10-Year Treasury Yield
10-year Treasury yield jumps as investors bet there’s no recession ahead. U.S. Treasury yields climbed higher Thursday as investors digested the Federal Reserve’s decision to cut interest rates by 50 basis points on Wednesday. The yield on the 10-year Treasury was up nearly 4 basis points at 3.726%. The 2-year Treasury yield was around one basis point lower at 3.594%. Yields and prices have an inverted relationship. One basis point equals 0.01%.
Empire State Mfg Index
Factory activity in New York State has sprung to life this month, boasting its best reading in more than two years. New York Federal Reserve's Manufacturing index unexpectedly leap-frogged into positive territory for the first time since November, surging to 11.5 from August's contractive -4.7 reading. It marks the highest level since April 2022 and defied the -4.75 consensus. An Empire State reading above zero signifies monthly expansion.
Industrial Production
US manufacturing output rebounds in August. Production at U.S. factories surged in August amid a rebound in motor vehicle output, but data for the prior month was revised lower, suggesting that manufacturing continued to tread water. Factory output, manufacturing output increased 0.9% last month after a downwardly revised 0.7% drop in July, the Federal Reserve said on Tuesday. Economists polled by Reuters had forecast factory output would rise 0.3% after a previously reported 0.3% decline in July. Industrial production gets short-lived boost from cars, but U.S. manufacturers still depressed. Major part of the economy remains in a slump. Industrial production posted a bigger-than-expected increase in August, but most of the gain was tied to automobiles and there was little sign of a rebound in a depressed U.S. manufacturing sector. Output climbed 0.8% last month. Economists polled by the Wall Street Journal had forecast a 0.2% increase in production.
Retail Sales
U.S. retail sales unexpectedly rose in August as a decline in receipts at auto dealerships was more than offset by strength in online purchases, suggesting that the economy remained on solid footing through much of the third quarter. The report from the Commerce Department on Tuesday also showed retail sales were a bit stronger than initially thought in July. It combined with the decline in the unemployment rate last month to push against financial market expectations for a half-percentage-point interest rate cut from the Federal Reserve on Wednesday. U.S. central bank officials started a two-day policy meeting on Tuesday. Retail sales increased 0.1% last month after an upwardly revised 1.1% surge in July, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, falling 0.2% after a previously reported 1.0% jump in July. Estimates ranged from a 0.6% decline to a 0.6% gain.
Business Inventories
Manufacturing is nowhere near as weak as would normally be the case if the U.S. economy were in recession. Business inventories rise 0.4% M/M in July, in line with consensus. July Business Inventories increased +0.4% M/M, matching the consensus estimate, to $2,574.9B, increasing from the and +0.3% rise in June, according to U.S. Census Bureau data release on Tuesday. The combined value of distributive trade sales and manufacturers’ shipments for July.
Housing Market index
U.S. home builder confidence edged up in September as mortgage rates fell, breaking four months of consecutive declines, but remained at relatively low levels as rising costs continued to impede construction. The NAHB/Wells Fargo Housing Market Index of builder confidence rose to 41 this month from 39 in August, the National Association of Home Builders said on Tuesday. A Reuters poll showed economists expected the outlook to increase to 40 this month. It was the first positive view of future home sales since May. The Federal Reserve is set to begin a rate-cutting cycle at the conclusion of its policy meeting on Wednesday.
Geopolitical Risk
Fed rate cut has and the global economy. The U.S. Federal Reserve came out swinging on Wednesday when it cut U.S. interest rates by half a percentage point. But whether the central bank’s move is a hit, or a swing and a miss, remains to be seen. Global stock markets cheered the Fed’s decision.
MBA Purchase Applications
Total mortgage demand, composite index w/w, rose just 14.2% for the week, according to the MBA’s seasonally adjusted index. Applications for a mortgage to purchase a home, purchase index, rose 5.4% for the week. The Refinance Index increased 24.2% from the previous week
Housing Starts
U.S. single-family homebuilding rebounded sharply in August, but a moderate increase in building permits suggested that the momentum was unlikely to be sustained against the backdrop of rising supply of new homes on the market. The jump in single-family housing starts reported by the U.S. Commerce Department on Wednesday probably reflected the fading drag from Hurricane Beryl, which had depressed homebuilding in the South. Starts for housing projects with five units or more dropped 6.7% to a rate of 333,000 units in August. Overall housing starts jumped 9.6% to a rate of 1.356 million units. Economists polled by Reuters had forecast starts increasing to a rate of 1.310 million units. Housing starts rose 3.9% from a year ago.
Building Permits
Building permits as a whole advanced 4.9% to a rate of 1.475 million units. They dropped 6.5% from a year ago. Homebuilders could also face a challenge from increasing inventory of previously owned homes for sale, with the Federal Reserve cutting interest rates by 50 basis points on Wednesday, the first rate reduction since 2020. Most home owners have mortgage rates below 4%, and higher rates had deterred many from listing their houses. The so-called "rate lock" starved the housing market of supply, creating an opportunity for builders. Single-family housing starts, which account for the bulk of homebuilding, surged 15.8% to a seasonally adjusted annual rate of 992,000 units last month, the Commerce Department's Census Bureau said. Single-family starts rose 5.2% from a year ago. Permits for future construction of single-family housing increased 2.8% to a rate of 967,000 units. They were down 0.5% from a year ago. Single-family home building had dropped for five straight months after a surge in mortgage rates in spring curbed home sales, resulting in an oversupply of newly built houses.
Multi-family building permits shot up 8.4% to a rate of 451,000 units.
Oil - Commodity
Investors were more bearish than ever on crude oil last week, deepening a months-long selloff that pressured prices to multi-year lows amid growing concerns of weak demand in top consuming nations. Negative sentiment swept oil markets so strongly that short positions on Brent crude overtook long positions for the first time, data from the Intercontinental Exchange showed on Friday. Short positions - bets on lower prices - totaled 164,223 contracts, while long positions, or bets on higher prices, amounted to 151,543 contracts, the data showed.
FOMC Meeting #6
At its September meeting, the Federal Open Market Committee, decided to reduce the target range of its widely impactful federal funds rate. Changes to the Fed’s interest rate can influence the cost of loan products such as mortgages and the value of cash, bonds and stocks. The Federal Reserve’s decision to cut interest rate comes after months of shaky labor market data in the U.S. The unemployment rate stood at 4.2% in August 2024 with 7.1 million Americans without work, little changed from recent months. But the jobs picture had darkened notably from a year ago, when unemployment was 3.8%, with 6.3 million Americans looking for work.
Treasury International Capital - TIC
Treasury International Capital Data For July. The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for July 2024. The next release, which will report on data for August 2024, is scheduled for October 17, 2024. The sum total in July of all net foreign acquisitions of long-term securities, short-term U.S. securities, and banking flows was a net TIC inflow of $156.5 billion. Of this, net foreign private inflows were $141.8 billion, and net foreign official inflows were $14.7 billion. Foreign residents increased their holdings of long-term U.S. securities in July; their net purchases were $134.7 billion. Net purchases by private foreign investors were $162.0 billion, while sales by foreign official institutions were $27.3 billion. Net Long-Term Securities Transactions were $135.4 B from $96.1B prior.
The monthly data on holdings of long-term securities, as well as the monthly table on Major Foreign Holders of Treasury Securities, reflect foreign holdings of U.S. securities collected primarily on the basis of custodial data. These data help provide a window into foreign ownership of U.S. securities, but they cannot attribute holdings of U.S. securities with complete accuracy. For example, if a U.S. Treasury security purchased by a foreign resident is held in a custodial account in a third country, the true ownership of the security will not be reflected in the data. The custodial data will also not properly attribute U.S. Treasury securities managed by foreign private portfolio managers who invest on behalf of residents of other countries. In addition, foreign countries may hold dollars and other U.S. assets that are not captured in the TIC data. For these reasons, it is difficult to draw precise conclusions from TIC data about changes in the foreign holdings of U.S. financial assets by individual countries
Jobless Claims
The number of Americans filing new applications for unemployment benefits unexpectedly fell last week, suggesting job growth picked up in September. Initial claims for state unemployment benefits dropped 12,000 last week to a seasonally adjusted 219,000 for the week ended Sept. 14, the Labor Department said on Thursday. Economists polled by Reuters had forecast 230,000 claims for the latest week. The labor market has cooled considerably, with a big step-down in hiring and decrease in job openings, which have raised concerns of a deterioration in conditions that could undermine the economic expansion. Layoffs, however, remain low.
Philadelphia Fed Manufadcturing Index
Philly Fed manufacturing index unexpectedly turns positive. Manufacturing activity in the Philadelphia region unexpectedly expanded in September after contracting sharply the previous month, though current indicators for the industry still remain mixed. According to the Federal Reserve Bank of Philadelphia, the current general activity index for manufacturing jumped from a seven-month low of 7.0 in August to 1.7 last month, surpassing the -1.0 reading expected by economists.
Current Account
US current account deficit widens sharply in second quarter on imports. The U.S. current account deficit widened sharply in the second quarter, reaching its highest level in more than two years amid a surge in imports of goods. The Commerce Department's Bureau of Economic Analysis said on Thursday that the current account deficit, which measures the flow of goods, services and investments into and out of the country, increased $25.8 billion, or 10.7%, to $266.8 billion last quarter. That was the highest level since the first quarter of 2022. Economists polled by Reuters had forecast the current account deficit at $260.0 billion. The current account gap represented 3.7% of gross domestic product, the highest since the second quarter of 2022 and up from 3.4% in the first quarter. The deficit peaked at 6.3% of GDP in the fourth quarter of 2005. The large current account deficit has no impact on the dollar given its status as the reserve currency.
Existing Home Sales
US existing home sales drop in August; supply improves. U.S. existing home sales fell more than expected in August as house prices remained elevated despite a continued improvement in supply. Home sales fell 2.5% last month to a seasonally adjusted annual rate of 3.86 million units, the National Association of Realtors said on Thursday. Economists polled by Reuters had forecast home resales falling to a rate of 3.90 million units. The Federal Reserve on Wednesday cut interest rates by 50 basis points, the first reduction in borrowing costs since 2020. The move could see mortgage rates, which have retreated to 1-1/2-year lows, declining further. Lower mortgage rates could entice more homeowners to put their homes on the market, which could increase supply.
Leading Indicators LEI
U.S. economic growth faces further challenges, a monthly series of indicators said, as gloomy consumer expectations persist, despite more interest-rates cuts to support activity still to come. The Conference Board said Thursday that its Leading Economic Index, or LEI, fell 0.2% in August, almost matching the 0.3% decline expected by economists polled by The Wall Street Journal. The leading index has fallen for six months straight, although the rate of decline has moderated since last year, The Conference Board said. The decline, which signals headwinds to economic growth ahead, was driven by weakening new orders, which recorded its lowest value since May 2023, said Justyna Zabinska-La Monica, senior manager for business-cycle indicators at The Conference Board.
Fed Balance Sheet
Fed's Powell says balance sheet drawdown continues amid rate cuts. Federal Reserve Chair Jerome Powell said on Wednesday still strong levels of liquidity in the financial system will allow the central bank to press forward with shrinking its balance sheet even as it has begun cutting rates.
Mortgage Rates
Mortgage rates have retreated to 1-1/2-year lows. New housing supply is near levels last seen in early 2008, with the months' supply above the 2018-2019 average. The rise in supply has, however, been uneven, and affordability remains a constraint that will probably not ease with the reduction in mortgage rates. Mortgage finance agency Fannie Mae's Economic and Strategic Research group on Wednesday noted that most of the rise in homes for sale has been in the Sun Belt and Mountain West regions, which also experienced some of the strongest home price growth in recent years as well as robust new home construction.
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