Weekly Macro Minute

GuideStone Reflections

Then he [Boaz] said, “May the Lord bless you, my daughter. You have shown more kindness now than before… (Ruth 3:10, CSB)

We learned last week that Ruth the Moabite was given exclusive rights to glean in the fields of Boaz, a wealthy landowner and a kinsman of her mother-in-law, Naomi. Now, Naomi knew that the hand-to-mouth lifestyle of gleaning was no way for a young, single woman like Ruth to live. She also knew that Ruth and Boaz thought very highly of each other. So, she sent Ruth out in the dead of night after the harvest to propose marriage to Boaz in a most unusual manner. But why did Boaz say that her kindness then was greater than the kindness she had shown Naomi earlier? If you read the chapter, you’ll realize that Ruth had a lot at stake. For one thing, had Boaz been a lesser man, she could have been humiliated, shamed and driven from her new home. But she risked everything out of love for Naomi.

The Hebrew word translated as “kindness” is hesed, and it appears hundreds of times in the Old Testament. It doesn’t translate well into English, so some older Bible translations made up their own word to try to capture its meaning: “lovingkindness.” Hesed is a loyal, unfailing love that’s willing to give everything for the sake of the loved one. It can be a risky love because it’s always sacrificial. It’s the type of love at the heart of a covenantal relationship, like between a husband and wife. Or our God and His people. God demonstrated hesed to us by giving us everything He had, namely His Son.

One other thing: biblically, the recipients of hesed are then supposed to demonstrate it to others around them. This week, pray for the grace to live a life of hesed.

The story concludes next week…

In the Economy

On Wednesday, the Labor Department reported that the Consumer Price Index (“CPI”) rose 9.1% year-over-year, faster than all forecasts and the highest increase since 1981. Even though nearly half of the CPI increase can be attributed to energy prices – up 43% year-over-year – inflationary pressures are broad-based. Over two-thirds of the CPI elements rose above 5% year-over-year, and core inflation (CPI excluding food and energy) rose 0.7% month-over-month and 5.9% year-over-year. However, while inflation accelerated in June, rising 1.3% month-over-month, some economists point to inventory build-up, declining freight costs and falling commodity prices as signs that CPI data are stale, and inflation has already come off peak levels. Nevertheless, the Fed is behind the curve and still has a lot of work to do unless demand rapidly dries up. June retail sales surprised to the upside with a 1.0% gain in June, showing the resiliency of consumers thus far, although this amounts to a decline in real (inflation-adjusted) retail sales. Consumer sentiment remains severely depressed, but the University of Michigan sentiment measure rose slightly in July as five-year inflation expectations moderated to 2.8%, something in which the Fed can take some solace.

The CPI report, expected central bank action and the first major second-quarter corporate earnings releases drove market performance last week. Bears were back in the driver’s seat as U.S. equity markets finished lower. The S&P 500® Index had an intra-day plunge Thursday morning that sent it to its lowest level since June 22nd. However, the Index did rally through the rest of the week as markets quickly looked past a disappointing inflation print and found comfort in consumer data that surprised to the upside. The Treasury yield curve inversion remained intact and at one point grew to the largest spread since the dot-com crash of 2000, indicating the market is more worried about an impending recession than about inflation. Although a recession is not yet fully priced into markets, this shift in concern may be due to the Federal Reserve’s increased resolve to deal with inflation. Markets initially reacted to the CPI print by pricing in a 100-basis point increase for July. However, after some Federal Reserve members seemed to point toward a 75-basis point hike, markets quickly revised expectations downwards.

European stocks were generally lower on the week as recession fears rose in line with accelerating inflation and central bank tightening. Eurozone yields were lower as the markets feared that the Nord Stream 1 pipeline running from Russia to Germany – closed this week for maintenance – might not come back online as scheduled. In other words, markets are concerned that Russia could weaponize energy and use it as an opportunity to inflict significant economic harm in retaliation for sanctions. The U.S. dollar’s strength held against most major currencies, and the euro broke below parity for the first time in roughly 20 years. Japanese stocks rose on the week as the country continues to benefit from a very different set of economic conditions as inflation remains low. Chinese stocks fell on the week and economic data showed a significant cooling in growth with second quarter GDP up only 0.4%. Furthermore, the ongoing China property crisis showed signs of additional contagion, as a growing number of homebuyers refused to pay mortgages on at least 100 unfinished projects across 50 cities, which would further squeeze indebted developers. Lastly, COVID flareups and lockdowns remain a risk, and not just overseas, as some locales in the U.S. are once again contemplating mask mandates.

Across the Markets

• Last week, technology stocks were among the best performers, while energy stocks traded down on lower oil prices.
• WTI closed at its lowest level in a couple of months at under $98/bbl.
• The 2-year yield closed at 3.09%, while the 10-year fell 18 basis points to 2.92%.
• The Atlanta Fed’s GDPNow model estimate for U.S. real GDP growth for the second quarter of 2022 ticked down to -1.5% from the prior week.
• However, with the median consensus estimate at approximately 2%, it is not clear how accurate the indicator will prove to be this time.