The Market Today
New York Fed Report Shows Activity Remaining Strong Despite Delta
by Craig Dismuke, Dudley Carter
Following the NFIB’s Small Business Optimism Report, which showed a decline in economic expectations to one of the weakest levels on record, Goldman Sachs put out results of a separate survey that reflected a similar tone. According to Bloomberg’s analysis of the data, 75% of the 1,145 small businesses surveyed by the megabank a couple of weeks ago are worried about how rising virus cases may impact their business, while 86% are concerned about current inflation trends. In other virus-related news, Wells Fargo delayed its return-to-office plans again, pushing the date out to November 1. The Netherlands loosened some restrictions, Scotland said it would offer Pfizer shots to anyone 12 to 15 years old, and the U.K. announced it was moving forward with a plan to provide booster shots to anyone over the age of 50 starting next week.
TODAY’S ECONOMIC DATA
Mortgage Applications Improve on Strong Week for Purchase Apps: Mortgage applications rose 0.3% during the week ending September 10 on mixed results categorically and unchanged mortgage rates. Refi applications fell 3.2% WoW but purchase applications jumped 7.5%, the third-best weekly jump of the year. The four-week moving average for purchase applications is now up 5.1% over the past four weeks.
Empire Fed Shows Activity in Region Not Slowing for Delta: The New York Fed’s report on regional manufacturing activity in September jumped from 18.3 to 34.3, beating all economists’ projections and the far exceeding the consensus view that the index would decline. September’s index was the second highest level in 17 years, only surpassed by the July tally. Driving the headline index higher were increases in all five ISM-related components: new orders, shipments, delivery times, inventories, and employment. Also much stronger was the average employee workweek index which jumped from 8.9 to 24.3, its highest level in 17 years. The prices paid index remained very elevated, but inched lower for a fourth consecutive month.
Any Recovery in Auto Manufacturing?: Industrial production is expected to increase 0.5% MoM in the August report at 8:15 a.m. CT. Manufacturing production is expected to gain 0.4%. Of particular interest will be any gains in auto manufacturing, given the persistence of the slowdown caused by the chip shortage.
Longer Treasury Yields Tumbled after Softer Inflation Provided Some Taper Relief: Treasury yields had moved higher ahead of Tuesday’s U.S. session, with the 10-year yield up 2.0 bps at session highs ahead of the August CPI report. However, yields immediately turned lower after the BLS reported monthly changes for headline and core inflation that were less strong than expected. Despite some firmness in categories that may provide a firmer base for inflation, particularly rents, several of the pandemic-effected categories posted sizeable monthly price declines, including hotels, airfares, car rentals, and used cars. The Fed has held tightly to the belief that much of the recent strength behind the unusually high inflation readings will abate as the economy more fully reopens and dislocations in the supply chain and labor market ease. Markets appeared to presume softer August inflation may allow the Fed to take a more measured approach to tapering asset purchases. Although the 2-year yield drifted down just 0.6 bps to 0.21%, the 10-year yield tumbled 4.2 bps to 1.284%, up from a daily low of 1.26%. With the 2-year, 10-year spread flattening to its lowest level since August 24, financial stocks declined. However, equities’ troubles were broad-based and led by cyclically sensitive sectors. The S&P 500 ended down 0.6%, posting a daily decline for the sixth time in the last seven trading days.
Treasury Yields Had Added to Those Declines Early Wednesday as Foreign Equities Struggled: Hong Kong shares slumped on regulatory concerns and China’s CSI 300 slid 1% following weaker economic data. Analysts blamed virus restrictions amid regional outbreaks for the 2.5% YoY increase in retail sales in August, a large miss of the 7.0% gain expected. Industrial production and fixed investment also rose less than expected. The weaker data may have contributed to softer pricing in metals commodities and helped drag European stocks lower. Energy companies, however, posted strong gains and were among the few winners as oil prices continued to climb. Both Brent and U.S. WTI had added 1.3% earlier, with the latter trading above $71 a barrel at the highest level since July. U.S. crude inventories fell significantly more than expected last week according to an industry report. At 7:30 a.m. CT, U.S. equity index futures were little changed and the 10-year Treasury yield had declined 1.5 bps to 1.27%, a low since August 23. Contrary to softer U.S. inflation, responsible for the two-day drop in Treasury yields, U.K. inflation measures were hotter than expected, including a spike in YoY CPI from 2.0% to 3.2%, a nine-year high.