Stocks are higher this morning on no real news. Bonds and MBS are up small.
The bond market closes early ahead of the Memorial Day weekend. It should be a relatively dull day as most of the Street will be on the LIE by noon.
Kevin Warsh is set to take over the reins of the Fed today. Trump nominated him in hopes for lower rates, but the handicapping is that the next move is a hike, not a cut.
Housing starts fell 2.8% MOM to a seasonally adjusted annual rate of 1.47 million units. This was up 4.6% compared to a year ago. Building permits rose 4.8% MOM to 1.44 million. Despite higher rates, housing starts and building permits seem to be holding up.
We saw a big jump in multifamily starts, while single-family starts fell. We know builders are sitting on a lot of SFR inventory, so the drop in 1 units does make sense. Multi-fam starts had been declining for a while so this might just be a blip.
Business activity held up in May according the Flash S&P PMI. Manufacturing growth was at least partially attributable to stock-building due to the situation in Iran. Input costs rose at the fastest rate since 2022.
“The damaging economic impact from the war in the Middle East is becoming increasingly evident in the business surveys. The ‘flash’ PMI data for May recorded only modest growth of business activity as demand was again squeezed by a further spike in prices and jobs were cut as firms worried over rising costs and the economic outlook.
“Coming on the heels of a subdued April reading, the May PMI indicates that the economy will struggle to manage annualized GDP growth of much more than 1% in the second quarter. However, even this subdued pace of growth may not last. On average, over the past three months order book growth has slowed to its weakest for two years, and a boost from precautionary stock building due to concerns over further price hikes and supply delays will not last forever.
“Demand also looks set to cool further in response to rising prices. Firms’ costs have jumped higher at a pace not seen since the energy price shock of 2022 and are being passed on to customers in the form of sharply higher selling prices. The survey price gauges therefore indicate that inflation looks set to rise further just as the economy cools.”
