Stocks are higher this morning as fighting pauses in the Middle East. Bonds and MBS are up.
The US and Iran have paused fighting to give peace talks “space.” Iran has been getting pressure from China to give diplomacy a chance. The Saudi military conducted strikes against Houthi rebels in Yemen after they started firing on Saudi tankers in the Red Sea.
The week ahead will be dominated by the FOMC decision on Wednesday. The markets are leaning towards no change in the Fed Funds rate, but that is no sure thing.
Aside from the rate decision we will get retail sales, and the personal incomes / outlays report which contains the PCE Price Index.
We will get earnings from Rithm Capital, Redwood Trust, Meta, Microsoft, Ares Capital, Apple, Amazon, Blue Owl, Exxon and Chevron.
New home sales fell 5.6% YOY to a seasonally adjusted annual rate of 628,000 units. This was up 1.8% from May. At the end of June there were 485,000 homes for sale, which represents 9.3 months worth of inventory. The median sales price was 398,300, a 3% decrease YOY. New homes remain cheaper than existing ones.
New default activity fell on a YOY basis, led by FHA loans. Overall delinquency rates rose modestly, in line with seasonal activity. Late stage delinquencies fell to a six-month low.
“Overall performance remained strong in June,” said Andy Walden, Head of Mortgage and Housing Market Research at ICE. “Early-stage delinquencies remain subdued, and while serious delinquencies including foreclosures have reached pre-pandemic levels, new default activity has leveled off in recent months — a positive sign. New FHA defaults, which have been a focal point of market attention, were down 15% year over year in June. These trends are encouraging, even as the market continues to warrant close monitoring.”
“High levels of homeowner equity continue to strengthen the market and help many distressed borrowers avoid foreclosure,” said Bob Hart, President of Mortgage Technology at ICE. “Still, early foreclosure activity bears watching, making timely data and proven servicing tools more important than ever. ICE’s McDash loan-level performance data is relied upon by many of the industry’s leading participants to monitor portfolio performance and model default risk, while our Loss Mitigation solution helps servicers improve borrower outcomes by executing workout strategies more efficiently while supporting compliance.”
Business activity hit an 8-month high in July according to the S&P Flash PMI. This was led by services, where activity hit an 8-month high, partially driven by the World Cup activity. Manufacturing fell, as supply chain disruptions and higher input prices dampened sentiment.
Input price inflation rose to the highest level since May 2025, driven by the Middle East. Selling prices also increased.
US businesses reported a good start to the third quarter, the ‘flash’ PMI survey data broadly consistent with GDP growing at an annualized 2.0% against a 1.2% pace signalled for the second quarter. The month saw an encouraging return to hiring by companies, with employment rising for the first time in three months.
However, some of this improvement may prove short lived as July saw hospitality spend boosted by the FIFA World Cup and USA 250 anniversary activities. It was also worrying – though not unexpected – to see manufacturing growth weaken as some of the stock building seen in prior months showed signs of fading. Instead, July saw a concerning intensification of supply chain delays and accompanying renewed upturn in price pressures, constraining growth and subduing demand.
Events over recent days in the Middle East will have only further exacerbated these supply chain and price worries and raise downside risks to the near-term outlook for the economy, hinting that July’s upturn may not be the start of an improving trend.
