Morning Report: Manufacturing continues to decelerate

Vital Statistics:

	Last	Change
S&P futures	3,638	37.25
Oil (WTI)	84.20	4.74
10 year government bond yield		3.70%
30 year fixed rate mortgage		6.72%

Stocks are higher this morning on no real news. Bonds and MBS are down.

There is a closed meeting of the Fed at 11:30 this morning. Supposedly about the discount rate, but it is odd. I am wondering if it concerns financial stress which has been triggered by Credit Suisse.

Credit Suisse’s stock has been hammered over the past few months as the bear market sets in and people worry about its credit risk. The CEO sent a memo over the weekend hoping to reassure employees, investors and counterparties over the bank’s risk. It doesn’t seem to have had the intended effect.

Credit Suisse and its issues are a long way away from the US mortgage market, however it is a good canary in the coal mine about overall financial stress. This is particularly important to non-QM lending, however it also can act as a yellow light for central banks. It is something to keep an eye on.

The week ahead will contain the jobs report, along with a slew of Fed-Speak. We will also get the ISM data and construction spending.

The manufacturing economy expanded in September, according to the ISM Manufacturing Index. That said, the expansion is the weakest since May of 2020. New Orders contracted, and employment plans seem to be getting put on hold. Prices are at the lowest level since June 2020.

“Manufacturing expanded for the 28th straight month. Panelists’ companies slowed hiring activity; month-over-month supplier delivery performance was the best since December 2019; prices growth slowed notably (with the index at 60 percent or lower) for the third consecutive month; and lead times continue to ease for capital equipment and production materials. Markedly absent from panelists’ comments was any large-scale mentioning of layoffs; this indicates companies are confident of near-term demand, so primary goals are managing medium-term head counts and supply chain inventories”

Construction spending fell 0.7% MOM but increased 8.5% YOY, according to the Census Bureau. Residential construction fell 1% MOM and is up 12.4% YOY.