning’s PPI release are significantly less important than the continued rise in crude oil and gasoline costs which suggest that September prices will be even higher.
Brent crude topped $105 this morning, while WTI moved briefly above $100 per barrel. AAA reported today’s average nationwide pump price at $4.28 per gallon, up sharply from $4.01 last week. The price of diesel continues to reach fresh highs, now at a record $5.98.
The European Central Bank, as expected, increased its overnight target by 25 bps early this morning to 2.50%. The second quarter-point increase since the war began was in direct response to the rise in inflationary pressure related to the ongoing conflict(s). The futures market indicates an additional 75 bps of tightening by the ECB over the next 12 months.
Here in the U.S., bond yields are higher once again with the 10-year Treasury note moving above 4.91%. With the exception of a brief period in 2023, it’s been over 19 years since the 10-year has traded at this lofty level. Although Freddie Mac has not released its average mortgage rates for this week, market movement suggests the 30-year fixed loan rate will be 10-15 bps higher. At the same time, the three-year Treasury yield moved above 4.62%, now up nearly 125 basis points since the war began in late February.
The overriding problem is that the conflict has extended well beyond the ambitious initial timeframe. With the situation escalating further in recent days, market participants are factoring-in a lengthier period of elevated prices and now believe the FOMC may be forced to hike next week. Even if tomorrow’s key CPI release somehow comes in cooler-than-expected, the Fed may have little choice but to defend its credibility and bend to the market.
About Scott McIntyre, CFA
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Scott McIntyre specializes in investment management services and is responsible for the management, oversight and trade supervision of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Scott also provides investment advice and consulting, reviews local government investment policies, formulates overall investment strategies, evaluates account performance and oversees the day-to-day operations. He is a member of the Chartered Financial Analyst (CFA) Institute and a CFA Charterholder, a two-term advisor to the GFOA Treasury and Investment Management (TIM) committee, a Registered Investment Advisor, and holds FINRA Series 7, 24, 63, and 65 licenses.
About Greg Warner, CTP
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Greg Warner specializes in investment management services and is responsible for the management and oversight of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Greg coordinates all client services and portfolio management duties, including security evaluation and portfolio analysis, trading, investment reporting, board presentations, and monitoring of broker-dealer relationships. He is an advisory committee member to the Texas Association of Counties, a member of the Government Treasurers’ Organization of Texas (GTOT), a Registered Investment Advisor, a Certified Treasury Professional (CTP) and holds FINRA Series 7, 63, and 65 licenses.
About Matt Harris, CFA
As HilltopSecurities Asset Management’s Senior Portfolio Advisor, Matt Harris specializes in investment management services for public sector municipal clients. He developed his experience in the banking industry, supporting balance sheet management, interest rate risk analysis, liquidity planning, and investment strategy implementation. At HilltopSecurities, he works closely with clients to develop and implement customized investment strategies, oversees account documentation and reporting, and assists clients with the public funds depository review process, including competitive RFP evaluations. Harris is a member of the CFA Institute and a CFA Charterholder, a Registered Investment Advisor, and holds FINRA Series 7, 63, and 66 licenses.
The paper/commentary was prepared by HilltopSecurities Asset Management (HSAM). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS and/or HSAM as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. and its affiliates. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. Sources available upon request.
HilltopSecurities Asset Management is an SEC-registered investment advisor. Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS and HSAM are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.