Stocks are higher this morning as the tech sell off takes a breather. Bonds and MBS are up.
US business activity improved for the fifth straight month in June, according to S&P Flash PMI report. The initial decline in sentiment driven by the Iran War seems to be fading, and output is rising. That said, companies are cautious about hiring plans and increased prices remain a concern. Manufacturing improved more than services, however manufacturing employment is not keeping up.
“Brighter news out of the Middle East has helped restore some confidence among US businesses in June, though the overall rate of economic growth signalled by the flash PMI survey remains relatively sluggish compared to that seen earlier in the year in the lead up to the conflict. The survey signals that current output levels are consistent with the economy struggling to grow much faster than a 1% annualized rate in the second quarter.”
The comment about GDP growth is odd. The Atlanta Fed GDP Now Model sees 3% growth in Q2 and the consensus estimate for the Street overall is about 2.3%. A 1% projected growth rate out of S&P is an outlier.
Congress passed the ROAD Act on Tuesday, which sends the bill to Trump to sign. The bill’s main provision limits institutional ownership of single family rental houses, and aims to attach regulations which add to the cost of building a home. Will this help builders? Maybe. Most of the regulations which stymie homebuilders are local, which means the Federal Government can do little. Trump can tell New York to ease regulations until he is blue in the face, but that is about all he can do.
Homebuilder KB Home reported earnings that were in line with Street estimates, although the actual numbers were pretty dismal overall. Revenues fell 27% on a YOY basis (YOY is the only comparison that matters for builders), while deliveries fell 23%. Gross margins fell from 19.3% to 15.2% while average selling prices declined from $488,700 to $461,900. KB upped their guidance for the rest of the year, which cheered the Street somewhat. The stock is up about 4% pre-open.
Mortgage applications rose 1% last week as purchases fell 1% and refis increased 3%. “Mortgage rates changed little over the course of last week, despite the more hawkish tone from the FOMC at its June meeting,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Purchase application volume edged slightly lower, while refinance activity posted modest gains. Despite the elevated mortgage rates and overall economic uncertainty, mortgage application volume is running 8 percent above year-ago levels.”
