Richmond Fed Manufacturing Activity Deteriorated in April
The composite manufacturing index fell from -5 in March to -10 in April. Two of its three component indexes—shipments and new orders—declined. The shipments index dropped from 2 in March to -7 in April, while the new orders index fell from -11 to -20. The employment index, however, rose slightly from -5 in March to 0 in April.
The revenues and demand indexes fell to -23 and -11, respectively, from -17 and -1 in March. Future revenue and demand expectations also worsened, with the revenue expectations index falling to -5 and the index for demand expectations falling to -6. Further, the indexes for both current and expected local business conditions retreated deeper into negative territory.
Home Prices Rose in February for First Time Since June Case-Shiller index rises 0.2%, as buyers compete for limited number of homes for sale
On a year-over-year basis, the index rose 2% in February, down from a 3.7% annual rate the prior month. The annual increase was the smallest since July 2012.
After rising to 20-year highs last fall, mortgage rates declined in December and early this year, bringing some home buyers back into the market. The inventory of homes for sale also remained unusually low, keeping the market competitive in some parts of the country. Existing-home sales surged in February after declining for a year, according to the National Association of Realtors. (…)
The warm weather in January appears to have lifted housing activity, most probably bringing forward buyer interest from the Spring rather than creating a whole new set of buyers. Amidst a dearth of supply, this generated the first positive MoM house price index change since June 2022.
Meanwhile, new home sales jumped 9.6%MoM in March to 683,000 – well above the consensus prediction of 632,000. This is especially surprising given the steep decline in mortgage applications for home purchases. The historical relationship between the two series suggests that new home sales should be closer to 300,000 than 700,000. There isn’t a huge amount of evidence suggesting a sudden surge in all cash purchases, so we can only really rationalise it as a function of the lack of existing homes on the market for sale. This leaves potential buyers little option but to to buy newly constructed homes. (…)
In January 2022, borrowers could take out a $400,000 30Y fixed-rate mortgage and their monthly payment would be $1,750. Based on today’s US mortgage rates, if that person were to pay the same $1,750 monthly payment, they would typically only be able to borrow $280,000.
Moreover, with house price to income ratios above where we were at the peak of the 2006 housing bubble, the affordability metrics continue to point to downside risks for transactions and prices. (…)
TWO MOODS
I am not a big fan of consumer confidence surveys, merely coincident, but this chart from Ed Yardeni caught my attention (the dash line and black arrows are mine):
The Conference Board said its consumer confidence index fell to 101.3 in April, the lowest reading since July 2022, from 104.0 in March. Consumers’ assessment of current conditions improved, but their expectations worsened
Consumers’ pessimism about the future probably reflects their ongoing concerns about inflation and their new concerns about the banking crisis. On the other hand, their upbeat assessment of current conditions undoubtedly reflects the ongoing strength in the labor market. The percent of respondents agreeing that jobs are plentiful remained high at 46.4%, while only 11.1% agreed that jobs are hard to get. There’s no recession in those numbers.
Current conditions are among the best in 25 years while expectations are at lows. The spread is dangerous, for what that may be worth…
Friday we get consumer spending and PCE inflation data.
UPS said Tuesday that its domestic package volume was down 5.4% in the first quarter, compared with a year earlier — worse than Goldman Sachs’ estimate of a 3.3% decline.
Overall revenue fell 6% to $22.9 billion — and the company projected full-year revenue of $97 billion, marking the low end of its January guidance.
“Volume was higher than we expected in January, close to our plan in February and then moved significantly lower than our plan in March, as retail sales contracted, and we saw a shift in consumer spending,” CEO Carol Tome said on an earnings call.
“U.S. discretionary sales are lagging grocery and consumable sales, and disposable income is shifting away from goods to services,” Tome added.
- “So far, in April, it’s still early. It’s probably a little lower than it was for the month of March…the total spending year-over-year increases have slowed down. And I think that means it’s a precursor to the economy being a little bit slower than we’re seeing, and then frankly, consumers being more careful in the use of the cash.” – Bank of America ($BAC ) President of Global Commercial Banking Alastair Borthwick
Quants Are ‘Out of Ammo’ for Buying Stocks, Goldman Warns Rattled stock markets may have to live without a key source of buying power.
That’s the warning from Goldman Sachs Group Inc.’s Scott Rubner, whose data show systematic money managers have loaded up on more than $170 billion worth of global shares in the past month, driving the funds’ exposure to the highest level since early 2022.
Now, with their positioning near a peak, the group is more inclined to be sellers in coming weeks, according to the market veteran, who has studied flow of funds for two decades.
Trigger signals for commodity trading advisers — CTAs that surf the momentum of asset prices through long and short bets in the futures market — sit at levels including 4,130 on S&P 500, his model shows. The index dropped 65 points to 4,071.63 Tuesday.
“I am tactically bearish,” Rubner wrote in a note to clients Tuesday afternoon. “The buyers are out of ammo.”
From trend followers to traders who allocate assets based on volatility signals, quant funds would be forced to unwind as much as $276 billion of shares should the market sell off in the next month, according to Goldman’s model. However, thanks to their elevated exposure, they would only need to purchase up to $25 billion if a big rally takes hold during the same time frame. (…)
To be sure, big systemic traders are only one force in the market, albeit a large one. Tracking and predicting their impact on supply and demand dynamics is fertile ground for Wall Street analysis but is by its nature an imprecise science. (…)
One in five cars sold this year will be electric – IEA
Sales are expected to grow by 35% this year to reach 14 million, the report said, comprising 18% of the market – up from just 4% in 2020.
The shift from combustion engine to electric cars will reduce global demand for oil by at least five million barrels a day, according to the IEA’s projections.
Over half of electric cars on the road so far worldwide are in China, which also dominates global battery production and was responsible for 60% of electric car sales in 2022. (…)
In emerging and developing economies, two- or three-wheel electric vehicles outnumber cars. Over half of India’s three-wheeler registrations in 2022 were electric, according to the study.
Reproduced from IEA. (Includes fully electric and plug-in hybrid vehicles.) Chart: Axios Visuals
EARNINGS BEATS
Bloomberg’s Jonathan Levin:
In recent history, there’s been no observable relationship between the rate of positive earnings surprises and the performance of the S&P 500 during earnings season. As the scatter plot below shows, earnings can crush the artificially low earnings bar and hardly elicit any kind of immediate rally in the broad index, and vice versa. The graphic depicts a hazy cloud — not a relationship — and that’s precisely the point. It seems as though earnings beats have become managed into irrelevance.
Americans’ Support for Nuclear Energy Highest in a Decade
